Chiquita profits slump as market challenges continue

By Lorraine Heller

- Last updated on GMT

Related tags North america United states

Banana supplier Chiquita has reported a tough third quarter, with
profits hard hit by new EU import regulations, irregular weather
conditions and concerns about the safety of fresh spinach.

As a result, the firm revealed a $96m net loss for the quarter ended September 30 2006.

According to the firm's chairman and chief executive officer Fernando Aguirre, the quarter results were "disappointing and worse than expected".

Profits were hit by a $43m noncash charge for goodwill impairment at Atlanta AG, the firm's German distributor. This was due to a decline in its business performance resulting primarily from intense pricing pressure in Germany, said Aguirre.

Performance was also impacted by high temperatures in Europe during the third quarter, which reduced consumer demand for bananas and depressed prices. Hot weather also contributed to significant price weakness in trading markets, where the firm incurred "substantial losses"​ on the sale of temporary excess supply from Latin America.

In addition, Chiquita's packaged salad business Fresh Express experienced lower sales and unforeseen costs as of September due to consumer concerns regarding the safety of fresh spinach in the US, after the recent e coli outbreak.

The firm also continued to face pressures from new EU banana import rules, which imposed a higher tariff on bananas imported form Latin America Chiquita's primary source of bananas. However, Aguirre remained confident that the company could regain ground in the European market.

"While the banana market dynamics in Europe have been more difficult than expected, we continue to sustain our leadership position in the premium quality segment and believe we are well-positioned to win in this market in the long-term,"​ he said.

Company net sales in the third quarter were $1bn, up 8 percent from $954m in the third quarter 2005. The increase resulted primarily from increased banana volume in Europe, higher banana pricing in North America and increased sales in retail value-added salads. These were partly offset by lower banana pricing in Europe, said the firm.

Net sales in the company's banana segment were $444m, up 8 percent from $411m. The operating loss for the segment was $43m, compared to operating income of $17m in the prior year.

"Looking ahead to the fourth quarter, we anticipate better banana pricing in Europe along with improvement in several factors that negatively impacted third quarter results, such as unseasonably hot weather and temporary excess supply,"​ said Aguirre.

"While European banana prices remain under pressure, we believe certain of our challenges in the third quarter were unusual, and we remain focused on driving profitable growth in each of our operations. Most importantly, we are confident in our ability to manage through this challenging period and remain on-track to achieve our long-term vision to be a consumer-driven leader in branded, healthy, fresh foods,"​ he added.

Last month the company announced a number of organizational changes and new appointments in a move designed to strengthen its flagging business. These included the naming of newly appointed global product leaders, a chief information officer and a new president of its Fresh North America business.

The move came just weeks after Chiquita embarked on a number of debt-reducing initiatives, including the prospective sale of its shipping fleet, the suspension of its quarterly cash dividend, and requesting a temporary waiver from its lenders.

These moves, Chiquita had said, were "prudent steps"​ to help it resurface from a challenging market environment.

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