Wars in the Middle East, startup costs at a new Midwest salad plant and bad weather in growing areas for leafy greens combined to push Charlotte-based Chiquita Brands International’s far-flung businesses to an $18 million loss in the third quarter.
Still, that’s an improvement from the same quarter last year, when Chiquita posted a loss of $67 million. CEO Ed Lonergan said the company is seeing benefits from its turnaround strategy of focusing on its banana and salad business while reducing costs and eliminating business lines that were “distractions,” such as avocados.
“Chiquita is a different company today than it was a year ago,” said Lonergan, on a conference call with investors Thursday.
Chiquita’s sales rose about 1 percent, to $723 million for the quarter. Selling, general and administrative expenses were down 13 percent compared with a year ago, at $61 million.
But Lonergan warned of challenging conditions in the fourth quarter that will likely hurt results. There’s a banana oversupply pushing down prices in Europe, and salad farms face “unfavorable growing conditions” that will raise costs and hurt yields for Chiquita’s growers.
Investors reacted skittishly: Chiquita’s stock fell 7.7 percent, or 78 cents, to $9.41 a share on Thursday.
“The strategic changes Chiquita has made over the past year will enable the company to better withstand the market conditions that we will face for the balance of the year,” Lonergan said.
The nature of the company’s various challenges reflects the global scale of its business.
Banana demand typically falls in the second half of the year, Lonergan said, as “competing fruits” – think apples, for example – come into season.
But this year’s excess supply situation is worse, Lonergan said. The company usually turns to the Middle East as a market to unload those extra bananas as Americans and Europeans eat their seasonal fruits. But the wars and uncertainty wracking much of the region mean that’s not an option.
“Syria, Egypt and Libya have been less reliable outlets this year, forcing more fruit into the remaining markets,” said Lonergan. And farms in Ecuador and Central America are producing more bananas this year.
Chiquita sold 18.1 million 40-pound boxes of bananas in North America during the quarter, up 11 percent from last year. But in Europe, the number of 40-pound boxes sold dropped 15.6 percent, to 11 million. Overall, banana sales were up 2.2 percent, to $458 million.
The company reaped an operating profit of $18 million from its banana sales.
In its salads and healthy snacks segment, Chiquita said sales were flat, down less than 1 percent to $239 million. Bagged salad sales were up 7 percent, to 1 million cases, but costs from opening a new salad processing facility in Illinois brought the company’s profit down.
Chiquita also is investing more in “over-planting” – planting more crops than it needs for its salad business – in anticipation of losing some acres of crops to poor or extreme weather. For example, Lonergan said a hailstorm near Denver this year cost it salad ingredients.
Having more acres than is needed gives the company a backup supply, and Lonergan said that’s cheaper than rushing to buy more crops from other growers at the last minute to make up for a shortfall.
Chiquita recorded an operating loss of $5 million for its salad business in the third quarter. Lonergan said that although the salad business is improving, the company’s plants remain underutilized.
In response, Chiquita said it is working to increase its salad sales. The company has partnered with supermarkets to take their customer loyalty program data and find “heavy users” of bagged salads it can target to increase salad sales.
Lonergan said Americans eat an average of 35 salads a year, which he called a “woefully small” number. Targeting the “heavy users” and getting them to buy more bagged salads is a more effective strategy to sell more, Lonergan said, compared with “trying to convince all the people in the U.S. to eat more salads.”
Portillo: 704-358-5041 On Twitter @ESPortillo
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