Chiquita loses $25 million, citing shipping costs, Central American drought
05/09/2014 8:23 AM
05/09/2014 5:08 PM
Persistent drought and shifting rainfall patterns led to banana shortages that battered Charlotte-based Chiquita Brands International in the first quarter, as the company swung from a $2 million profit last year to a $25 million loss, the company said Friday.
“You can decide to believe whatever you want to believe about climate change. The reality is there is less rainfall in Panama and Costa Rica,” Chiquita CEO Ed Lonergan told investors.
The company’s total sales fell 1.5 percent, to $762 million, compared with the same quarter last year.
“We did not meet our financial performance expectations,” Lonergan said. He said the company hopes that a pending merger with an Irish fruit company will strengthen its position.
With rainfall 70 percent below historic levels in some banana-growing areas, Chiquita is compensating by irrigating farmland it never had to irrigate in the past. Supply disruptions from salad-growing regions in California and the Southwest also are hurting the company.
Lonergan said Chiquita was forced to buy bananas on the more expensive banana “spot market” and move them via costly, higher-speed shipping in order to meet its contracts to supply bananas.
To boost results, Chiquita has been paring back its business to its core markets of bananas and salads. The company is also shrinking the size of its salad packages – from 11 ounces to 10 ounces, for example – and boosting its salad prices by 30 cents per case.
In March, Chiquita and Irish fruit company Fyffes announced a plan to merge in an all-stock deal that would create the world’s largest banana company, with annual sales of $4.6 billion. The deal would give Chiquita shareholders slightly more than 50 percent of the combined company and give Fyffes shareholders a 38 percent premium to the company’s share price.
Lonergan said Friday that combining with Fyffes would help Chiquita cope with problems such as those experienced in the first quarter, because of the combined company’s greater reach and diversification. Fyffes has more shipping options and tropical fruits in its portfolio, so that could help balance banana disruptions.
Chiquita and Fyffes plan to close their deal by the end of the year, pending approval by shareholders and regulators. In the first quarter, Chiquita spent $6 million on expenses related to the merger.
Sales of bananas – the biggest part of Chiquita’s revenue – fell less than 1 percent in the first quarter, to $502 million. Banana profits were down by a third, to $21 million, compared with the same quarter last year.
The salads and healthy snacks segment did worse, with sales dropping 4 percent, to $230 million. Lower sales of “foodservice veggie ingredients,” apples and other fruits were to blame, Chiquita said. The salads segment lost $3 million in the quarter, compared with a $7 million profit last year.
In contrast, first quarter sales rose 7 percent, to $982 million, at Fresh Del Monte Produce Inc., another major banana seller. The company’s profits rose 41 percent, to $59 million.
Lonergan said he is optimistic that the worst of Chiquita’s weather-related problems are behind the company.
“We believe the broader banana market has stabilized,” he said.
In 2011, Chiquita decided to relocate from Cincinnati to Charlotte, lured in part by $22 million worth of state and local incentives. The company said it would bring more than 400 jobs and keep its global headquarters in Charlotte for at least 10 years.
While hundreds of jobs are expected to stay in Charlotte, the CEO and several other top executives will be based in Dublin, Ireland, where Fyffes is located. ChiquitaFyffes will be an Irish company.
On Friday, Chiquita’s stock fell 3 percent, or 31 cents, to $10.81 a share.
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