Fruit Is Far From Chiquita's Tree

Tag : fresh bananas


Chiquita Brands International was among the New York Stock Exchange's biggest losers Monday, as bad weather and rising costs are peeling away at its profits. Some of that cost has passed along to consumers, exacerbated by a dearth of fruit supply due to bad weather in Latin America.

On Monday, Chiquita Brands International (nyse: CQB - news - people ), marketer and distributor of bananas and other fresh produce, said it expects a "significant loss" in the third quarter on rising costs and poor weather, sending its shares sliding.

Stock in the Cincinnati-based company plunged 28.6%, or $6.68, to close at $16.65, in Monday trading in New York. The stock rebounded 20 cents to $6.85 in after-hours trading.

The fruit producer reported increases in banana prices in all regions during April and May, but lower volumes in North American and Europe.

"We are pleased that banana pricing remains favorable as we continue working to offset higher industry costs," said Chief Executive Fernando Aguirre. "At the same time, banana volumes remain flat to down, reflecting industry-wide supply constraints due to a series of adverse weather condition throughout Central America and Ecuador that have substantially raised the cost of sourcing high-quality fruit."

Aguirre added that strong full-year performance is expected, pulled by first-half results, but the third quarter will reflect a deep loss, followed by a "more normal fourth quarter."

Supply cost guidance rose $60 million to $65 million, or about a quarter, in 2008, Chiquita said, due to market fuel prices, raw products such as bananas and lettuce, and market fertilizer prices. The new forecast now totals $240 million to $265 million.

Pricing in the company's European market has begun to moderate while industry and product supply costs have increased substantially, Chiquita said. Volumes were flat to down, partly because of weather-related supply constraints in Central America and Ecuador. Adverse weather increased costs, the company added.

Competitor Fresh Del Monte Produce (nyse: FDP - news - people ), based in Coral Gables, Fla., also lost share price on Monday following Chiquita's announcement. Shares in Fresh Del Monte fell 15.3%, or $4.89, to close at $26.99, in trading in New York. After hours, the stock continued to falter, losing another 53 cents to $26.46.

Chiquita and Fresh Del Monte were among the top three percentage losers on Monday at the New York Stock Exchange, while other food companies and consumer non-durables fared poorly as all have been facing higher costs for key feed crops and for fuel and fertilizers.

Other notable losers included chicken producer Pilgrim's Pride (nyse: PPC - news - people ) which traded at a four-year low in mid-afternoon, and closed down 8.4%, or $1.55, to $16.84; hog and pork producer Smithfield Foods traded at a 3-year low in the morning, and closed down 5.2%, or $1.30, to $23.75; Tyson Foods (nyse: TSN - news - people ), the largest United States meat producer closed down 1.5%, or 22 cents, to$14.74; and chicken producer Sanderson Farms (nasdaq: SAFM - news - people ) closed down 4.8%, or $2.06, to 440.89.

Food companies have raised prices to cope, but because of long-term contracts with such customers as restaurants and supermarkets, the price increases have not been fast enough to keep pace with the higher costs.

John Urbanchuk, an economist with expert service firm LECG (nasdaq: XPRT - news - people ), said, "I don't think these companies have seen the worst of it yet. I think it is going to get really ugly across the board," on rising costs faced by meat companies. "We are going to see unstable (grain) prices and higher grain prices throughout the growing season," he added.