Wednesday 8th August 2012, 20:19 Hong Kong
Chiquita posts lower set of Q2 results
Group sees sales and profit slump, while also unveiling a restructuring plan which could reduce costs by up to US$60m
Chiquita Brands International has reported on weaker set of results for the second quarter (Q2) of the year, with net income and quarterly sales both falling on a year-on-year basis.
The fresh produce giant said that GAAP net income came in at US$6m for the three-month period, down from US$78m in the same period of 2011, while sales dropped to US$833m from US$870m.
According to Chiquita, sales fell primarily due to lower pricing in bananas and the decrease in the euro , while comparable net income dropped due to lower revenues and higher sourcing costs, partially offset by manufacturing improvements in salads and lower corporate costs.
Chief executive officer Fernando Aguirre, who also announced in the release that he is to step down from his role, said that results had actually come in higher than expected given the difficult economic environment.
"While we do not believe that Chiquita's second quarter results reflect the sustainable earnings potential of our business, our results exceeded our expectations, in spite of the significant impact from the dramatic reduction in the value of the euro and difficult pricing comparisons to 2011," he said. "The negative euro impact alone was US$26m.
"Our Banana business continues to be stable," Aguirre continued. "Our sales volumes were at similar levels to the same period of 2011, but the product supply surcharge that was in place for 2011 in North America and the large and rapid decline in the value of the euro resulted in difficult pricing comparisons to 2011. In Salads, although we had lower retail sales volumes than the year ago quarter, the volumes were higher than previously forecasted as we experienced increasing retail sales velocity on a same store basis, and we delivered cost reductions from 2011."
Chiquita also revealed that, in an effort to increase profitability in its core banana and salad businesses, it would be executing a series of strategic initiatives including a restructuring.
Restructuring activities are expected to reduce expenses and focus resources on bananas and salads, increasing volumes, reducing operating and administrative costs and aligning investment opportunities for the aforementioned business units.
Annual savings of the restructuring are expected to at least US$60m after a one-time charge of approximately US$15m, with savings expected to improve profitability and help reduce debt. The company has a goal of achieving operating margins of four per cent in bananas and 7-8 per cent in salads over the next two to three years.
"The majority of savings will come from a simplification and reduction of the company's overhead and operating structure, including the elimination of some senior management level positions to bring operational functions closer in-line with strategic decisions to be a more cost efficient, competitive business," the group said. "Along with simplifying the organisation, to achieve the savings, Chiquita also expects to benefit from efficiencies in sourcing and logistics, decreased research and development spending in non-core products, and continued improvements in manufacturing costs.
"All of these changes will be made in a manner designed to maintain high product quality, service and food safety standards to Chiquita's customers and consumers, consistent with existing legal and contractual obligations."
The restructuring is expected to be 'substantially completed' in the third quarter of the year.