Cincinnati, May 1, 2008 - Chiquita Brands International, Inc. today released financial and operating results for the first quarter 2008. First quarter net sales increased 7 percent year- over-year to $1.3 billion, and the company reported net income of $32 million, or $0.72 per diluted share, including a charge of $9 million, or ($0.20) per diluted share, for the write-off of deferred financing fees as a result of the company's successful refinancing during the quarter.
In the year-ago period, the company reported a net loss of $3 million, or ($0.08) per diluted share, including a charge of $5 million, or ($0.12) per diluted share, related to the exit of certain unprofitable farm leases in Chile.
"Our excellent first quarter represents the third consecutive quarter of year-over-year improvements and illustrates that we continue to take the right actions to drive profitability in our business," said Fernando Aguirre, chairman and chief executive officer. "Our brand premium, improved banana pricing, benefits from our business restructuring and continued recovery in value-added salads have enabled us to generate significantly better results. We have demonstrated the ability to overcome cost challenges and we expect this improvement will continue, particularly in the first half of the year."
Aguirre added, "We also delivered two other major achievements, which reflect both our financial discipline and confidence in our long-term strategy. We successfully refinanced our capital structure to further strengthen our balance sheet and signed agreements to develop two major sources of bananas in Africa for our European markets, without investing any capital in owned assets. We will continue to focus on strong execution throughout our operations and to invest in innovative, long-term growth opportunities. These achievements and strong quarterly results are continued evidence that our long-term strategy is working."
2008 FIRST QUARTER SUMMARY
Q1 Q1
($ millions) 2008 2007
Net Sales $1,270.5 $1,192.4
Operating Income $56.7 $18.0
Net Income (Loss) $31.7 ($3.4)
Operating Cash Flow ($12.7) ($6.1)
Total Debt $886.1 $1,061.3
Cash $112.0 $79.9
-- Net Sales: Quarterly sales rose primarily due to higher banana pricing,
higher pricing and volume in retail value-added salads, and favorable
foreign exchange rates, offset by lower banana volumes reflecting
industry-wide constraints on availability during the quarter due to a
series of adverse weather conditions throughout Central America and
Ecuador.
-- Operating Income: Quarterly operating results improved year-over-year
due to higher banana pricing in each of the company's markets,
strengthening of the euro, savings from the company's business
restructuring and continuing recovery in retail value-added salads.
Higher banana pricing in core European and Trading markets was largely
attributable to constrained supply during the quarter and the company's
strategy to maintain and favor its premium product quality and price
differentiation in lieu of market share. In the North American market,
higher banana pricing was attributable to increases in base contract
prices, the company's fuel-related surcharges, and the implementation
during the last four weeks of the quarter of a temporary price
surcharge designed to mitigate the increased costs of purchased fruit
due to constrained industry-wide volume availability. For first quarter
net sales and operating income information by segment, see Exhibit A.
-- Operating Cash Flow: Operating cash flow was ($13) million for the
first quarter of 2008 compared to ($6) million for the first quarter in
2007. The decrease resulted from an increase in accounts receivable
due to a stronger euro exchange rate and higher banana pricing.
-- Total Debt: The company's total debt at March 31, 2008 declined to
$886 million, down $175 million from a year ago, principally as a
result of the use of proceeds to pay down debt from the sale of its
ships in the second quarter 2007. The company had no outstanding
borrowings under its revolving credit facility at March 31, 2008,
compared to $80 million at March 31, 2007. At March 31, 2008, the
company's debt-to-capital ratio was 49 percent, as compared to the
company's long-term target debt-to-capital ratio of 40 percent. See
below the description of the company's first quarter capital structure
refinancing and see Exhibit F for a detailed debt schedule.
OUTLOOKDespite large increases in industry and other product supply costs, the company expects to generate significant year-on-year improvements in sales and operating income in 2008, primarily due to contract and market price increases and the benefits of the company's restructuring. The following chart summarizes management's estimates of the impact of certain items on the company's results for 2008.
Q1 Full-Year
2008 2008
($ millions) Actual Estimate
Capital Expenditures $12 $60-75
Depreciation & Amortization $21 $75-80
Gross Interest Expense(1) $17 $67-72
Net Interest Expense(1) $16 $57-62
Higher Industry Costs(2) $50 $150-165
Other Higher Product Supply Costs(3) $29 $60-70
Gross Cost Savings $10 $30
Restructuring Savings(4) $18 $65-80
Euro Hedging Costs(5) $5 $16
Fuel Hedging Gains(6) ($6) ($30)
1 Assumes an average LIBOR rate of 2.7 percent. Excludes $9 million of
expenses for the write-off of deferred financing fees upon the
completion of the refinancing concluded in the first quarter 2008.
2 Represents year-over-year variance for items such as purchased fruit,
raw products, fertilizer, bunker fuel, ship charters, paper and resins.
3 Represents year-over-year variance for items such as labor and material
increases in banana production and salad manufacturing, discharging and
other logistics costs.
4 Relates to business restructuring announced in October 2007 (described
below). Approximately 70 percent will benefit selling, general and
administrative expenses and 30 percent will benefit cost of goods sold.
5 The 2008 euro hedging cost estimates are based on current market forward
rates as of April 30, 2008 in relation to the company's 2008 hedging
portfolio, which includes euro put options at average strike rates of
$1.40 and sold calls at average strike rates of $1.56 per euro through
December 2008.
6 The 2008 fuel hedging gain estimates are based on the company's 2008
fuel swap portfolio and market forward rates as of April 30, 2008.
BUSINESS RESTRUCTURINGThe company remains on track to achieve its target of $65-80 million in sustainable annual savings in 2008, as a result of its restructuring announced in October 2007. The savings are expected to result primarily from a reduction in compensation related expenses and consolidation of processing and distribution facilities. More than half of these savings are expected to benefit the banana segment, and the remainder are expected to benefit both the Salads and Healthy Snacks segment and Corporate costs. The restructuring was designed to accelerate the company's long-term strategy to become the global leader in healthy, fresh foods as well as to improve profitability and efficiency through consolidation of operations and simplification of overhead structures.
As previously announced, the company is exploring strategic alternatives for its German distribution business, Atlanta AG, including a possible sale. In late April 2008, the company's Board of Directors authorized management to pursue a plan to sell Atlanta's operations. There can be no assurance that any such sale will be completed and the company does not expect to announce developments with respect to this process unless and until it is appropriate to do so.
CAPITAL STRUCTURE REFINANCING
As previously reported during the first quarter of 2008, the company successfully refinanced its secured credit facility in a manner that lowered the company's interest payments, extended debt maturities and added significant covenant flexibility as part of the broader refinancing of the company's capital structure. In February, the company issued $200 million aggregate principal amount of 4.25% convertible senior notes due 2016. In March, the company entered into a new six-year senior secured credit facility, consisting of a $150 million revolving credit facility and a $200 million term loan, with a syndicate of banks led by Rabobank and Wells Fargo. The net proceeds of both the convertible notes and the new term loan were used primarily to fully repay amounts outstanding under the prior revolving credit facility and Term Loan C.
In connection with the refinancing, the company expensed during the quarter approximately $9 million of unamortized financing fees from the previous senior secured credit facility.
Exhibit A:
FIRST QUARTER DETAILED SEGMENT INFORMATION
(All comparisons below are to the first quarter 2007, unless otherwise specified.)
The company reports the following three business segments:
-- Bananas: This segment includes the sourcing (purchase and production),
transportation, marketing and distribution of bananas.
-- Salads and Healthy Snacks: This segment includes value-added salads,
fresh vegetable and fruit ingredients used in foodservice, healthy
snacking operations and processed fruit ingredient products.
-- Other Produce: This segment includes the sourcing, marketing and
distribution of whole fresh fruits and vegetables other than bananas.
The company does not allocate certain corporate expenses to the reportable segments. These expenses are included in "Corporate."
Bananas
Net sales for the segment increased 12 percent to $584 million. Segment operating income was $61 million, compared to $33 million in the year-ago period.
Banana segment operating results improved due to:
-- $29 million benefit from the impact of stronger European currency
exchange rates (outlined in Exhibit E).
-- $27 million from improved local banana pricing in core European markets
attributable to constrained volume supply in the first quarter 2008 and
the company's strategy to maintain and favor its premium product
quality and price differentiation over market share.
-- $24 million from improved pricing in North America due to increases in
base contract prices, increases in fuel-related surcharges and the
implementation of a temporary price surcharge designed to mitigate
higher industry costs from constrained industry-wide volume
availability.
-- $8 million from improved pricing in Trading markets, attributable to
constrained volume supply in the first quarter 2008.
-- $7 million of higher fuel hedging gains, partly offsetting higher
industry costs.
-- $6 million of lower brand support and innovation costs, primarily in
North America.
These improvements were partially offset during the quarter by:
-- $46 million of industry cost increases for purchased fruit,
fertilizers, bunker fuel, paper and ship charters.
-- $18 million of higher production costs from owned banana production,
discharging and inland transportation, net of $3 million from cost-
savings programs other than restructuring.
-- $10 million from lower volume, primarily in the company's core European
markets.
Salads and Healthy SnacksNet sales increased 12 percent to $327 million. Operating income was $7 million, compared to $1 million in the year-ago period.
Salads and Healthy Snacks segment operating results improved due to:
-- $6 million less in costs from a freeze that affected lettuce sourcing a
year ago, which did not recur.
-- $4 million due to improved pricing and volume in retail value-added
salads.
-- $2 million of reduced selling, general and administrative expenses.
These improvements were partially offset during the quarter by:
-- $4 million of higher industry costs, primarily due to increases in fuel
and fuel-related costs.
-- $1 million of increased production costs, net of $7 million of cost
savings primarily related to improved production scheduling and
logistics.
Other ProduceNet sales decreased 5 percent to $360 million. The reduction in sales resulted from exiting certain unprofitable farm leases in Chile during the first quarter 2007. The quarterly operating loss was $1 million in 2008, compared to a loss of $3 million in the year-ago period. The improvement resulted primarily from the absence of $5 million of exit costs from unprofitable farm leases in Chile during the first quarter 2007, partly offset by higher spending to expand Just Fruit in a Bottle into new geographic markets in Europe.
Exhibit B:
CHIQUITA BRANDS INTERNATIONAL, INC.
CONSOLIDATED INCOME STATEMENT
(Unaudited - in millions, except per share amounts)
Quarter Ended March 31,
2008 2007
Net sales $1,270.5 $1,192.4
Operating expenses
Cost of sales 1,098.4 1,051.7
Selling, general and administrative 95.0 102.8
Depreciation 18.4 19.8
Amortization 2.5 2.4
Equity in (earnings) losses of investees (0.5) (2.3)
1,213.8 1,174.4
Operating income 56.7 18.0
Interest income 1.5 2.6
Interest expense (26.4) (23.3)
Income (loss) before taxes 31.8 (2.7)
Income taxes(1) (0.1) (0.7)
Net income (loss) $31.7 $(3.4)
Basic earnings per share $0.74 $(0.08)
Diluted earnings per share 0.72 (0.08)
Shares used to calculate basic
earnings per share 42.9 42.4
Shares used to calculate diluted
earnings per share(2) 44.2 42.4
1 Income taxes for the first quarters of 2008 and 2007 include benefits of
$5 million and $4 million, respectively, from the resolution of tax
contingencies.
2 Includes the dilutive effect of outstanding warrants and stock options
based on the treasury stock method, and the dilutive effect of
restricted stock awards. In the first quarter 2008, the 4.25%
convertible senior notes due 2016 did not have a dilutive effect,
because the average trading price of common shares was below the initial
conversion price of $22.45 per share.
Exhibit C:
CHIQUITA BRANDS INTERNATIONAL, INC.
OPERATING STATISTICS - FIRST QUARTER
(Unaudited - in millions, except for percentages and exchange rates)
Percent Change
Quarter Ended March 31, Favorable
(Unfavorable)
vs. 2007
2008 2007
Net sales by segment
Bananas $583.9 $522.8 11.7%
Salads and Healthy Snacks 327.1 291.9 12.1%
Other Produce 359.5 377.7 (4.8%)
Total net sales 1,270.5 1,192.4 6.5%
Segment operating income (loss)
Bananas $61.1 $33.4 82.9%
Salads and Healthy Snacks 7.1 0.6 N/A
Other Produce (0.6) (3.4) 82.4%
Corporate (10.9) (12.6) 13.5%
Total operating income
(loss) 56.7 18.0 215.0%
Operating margin by segment
Bananas 10.5% 6.4% 4.1 pts
Salads and Healthy Snacks 2.2% 0.2% 2.0 pts
Other Produce (0.2%) (0.9%) 0.7 pts
SG&A as a percent of sales 7.5% 8.6% 1.1 pt
Company banana sales volume
(40 lb. boxes)
North America(1) 15.2 15.4 (1.3%)
European Core Markets(2) 12.6 14.6 (13.7%)
Asia and the Middle East(3) 4.9 4.7 4.3%
Trading Markets 1.2 2.1 (42.9%)
Total 33.9 36.8 (7.9%)
Fresh Express retail value-added
salad sales volume
(12-count cases) 16.8 16.2 3.7%
Euro average exchange rate, spot
(dollars per euro) $1.49 $1.31 13.7%
Euro average exchange rate, hedged
(dollars per euro) $1.45 $1.27 14.2%
1 Total volume sold includes all banana varieties, such as Chiquita-to-Go,
Chiquita minis, organic bananas and plantains.
2 The company's "core" European markets include the 27 member states of
the European Union, Switzerland, Norway and Iceland.
3 The company primarily operates through joint ventures in this region.
Exhibit D:
CHIQUITA AVERAGE BANANA PRICES AND VOLUME
YEAR-OVER-YEAR PERCENTAGE CHANGE - FAVORABLE (UNFAVORABLE)
2008 vs. 2007
(Unaudited)
Pricing Volume
Region Q1 Q1
North America(1) 18% (1%)
European Core Markets(2)
U.S. Dollar basis(3) 26% (14%)
Local Currency 11%
Asia and the Middle East(4)
U.S. Dollar basis 12% 4%
Trading Markets
U.S. Dollar basis 41% (43%)
1 Pricing includes fuel-related and temporary surcharges. Total volume
sold includes all banana varieties, such as Chiquita-to-Go, Chiquita
minis, organic bananas and plantains.
2 The company's "core" European markets include the 27 member states of
the European Union, Switzerland, Norway and Iceland.
3 Prices on a U.S. dollar basis do not include the impact of hedging.
4 The company primarily operates through joint ventures in this region.
FRESH EXPRESS RETAIL VALUE-ADDED SALADS
NET REVENUE PER CASE AND VOLUME
YEAR-OVER-YEAR PERCENTAGE CHANGE - FAVORABLE (UNFAVORABLE)
2008 vs. 2007
(Unaudited)
Net Revenue
Per Case Volume(1)
Region Q1 Q1
North America 2% 4%
1 Including Verdelli Farms, the increase in total volume would
be 11 percent.
Exhibit E:
EUROPEAN CURRENCY
YEAR-OVER-YEAR CHANGE - FAVORABLE (UNFAVORABLE)
2008 vs. 2007
(Unaudited - in millions)
Currency Impact (Euro/Dollar) Q1
Revenue $38
Local Costs (11)
Hedging(1) 1
Balance sheet translation(2) 1
Net European currency impact $29
1 Hedging costs in the first quarter 2008 and 2007 were $5 million and $6
million, respectively.
2 Balance sheet translation for the first quarter 2008 was $1 million.
Exhibit F:
CHIQUITA BRANDS INTERNATIONAL, INC.
DEBT SCHEDULE - FIRST QUARTER 2008
(Unaudited - in millions)
Payments,
Dec. 31, Other March 31,
2007 Additions Reductions 2008
Parent Company
7-1/2% Senior Notes $250.0 $ - $ - $250.0
8-7/8% Senior Notes 225.0 - - 225.0
4.25% Convertible Senior
Notes(a) - 200.0 - 200.0
Subsidiaries
Term Loans(b) 325.7 200.0 (325.7) 200.0
Revolving Credit
Facilities(b) - 57.0 (57.0) -
Other 13.0 - (2.0) 11.0
Total Debt $813.7 $457.0 ($384.7) $886.0
(a) In February 2008, the company issued $200 million in principal amount
of 4.25% convertible senior notes. Net proceeds of $193.7 million were
used to repay a portion of the outstanding amounts under the Term Loan
C.
(b) In March 2008, the company completed the refinancing of its credit
facility, comprised of a new $150 million revolving credit facility
and a $200 million term loan. Net proceeds of $193.2 million from the
new term loan were used to repay the entire outstanding balance on the
company's prior revolving credit facility and the remaining portion of
its Term Loan C, and $13.7 million was retained by the company.