Cincinnati, July 31 - Chiquita Brands International, Inc. today released financial and operating results for the second quarter 2008. For continuing operations, the company reported net sales of $1 billion, up 6 percent year-over-year, and income of $59 million, or $1.31 per diluted share, compared to $5 million, or $0.12 per diluted share, in the year-ago period.
Including the results of discontinued operations, the company reported income of $62 million or $1.37 per diluted share. The 2008 quarter includes other income, net of tax, of $6 million, or $0.13 per diluted share, from the resolution of a claim related to a non-income tax refund, and the 2007 quarter included a charge of $3 million, or ($0.07) per diluted share, related to the settlement of U.S. antitrust litigation.
"I am very pleased with our strong second quarter results, which mark our best quarterly performance in three years," said Fernando Aguirre, chairman and chief executive officer. "Our ability to deliver year-on-year improvements, despite unprecedented cost increases, is a testament to the strength of our business, the diversity of our product portfolio, and our strategy to drive profitable growth. We are particularly satisfied that our pricing discipline and focus on profitability has improved the performance and momentum of our banana segment for the fourth consecutive quarter. We are disappointed, however, with the current performance of our salad operations, and we are focused on executing plans to improve our salad margins over time."
Mr. Aguirre concluded, "While quarter-to-quarter volatility is typical due to the seasonality of our industry, we continue to expect to achieve significantly better operating results for the full year. We remain focused on aggressively improving profitability, and prudently investing in the launch of innovative products to become the global leader in healthy, fresh foods."
All financial results in this press release are for continuing operations only, unless otherwise stated. As previously announced, since the company reached a definitive agreement for the sale of its subsidiary Atlanta AG, its financial statements now present Atlanta AG as a discontinued operation. Additional comparable historical information for the most recent six quarters and the full year ended December 31, 2007 is provided in Exhibit H.
2008 SECOND QUARTER SUMMARY
Q2 Q2 YTD YTD
($ millions) 2008 2007 2008 2007
Net Sales $994.6 $934.0 $1,930.1 $1,839.2
Operating Income $72.4 $30.8 $129.2 $48.8
Income from continuing
operations(1) $59.5 $5.4 $91.9 $2.7
Income from discontinued
operations $2.6 $3.2 $1.9 $2.5
Net Income(1) $62.1 $8.6 $93.8 $5.2
Operating Cash Flow $121.4 $76.8 $108.8 $62.7
Total Debt $873.7 $844.7
Cash $202.7 $159.8
(1) Includes in the second quarter 2008 other income, net of tax, of $6 million, or $0.13 per diluted share, from the resolution of a claim related to a non-income tax refund, and a charge in the year-ago period of $3 million, or ($0.07) per diluted share, related to the settlement of U.S. antitrust litigation.
-- Net Sales: Quarterly sales rose primarily due to higher banana pricing and a favorable euro exchange rate, offset by lower banana volumes principally reflecting industry-wide constraints on volume availability.
-- Operating Income: Quarterly operating income improved year-over-year due to higher banana pricing in each of the company's markets, strengthening of the euro and savings from the company's business restructuring. Higher banana pricing in core European and Trading markets continued to be attributable to constrained supply during the quarter as well as the company's strategy to maintain and favor its premium product quality and price differentiation rather than market share. In the North American market, higher banana pricing was attributable to increases in base contract prices, the company's fuel-related surcharge and the continuation of a surcharge to mitigate the higher costs due to constrained industry-wide volume availability. The positive banana results were partially offset by weakness in value-added salads and increased investment in innovation. For second quarter net sales and operating income information by segment, see Exhibit A.
-- Operating cash flow: Operating cash flow was $121 million for the second quarter of 2008 compared to $77 million for the second quarter of 2007. The increase resulted primarily from improvements in operating income.
-- Total debt: The company's total debt at June 30, 2008 was $874 million, up $29 million from a year ago, principally due to the company's issuance of $200 million of convertible notes in February 2008. At June 30, 2008, the company's debt-to-capital ratio was 45 percent, as compared to the company's long-term target debt-to-capital ratio of 40 percent. See Exhibit F for a detailed debt schedule.
UPDATE ON SALE OF ATLANTA AG
On May 13, 2008, the company entered a definitive agreement to sell its wholly-owned German distribution business, Atlanta AG, to UNIVEG Fruit and Vegetables BV ("UNIVEG") for approximately $85 million in proceeds, plus working capital and net debt adjustments. The sale proceeds will be used primarily for debt reduction. The transaction will enable the company to increase its focus on providing branded, healthy, fresh foods to consumers worldwide, while ensuring continued reliable, high-quality ripening and distribution services of Chiquita bananas in the German, Austrian and Danish markets. The Atlanta AG sale is expected to be completed during the third quarter, after the completion of a normal review by EU competition authorities.
As the company previously announced, it determined that Atlanta AG's commodity distribution business was no longer a strong fit with Chiquita's long-term strategy to drive profitable growth. Although Atlanta AG represented $1.2 billion in revenues from non-Chiquita products in 2007, its results have not been significant to Chiquita's annual operating income in recent periods. Chiquita anticipates that the sale and related entry into a long-term banana ripening and distribution services agreement with UNIVEG will result in a gain as well as a one-time tax benefit. The company also anticipates that the sale and related use of proceeds will be accretive to future earnings. For comparison purposes, the company has provided in Exhibit H certain historical financial information reflecting Atlanta AG as a discontinued operation for the most recent six quarters and the full year ended December 31, 2007.
OUTLOOK
The company continues to expect it will generate significant improvement in sales and operating income from continuing operations for the full-year 2008, compared to the full-year 2007. This is primarily due to contract and market price increases and the benefits of the company's restructuring, which are more than offsetting increases in industry and other product supply costs. The company's estimates for higher industry and other product supply costs remain the same as provided in the company's mid-quarter update in June. As previously announced, the company continues to expect the balance of 2008 to follow normal seasonal trends, including a loss in the third quarter roughly in line with the loss incurred in the third quarter of 2007. The following chart summarizes management's estimates, based on current trends and market prices, of the impact of certain items on the company's results for 2008.
Q1 Q2 Full-Year
2008 2008 2008
($ millions) Actual Actual Estimate
Higher Costs:
Higher Industry Costs(1) $50 $42 $195-210
Other Higher Product Supply Costs(2) $29 $33 $75-85
Sub total $79 $75 $270-295
Pricing, Cost Reductions and Other
Benefits:
Pricing and Exchange Gains(3) $92 $104 +
Gross Cost Savings $10 $11 $30
2007 Business Restructuring Savings $18 $19 $65-80
Fuel Hedging Gains(4) $7 $8 $35
Sub total $127 $142 +
Net Benefit $48 $67 +
Capital Expenditures $12 $9 $55-65
Depreciation & Amortization $19 $19 $70-75
Gross Interest Expense(5) $17 $17 $67-72
Net Interest Expense(5) $16 $15 $57-62
Euro Hedging Costs(6) $5 $6 $16
(1) Represents year-over-year increases for items such as purchased fruit, raw products, fertilizers, bunker fuel, ship charters, paper and resins.
(2) Represents year-over-year increases for items such as labor and materials in banana production and salad manufacturing, discharging and other logistic costs.
(3) Pricing variance includes year-over-year improvement in the company's banana and salad markets, as well as euro exchange benefits.
(4) Includes year-over-year variance in the company's fuel hedging program based on the 2008 fuel swap portfolio and market forward rates as of July 30, 2008.
(5) Assumes an average LIBOR rate of 2.9 percent. Excludes $9 million of expenses for the write-off of deferred financing fees related to the refinancing of the company's credit facility in the first quarter 2008.
(6) Based on market forward rates as of July 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 call options at average strike rates of $1.56 per euro through December 2008.