Chiquita Brands International has swung to a first-half loss as a drop in sales and higher sourcing costs hit profits.
In the six months to the end of June, the US produce giant booked a net loss of US$6m compared to earnings of $102m last year. Operating profit in the period slid to $17m from $56m a year earlier,
Net sales dropped 4.1% to $1.63bn. Chiquita blamed lower pricing for bananas and a decrease in the euro for the decline.
For the remainder of 2012, Chiquita said it will continue to take "the necessary action" to control and lower operating costs in a bid to offset the "headwinds" it said it expects to continue to affect its core businesses.
Alongside the results, Chiquita yesterday unveiled plans to revamp its business to boost profits. The change in strategy will see CEO Fernando Aguirre will step down.
CHIQUITA REPORTS SECOND QUARTER 2012 RESULTS
COMPANY PRESENTS TRANSFORMATION STRATEGY AND PROVIDES OUTLOOK
COMPANY ANNOUNCES CEO TRANSITION PROCESS
Second quarter results of comparable diluted EPS of $0.27; GAAP diluted EPS of $0.12
Primary goals are increasing cash flow, reducing debt, and driving shareholder value
Target operating margins introduced at 4 percent for Bananas and 7 to 8 percent for Salads
Restructuring will result in at least $60 million of annual savings and will focus Chiquita on core Banana and Salad businesses
CHARLOTTE - August 7, 2012 - Chiquita Brands (NYSE: CQB) today released financial and operating results for the second quarter of 2012 and announced restructuring activities designed to increase long-term profitability. The Company reported GAAP net income of $6 million on net sales of $833 million and comparable net income[1] of $12 million. For the same period in 2011, the company reported GAAP net income of $78 million on net sales of $870 million and comparable net income of $34 million. The 2011 second quarter GAAP net income includes, among other items, the benefit of an $87 million income tax valuation allowance release, partially offset by a $32 million non-cash reserve for prior grower advances.
"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. The negative euro impact alone was $26 million," said Fernando Aguirre, chairman and chief executive officer. "Our Banana business continues to be stable. 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," Aguirre added.
To support the goal of increasing profitability in its core businesses, Chiquita will rebalance its structure by strategically transforming the company to a high volume, lower cost operator by better leveraging its economies of scale, iconic brand, and core distribution, quality and customer service competencies. As part of this strategic change, Chiquita will simplify and reduce its administrative and manufacturing overhead structure with the goal of achieving operating margins of 4 percent in Bananas and 7 to 8 percent in Salads over the next two to three years. The restructuring is expected to result in sustainable annual cost reductions of at least $60 million, which the company expects to begin to recognize in the fourth quarter of 2012 and to fully realize in 2013.
LEADERSHIP TRANSITION
As the company pursues this new strategic direction with a focus in driving profits in its core businesses, Chiquita's Board of Directors and its chief executive officer believe that this is the right time to announce its plans to transition leadership. The Board has formed a committee to oversee the process of selecting a new chief executive officer, and a leading executive search firm has been retained to assist in identifying qualified candidates to fill the position. Aguirre will remain as chairman and chief executive officer through the hiring and transition of a new CEO.
"It has been an honor to lead Chiquita for almost nine years," said Aguirre. "Chiquita's dedicated employees and management team have transitioned to Charlotte and launched its strategic transformation plan. Although the current economic times have been tough, I am confident that the company is well positioned to increase its financial performance and drive shareholder value. I remain one of the largest shareholders of the company and my main interest is to increase the value for all shareholders. I look forward to working with the Board of Directors to implement the restructuring and ensure a seamless leadership transition. The future is bright and the time has come to bring in new talent who can lead the company forward."
"On behalf of the Board, we want to thank Fernando for his leadership, dedication and commitment over his almost nine years of service," said Kerrii B. Anderson, Chiquita's lead independent director. "He has led us through thick and thin, expanding distributional channels, transforming the North American Banana business, unlocking balance sheet value, divesting non-core assets, navigating through tough inherited litigation, reducing debt and consolidating our headquarters in the business conducive and growth oriented city of Charlotte. The Board is committed to increasing shareholder value through the execution of Chiquita's transformational strategy. Given our change in strategy, Fernando and the Board decided to conduct a thorough search to identify the best candidate to serve as Chiquita's next CEO and to jointly execute an effective and smooth leadership transition."
2012 SECOND QUARTER SUMMARY
The following table shows adjustments and reconciling items made to "Net income (loss)" and "Diluted earnings (loss) per share" between comparable and GAAP results. See "Non-GAAP Measurements and items affecting comparability" below for descriptions of items excluded on a comparable basis, including descriptions of how these items affect the results of reportable segments.
