Fresh Del Monte Q2 Earnings Call Transcript

123jump.com Staff
05 Aug, 2009
New York City

Fresh Del Monte sales for the quarter were up marginally to $978.4 million but earnings rose 27% to $52.2 million pushed by industry wide shortage of bananas and higher prices. Earnings per share were 82 cents as against 66 cents in the year ago quarter.

Fresh Del Monte Produce, Inc. ((FDP))
Q2 2009 Earnings Call Transcript
July 28, 2009 11:00 a.m. ET

Executives

Christine Cannella – Assistant VP, Investor Relations
Mohammad Abu-Ghazaleh – Chairman & Chief Executive Officer
Richard Contreras – Senior VP & Chief Financial Officer

Analysts

Heather Jones – BB&T Capital Markets
William Chappell – SunTrust Robinson Humphrey
Jonathan Feeney – Janney Montgomery Scott
Vincent Andrews – Morgan Stanley
Scott Mushkin – Jefferies & Company

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Del Monte Fresh Produces second quarter 2009 conference call. At this time, all participants are in a listen-only mode. At the conclusion of our prepared remarks, we will conduct a question-and-answer session. (Operator instructions) At that time if you’d like to ask a question you may press “*1” on your touchtone keypad. If anyone should require assistance during today’s call, please press “*0” on your keypad at any time. As a reminder, this call is being recorded. I would now like to introduce your host for today''s conference call, Ms Christine Cannella. Please go ahead Ma’am.

Christine Cannella – Asst Vice President of Investor Relations

Thank you, Jennifer. Good morning everyone and welcome to Fresh Del Monte second quarter 2009 conference call. I''m Christine Cannella, Assistant Vice President of Investor Relations. Joining me today are Chairman and Chief Executive Officer, Mohammad Abu-Ghazaleh, and Senior Vice President and Chief Financial Officer, Richard Contreras, who will discuss our results for the fourth quarter. Fresh Del Monte issued a press release this morning via Business Wire, e-mail and First Call. You may visit our website at www.freshdelmonte.com to register for future distribution. This conference call is being webcast live at our website, and it will be available for replay approximately two hours after the conclusion of this call. Our press release includes reconciliations of any non-GAAP financial measures we mention in our presentation today to their corresponding GAAP measures. The press release may be found in our Web site which is again www.freshdelmonte.com.

This morning Mohammad will review our operating performance during the quarter, along with recent developments and our future outlook. Richard will then review our financial performance for the second quarter of 2009. Please let me remind you that much of the information that we will discuss this morning, including the answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the Safe Harbor provision of the Securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors, including those described under the heading ""Description of Business Risk Factors"" in our Form 10-K for the year ended December 25th, 2008.

This call is the property of Fresh Del Monte Produce. Redistribution, retransmission or rebroadcast of this call in any form without our written consent is strictly prohibited.

With that I''d like to turn this call over to Mohammad Abu-Ghazaleh. Mohammad?

Mohammad Abu-Ghazaleh – Chief Executive Officer

Thank you, Christine. Good morning everyone. I’m pleased to update you on our second quarter performance and strategic actions taken during the quarter to drive future growth and profitability. One of the key drivers of our growth during the quarter was our banana business segment. Bananas continued to benefit from higher worldwide selling prices driven by strong global demand and industry supply shortages. We anticipate that our banana business will remain strong and I believe it will bring significant opportunity for Fresh Del Monte. Our other fresh produce in this segment performed well during the quarter with stronger melon, avocado and gold pineapple product sales as we successfully delivered additional volumes to existing and new customers. We also took steps in the quarter to improve our cost structure and enhance the competitive position of our fresh cut operation in North America. We continue to work closely with our customers using stored data to optimize SKUs. This in turn led to enhancement of our production techniques resulting in increased product utilization and lower labor costs. As a result of our continued efforts to streamline operations and improve our cost structure we made the decision to stop planting gold pineapple in Brazil. We will continue to ship the remaining pineapples that are in the ground as long as it is economically feasible. Although we have stopped planting pineapple, we will continue to source bananas and melons from Brazil.

This year, our prepared food business segment delivered substantial margin improvement compared to last year’s second quarter. The increase in gross profit was a direct result of lower costs. Current economic conditions did affect our sales in the quarter primarily in the U.K, one of our strongest markets. We are working diligently with our third party distributors during these challenging economic times to increase sales in this highly competitive business. In our Middle East region I am particularly pleased that our global distribution expansion project in Saudi Arabia is on track to open our first distribution center in late October. We plan to open the second distribution center by January 2010. Demand for our products, particularly bananas continues to increase and we believe this region offers us exciting opportunities for growth. It is important to note that during the quarter we delivered strong cash flow. This allows us to significantly reduce our debt levels and we successfully completed the refinancing of our credit facilities. Despite the tight lending market we received great interest to participate in the refinancing and the offering was significantly over subscribed, which is indicative of our strong credit quality. The credit terms we achieved demonstrate that companies with consistently strong cash flows, strong balance sheet and proven management teams can attract financing at favorable rates even in challenging economic times. All of it continued to deal with difficult economic environment, health and wellness continues to remain of paramount importance in consumer food specialty segment. In fact with fewer discretionary dollars, people are picking up Del Monte. They are choosing the precious value products that are good for them such as fruits and vegetables.

In summary, the current economic environment remains challenging. However, I am very confident in our ability to overcome the impact of these global challenges and we remain committed to delivering the products and service our customers have come to expect from us. We’ll continue to explore opportunities and make investments that support the growth of our core product and deliver results to our shareholders. We’ll continue to leverage the strength of our management team and our vertically integrated effort function, be it by acquisitions or by growth through third party sourcing. We believe in these challenging economic times there are significant growth opportunities for Fresh Del Monte. Our proven strategy, strong global presence and financial stability positions Fresh Del Monte for long-term growth and success. Now I’d like to turn today’s call over to Richard.

Richard Contreras – Chief Financial Officer

Thanks Mohammed and good morning. For the second quarter of 2009 excluding asset impairment and other charges net, Fresh Del Monte delivered earnings per share of $1.11 per diluted share compared with $0.87 in the prior year period. Net sales increased $6 million to $978 million compared with $972 million in the second quarter of 2008. In addition, excluding asset impairment and other charges net, gross profit increased $6 million or 6% to $108 million. Operating income increased $7 million for 12% and net income increased $15 million to $70 million.

Now let us turn to our segment performance. In our banana business segment, net sales increased 8% to $413 million. Worldwide pricing increased 7% or $0.99 per box to $15.14, primarily due to lower industry supply, and increased worldwide demand. We also benefited from higher local currency pricing in our major overseas markets, and now almost in line with last year. Unit costs increased 6% driven by a 12% increase in food production and procurement costs. Gross profit increased 14% to $47 million compared with $42 million a year ago due to higher pricing partially offset by significantly higher fuel costs. Our banana volume and food costs were negatively impacted by the cold weather, heavy rains and flooding that occurred in late 2008 and early 2009 in Costa Rica. The decrease in our production volume required us to purchase more expensive fruit from Ecuador. Additionally the government regulated minimum price per box paid to growers in Costa Rica was 18% higher than the prior year quarter.

In our other fresh produce business segment for the second quarter, net sales increased to $446 million compared with $444 million in 2008. The increase was primarily due to higher sales in our melon, avocado and gold pineapple product categories offset by lower sales in our tomato and deciduous product categories. Volume was 16% higher, unit pricing declined 13%, unit cost decreased 6% and for the quarter, gross profit increased 9% to $44 million, excluding $17 million related to our decision to discontinue planting pineapple in Brazil. This compared with $41 million in the prior year period. The increase in gross profit was related to higher volume and lower food and distribution costs.

In our gold pineapple category, net sales increased by 7% to $128 million. Volume rose 16% in our European and North America regions principally due to the Caribana acquisition. Unit pricing was 8% lower reflecting both the negative economic environment and a temporary industry oversupply and unit costs decreased 7%. The temporary industry oversupply was a result of climatic changes that forced fruits to mature ahead of schedule. We are now seeing the opposite effect in the current third quarter are experiencing extremely tight industry supply in gold pineapple. As Mohammed mentioned during the quarter a decision was made to cease planting pineapple in Brazil. As a result we wrote off $17 million in deferred crop inventory and $1 million in assets. In 2008, we sourced approximately 2 million boxes of gold pineapple from Brazil for our European markets.

In our melon category, net sales increased 23% to $71 million. Volumes increased 31%, a result of higher production yields in the offshore season. Unit pricing declined 6% due the higher volume and the weak economy and unit costs were 3% lower. Our second quarter results were negatively impacted by the ringing effects of the offshore season. However during the domestic season which began in mid May, we experienced lower costs and improved profitability compared to last year during the same period. In our fresh cut category, net sales declined 3% to $89 million primarily in the U.K. Volume increased 4%, unit pricing decreased 6% primarily due to unfavorable exchange rates in the U.K. However unit costs were 16% lower due to significant improvements in our North America operations and exchange rates in the U.K. We also benefited from the more stable labor force.

In our non-tropical category net sales decreased 3% as lower deciduous sales were partially offset by an increase in avocado sales. Volume rose 9% primarily in avocados, unit pricing declined 11% due in part to unfavorable exchange rates in Europe and unit costs were 7% lower. In our tomato category, net sales declined 12% to $34 million, volumes decreased 8% and pricing decreased 5%. However unit costs were 9% lower.

In our prepared food segment, net sales decreased $29 million to $86 million during the quarter, primarily due to current economic conditions in the U.K and unfavorable foreign exchange. Unit pricing decreased 7%. Unit costs were 25% lower due to favorable exchange rates in our producing countries and lower ocean freight costs. And gross profit increased 11% to $17 million driven by the significantly lower costs. In our other products and services business segment, net sales for the quarter increased 6% to $34 million. Gross profit decreased by $2 million primarily in Argentine grain business a result of a downturn in the global grain markets.

Now few comments on costs, fertilizer cost decreased 5% over the prior year period. Fertilizer represents approximately 1% of our total cost to sales. Container load costs decreased 22% and represents 2% of our total costs to sales. As previously mentioned, banana fruit costs increased 12% and this represents 25% of our total cost to sales. Bunker fuel cost, which represents 3% of our total cost to sales, declined 45% versus the prior year. Total ocean freight costs which include bunker fuel declined 10% and represent 14% of our total cost to sales.

The foreign currency impact of the sales level for the second quarter compared to the prior year was unfavorable by $42 million. However, the foreign currency impact on our gross profit level in second quarter of 2009 was unfavorable by $4 million compared to the prior year as we benefited from the stronger dollar in some of our producing countries. SG&A expense during the quarter was $42 million compared to $43 million in the second quarter of 2008. For the quarter, interest expense net increased by approximately $1 million. At the end of the quarter, our debt was $335 million. We recently announced that we refinanced our revolving credit facility and term loan with a 3.5 year $500 million senior secured revolving credit facility that matures in January 2013. The new facility bears interest at a rate of LIBOR plus a margin desired with our leverage ratio. Our current margin over LIBOR is 3%. We currently have approximately $175 million of availability for working capital needs, general corporate purposes and other uses.

Other income net was $5 million compared with other income of $3 million in the prior year period primarily due to foreign exchange gains. Tax expense for the quarter was a benefit of $4 million. The benefit for income taxes is primarily related to the settlement of uncertain tax positions in connection with an audit in the second quarter of 2009. We expect our capital expenditures for the year to be approximately $105 million. This concludes our financial review. Operator, can you please open the line for questions.

Question-and-Answer session

Operator

Yes sir. Once again the question-and-answer session will be conducted electronically. If you’d like to ask a question please do so by pressing the * key followed by the digit 1 on your touchtone telephone. If you’re using a speakerphone please be sure your mute function is turned off to allow your signal to reach our equipment. Once again that is “*1” on your touchtone telephone to ask a question. We’ll pause for just a moment to assemble the queue. We’ll go ahead and take out first question from Heather Jones with BB&T Capital markets.

Heather Jones – BB&T Capital Markets

Good morning.

Mohammad Abu-Ghazaleh

Good morning Heather.

Heather Jones – BB&T Capital Markets

Good quarter and I also want to say thank you for breaking up those different costs and what their trends were in the quarter. I guess I’d like to start on the banana side. I was wondering when you anticipate the impact of the flooding, cold weather etc to moderate on your plantation.

Mohammad Abu-Ghazaleh

I believe Heather it will not be before towards the end of this year. Because we have just been actually to the plantation few days ago and what I saw is that really the flooding has done a lot of damage and the weather pattern hasn’t been very good at all in the last few months, not only the floods but there has been a lot of cold periods, lot of wind and this has affected even the plantation further. So, I believe that if the weather remains reasonably stable during the next few months I think we’ll recover to normal production by end of this year.

Heather Jones – BB&T Capital Markets

Okay and would you expect the impact on food costs to be as significant in Q3 as it was in Q2?

Mohammad Abu-Ghazaleh

There are several factors that will lead to that. If as I said if the production goes back to normal provided the weather stays reasonably stable that’s one and the other one is also governments are becoming more and more involved in pricing and fixing prices for the exit price for the bananas. So, this is something that you cannot control as well and the only way that we can really work on our costs is by increasing our yields and by improving our production pace. As far as exit price that is something that really you cannot control. But I believe that we should, provided everything remains stable we should see an improvement in our costs.

Heather Jones – BB&T Capital Markets

But going into the idea and if you look at imports into the EU for the first half they are down meaningfully, not just from Costa Rica but Panama, Columbia etc. So, your costs are up. But is it a fair point that this is being offset by better pricing. I mean Q2 especially during latter half EU pricing was very strong year-on-year and our checks shows that it is still, it has weakened seasonally but it is still up meaningfully from last year. I was just wondering if that’s consistent with what you’re seeing.

Mohammad Abu-Ghazaleh

Yeah I agree with you that pricing in Europe has helped a lot during the second half especially in the first two months of the second half. I mean the prices have declined quite substantially from where they were a month ago. I mean right now really as we speak now, the prices doesn’t cover the costs. So, but we hope that once the vacation has ended and back to school, people start coming back to school, that would change. The prices, we believe that the prices will start coming back again.

Heather Jones – BB&T Capital Markets

Okay and just a broader like longer-term question, going back to the government setting the minimum fruit prices, fuel is down now but still is historically high and all but is it your view that, that results in a greater likelihood of more rational end markets or what is your thought from that idea?

Mohammad Abu-Ghazaleh

I believe that long time I believe that the market will be more rational. I believe that supply has come to a point where there will not be a huge upsurge in supplies in the future. The only country that might have upside would be Ecuador maybe. Panama is almost done with the way that the labor has been taking care of the farms. Costa Rica is almost fully utilized land wise. Columbia more or less same story, Guatemala probably will increase a little bit. So, my view for the long-term I think that Bananas will become a stable commodity.

Heather Jones – BB&T Capital Markets

Okay. And my final question is on pineapple, you mentioned that the supplies are much tighter and from what we understand lot of fruits is getting rejected in Costa Rica because quality is poor etc, etc. It is tightening up the market. So, my question is, is that affecting your supply or is your production really unaffected because you are simply benefiting from higher prices.

Mohammad Abu-Ghazaleh

No, our own production has not been affected really. The independent, the third party production that has been, especially on the Atlantic side has been greatly affected by the weather conditions that has prevailed during the last several months and that’s what is causing this kind of projections.

Heather Jones – BB&T Capital Markets

So, it is a net-net positive for you.

Mohammad Abu-Ghazaleh

Well, we consider ourselves maybe lucky in one way and maybe more professional in other way.

Heather Jones – BB&T Capital Markets

But will you when you go for the numbers.

Mohammad Abu-Ghazaleh

Yeah I think we are better off that the others, yes.

Heather Jones – BB&T Capital Markets

Okay. All right thank you.

Mohammad Abu-Ghazaleh

Thank you.

Operator

Okay and we’ll move to our next question which will come from Bill Chappell with SunTrust.

William Chappell – SunTrust Robinson Humphrey

Hi good morning.

Mohammad Abu-Ghazaleh

Good morning, Bill.

William Chappell – SunTrust Robinson Humphrey

I guess first on the exiting Brazil, can you give us kind of an idea how much of it all of a revenue hit that would be for that business for you over the next 12 months?

Mohammad Abu-Ghazaleh

It was 2 million boxes was the production of pineapple.

William Chappell – SunTrust Robinson Humphrey

Okay.

Mohammad Abu-Ghazaleh

Roughly nothing significant at all.

William Chappell – SunTrust Robinson Humphrey

Okay and then is this part of a plan that you are looking into rationalize worldwide or is this just a one off type case?

Mohammad Abu-Ghazaleh

As I always say we look at our business, we focus on it regularly and continuously and whenever we see that there is an area where it is not really helping the company, on the contrary it could be a negative impact on our results, we take a look at it and we try to rectify it and if it doesn’t turn out to be right and we just deal with it and that’s one of the cases that we have to take that decision.

William Chappell – SunTrust Robinson Humphrey
Okay. And then on the commodity costs certainly, it is nice to see the relief finally come through in terms of the container board and local fuel and what have you and are we seeing the full benefit this quarter or now is there a bit of a lag, do you expect it to get even better as we move forward to the rest of this year.

Mohammad Abu-Ghazaleh

Probably on the melon side yes, because melon is seasonal and last year off shore melon season was, all the raw materials be it fertilizers, pesticides, everything was bought at the peak in the market in terms of costing. Of course costs have come down significantly since then and we believe this is the area where we will benefit most. Bananas and pineapples are more or less on a much shorter kind of plan for buying all these materials. So, yes we will see some benefit on the melon side.

William Chappell – SunTrust Robinson Humphrey

Okay great. And then Richard just one question on the new credit facility. Is it right to say about $12 million to $14 million of kind of annualized interest expense and will that start this September quarter?

Richard Contreras

Starting immediately it will be 50 times LIBOR plus 3 is what we have right now but that debt will go up and down as we are coming into our season second half of the year where we borrow some but the debt we have now is 3.50.

William Chappell – SunTrust Robinson Humphrey

When you say LIBOR plus 3.50 is that roughly the full because you are nicely at 15 down debt, so that should go whole lot higher if LIBOR goes up.

Richard Contreras

The debt will move up higher seasonally and then will come back down again but LIBOR plus 3 not 3.50, LIBOR plus 3 and if our leverage goes down in the future that will come down as well.

William Chappell – SunTrust Robinson Humphrey

Okay and then one just last question the difference in the tax rate this quarter, the taxes benefit versus the taxes paid?

Richard Contreras

Yeah that was some unusual that was just a reversal of some accruals that we have based on the satisfaction of some audits but for the future I think it should still continue to use about a 6% rate.

William Chappell – SunTrust Robinson Humphrey

Great. Nice quarter. Thanks so much.

Richard Contreras

Thank you.

Operator

All right, we’ll take our next question from Jonathan Feeney with Janney Montgomery Scott.

Jonathan Feeney – Janney Montgomery Scott

Good morning, thank you very much.

Mohammad Abu-Ghazaleh

Good morning, Jon.

Jonathan Feeney – Janney Montgomery Scott

First question Mohammed, to what extent does this decision to exit the pineapple business in Brazil reflect maybe a disappointment with pineapples in Europe particularly? Do you feel like that? It looks like a there is a lot of leak in the system and are you feeling less nervous about the growth in that area?

Mohammad Abu-Ghazaleh

Say can you repeat we could not hear.

Jonathan Feeney – Janney Montgomery Scott

Oh I’m sorry. The decision to axe pineapple in Brazil, is it a reflection of bearishness about demand in Europe particularly for pineapple. What do you say about your outlets there?

Mohammad Abu-Ghazaleh

No, no, no, no nothing to do with demand or the market situation. It was purely technical reason that we had to pull out the pineapple from Brazil because there were several agricultural factors that were not favorable and the yield that we obtained for instance in Costa Rica, in Philippines are completely higher and better than the ones from Brazil. So, it was a matter of cost element and production element, nothing to do with the markets.

Jonathan Feeney – Janney Montgomery Scott

Okay and could we expect a cost benefit? I know it is a small amount of volume but I’d imagine this struggle would have cost you some money these past couple of quarters. Should we expect a cost benefit in the next couple of quarters from that decision?

Mohammad Abu-Ghazaleh

Definitely going forward, I don’t know if that is a next quarter decision, the first quarter but definitely going forward there will be a benefit of savings and rationalization. I agree on that but I cannot define the time we will show this benefit.

Jonathan Feeney – Janney Montgomery Scott

Okay thank you and when we think about global governments like say Costa Rica raising minimum prices, it certainly makes your decision to purchase Caribana was threatened and I wondered did that makes it most likely to vertically integrate and buy more acreage of bananas or pineapples in these countries where minimums are going up so that you can benefit from what effective will be a large tract.

Mohammad Abu-Ghazaleh

Well I think that the Caribana acquisition especially during this past year has been very, very helpful because if not for Caribana volumes that we have especially on banana would have been held very much during the last six or seven months because of the floods and the water content. So, it was an excellent, as you said, an excellent acquisition in my opinion. Today to go and buy additional land I believe that, first there are not so many farms for sale in the Caribbean, second because the cost is prohibitive, I mean the prices are becoming prohibitive to buy even land, in these countries if it is available it is becoming so prohibitive that to really make a new plantation does not make much sense.

Jonathan Feeney – Janney Montgomery Scott

In fact the real trade market growing up so far, right. Finally one small question, the cost of avocado growth, I know it is small for you, but it is kind of a big picture question, I know you are looking for ways to leverage the Del Monte brand name globally into the growth area, it seems like I heard a couple of times you talk about this growth. Can you talk a little bit about what the future might hold for Avocado and Fresh del Monte?

Mohammad Abu-Ghazaleh

Avocados we are really gearing up to increasing our volumes because supplies are limited. Major supplier is Mexico and Mexico is tight and the other place that we import from is Chile and of course the local production is California. If you look at all these sourcing they are really getting tighter every year. I mean now we see prices of avocado in the mid 50s which is unheard of. I mean it is really fantastic prices that we are seeing right now. We are trying to increase our sourcing from Mexico and we intend to do that and we are also increasing our volumes for Chile. So, we are working very hard to increase and taking a real challenge to improve our…it is a very profitable business and we need to grow in that business as we move forward but at same time we are looking at other vegetables items that we can outsource from offshore which came from Columbia because it is a very attractive rate. And as we go forward we will keep you informed of that account.

Jonathan Feeney – Janney Montgomery Scott

Thank you very much. I appreciate it.

Operator

Okay we’ll move forward to our next question that will come from Vincent Andrews with Morgan Stanley.

Vincent Andrews – Morgan Stanley

Good morning everybody.

Mohammad Abu-Ghazaleh

Good morning.

Vincent Andrews – Morgan Stanley

If I just could ask on banana volumes one of the difficulties we had was estimating what you lost in the quarter from the floods relative to what you got dropped from the Caribana acquisition. Is there any way that you can help us reconcile that?

Richard Contreras

Yeah the Caribana volume is down about 14% from what we had originally quoted and that is banana wise that is all from the floods and the water. And then the company volume has also been impacted and that’s down about 10%. I’m just talking about quarter-over-quarter.

Vincent Andrews – Morgan Stanley

And how should we think about that as we look at the rest of the year?

Richard Contreras

I think what Mohammed said and it will probably linger throughout the rest of the year.

Vincent Andrews – Morgan Stanley

It was a good run rate for the next two quarters right.

Richard Contreras

I’d say so.

Vincent Andrews – Morgan Stanley

Okay and then it seems like some of the comments in the press release suggested that there was a sequential improvement in pineapple demand. Am I listening to that correctly?

Mohammad Abu-Ghazaleh

Yeah demand hasn’t been diminished in the market. Of course we have a period in the last couple of months where supplies were huge. I mean there was an oversupply in the market and that was because there was a precarious fruit which is natural flowering which cannot be controlled and there was a huge supply in the market. That depressed the prices for a while. Now we see again a normal pattern where supplies are tight and the price has gone up. So, pineapple business hasn’t been affected except by the oversupply that we have seen in the last couple of months.

Vincent Andrews – Morgan Stanley

I thought I remember from the last quarter that pineapple demand and pricing has been impacted by the recession. Is that not the case?

Mohammad Abu-Ghazaleh

No. not really, not really and in a way yes but as far as Fresh Del Monte is concerned we still have our capital and we still have our volumes moving and definitely the prices have been impacted because of the recession.

Vincent Andrews – Morgan Stanley

Okay and then Mohammed on the Middle East revenue number for the quarter, last quarter, you said the deceleration in the growth there was largely a function of your kind of optimizing the distribution of fruit. You said you were taking bananas out of Middle East and turning them to Asia. Is that still what’s taking place?

Mohammad Abu-Ghazaleh

Well up till last month yes, that was the case.

Vincent Andrews – Morgan Stanley

Okay, and so what’s happening now that some of the change in the Asian market that you’re not doing that anymore?

Mohammad Abu-Ghazaleh

We monitor the market and we move the fruit wherever there is the optimum price and now it is the summer time and all the markets usually are soft so it is not geared to compare with definitely we are planning of course once we open our market in Saudi Arabia by October, November, you will have to create more volumes into these markets to meet the demand.

Vincent Andrews – Morgan Stanley

Okay thank you.

Operator

At this time we have one question remaining in the queue. As a final reminder if you’d like to ask a question, please press “*1” on your touchtone telephone at this time. And our next question will come from Scott Mushkin with Jefferies & Company.

Scott Mushkin – Jefferies & Company

Thanks guys, thanks for taking my question. I want to touch on the pineapple business a little bit more Mohammed and get your thoughts. And one of the things that’s happened with pineapple is over time with more people have come in those profits have slowly declined. Now it sounds like maybe the growing conditions in the east side of Costa Rica or maybe its aftermath that people have thought originally and that’s where I think a lot of the independent growers are if that’s right. Do you think this has permanently changed the idea that the pineapple business maybe slowly declining and maybe we’ll see an end to that and the long-term outlook for pineapple given what is going on with independent it is better than maybe what we anticipated six months to a year ago?

Mohammad Abu-Ghazaleh

Yeah my answer is yes and I always believed in that it was a gold rush at the beginning and now people realize that there is not so much gold to find and they have to look somewhere else for the gold.

Scott Mushkin – Jefferies & Company

And do you anticipate some of these independent people will cease on the eastern side of Costa Rica?

Mohammad Abu-Ghazaleh

I believe that that could happen yes because first of all to replant pineapple is a very expensive. It is not like banana that grows by itself every eighteen months or so. Every two years you have to replant the same field again and this is very costly, I mean at very high cost. On the second hand I think banks now are very reluctant to advance money and loans to specially people in agriculture these days. So, there are several factors that work in that direction. I think we will not see this with immediate effect but long-term I believe this is a viable case.

Scott Mushkin – Jefferies & Company

And then one final one on the same subject, Caribana I believe had some pineapple farms on the eastern side of Costa Rica. How did their…I think they are a little higher up than some of the independents, how did they fare in this whole weather situation?

Mohammad Abu-Ghazaleh

Well, let me be very, very honest. The farms when we received them were not at the very optimal conditions and they didn’t have the same agricultural practices and things that we use in Del Monte. Since then there has been a gradual transformation and hopefully by sometime next year we will bring them up to the standard and to the same yields of Del Monte farms. So, we are very confident that we’ll bring them to Del Monte standards in the near future.

Scott Mushkin – Jefferies & Company

Okay and then I guess one clarification. I think you said and if I have the quote right, Banana prices are not covering the increased costs for the moment but they were in the second quarter. They are not now and you anticipate as we get back to school, that you’ll once again recover all the costs, increased costs with prices in Europe. Is that, did I hear you correctly?

Mohammad Abu-Ghazaleh

That’s what I believe. Yes I believe that come maybe September, October we’ll start seeing the prices to move up again provided of course there is no oversupplies because we don’t know what will happen. Could be that in the tropics we’ll see production coming back to high levels but all in all I believe that the prices should improve as we go into September, October period.

Scott Mushkin – Jefferies & Company

And Richard, one final I could keep going here, would you remind us what percentage of bananas are grown on your own farms?

Richard Contreras

Own bananas I think it is about 30%.

Scott Mushkin – Jefferies & Company

Okay 30% okay worldwide.

Richard Contreras

Right and that’s skewed because the Philippines is third party and Latin America I say is higher a lot higher.

Scott Mushkin – Jefferies & Company

Then how about coming into North America, what’s that? Do you know that from the top of your head?

Richard Contreras

I don’t because we source from Central America we source for Europe and North America. It is segregated that way.

Scott Mushkin – Jefferies & Company

Right well thanks guys. Thanks for taking my question.

Richard Contreras

Thanks Scott.

Operator

Okay and there are no further questions at this time. So, I’d like to turn the conference back over to our speaker Mr. Abu Ghazaleh for closing comments.

Mohammad Abu-Ghazaleh

Thank you very much and I’d like to thank everybody for the time and patience. Definitely I’d like to say that we have been facing challenging times and the trauma isn’t over and hopefully we’ll overcome and hopefully that next time we will see we will have some good news. Thank you very much. Talk to you soon. Bye.

Operator

Thank you, sir. Thank you. That does conclude today’s teleconference. We thank you all for your participation.