The first quarter report from Chiquita Brands International Inc. includes a net loss of $25 million and the revelation that it will be raising prices and reducing sizes of its salad packages effective July 7.
Company executives delivered the financial news May 9 during a conference call when president Ed Lonergan referenced the company’s “transformational merger” with the Dublin-based Fyffes Plc. as one part of Chiquita’s strategy to improve its overall performance.
Lonergan said January and February this year were particularly difficult because of drought conditions in banana-producing regions in Panama and Costa Rica and storms in the U.S. that wreaked havoc with its supply logistics. March and April were much better, though, and Lonergan said he believes the broader banana market has stabilized.
Brian Kocher, chief operating officer, said that despite the net loss in the first quarter, Chiquita’s retail prepackaged salad volumes were up 5.3%, partly as a result of private-label and Fresh Express contract wins.
“This is the fourth consecutive quarter for year-to-year retail volume growth in salads,” Kocher said.
However, the weekly promotions and sell-through on packaged salads did not deliver as much improvement as anticipated, Kocher said. Overall Chiquita sold fewer higher value blends and kits than planned and substantially undersold its raw supply.
About 20% of Chiquita’s salad business is with foodservice customers, 5% is with ingredient buyers and the remaining 75% is in packaged salads, company officials said.
Kocher said plans to improve the salad returns include efficiencies expected later this year as its new suburban Chicago salad plant’s automation becomes fully operational. He said the salad division also got a boost the first week of May when a “key foodservice customer” signed a deal for 4.5 million incremental pounds of additional volume.
That same week the Charlotte, N.C.-based company also announced substantial changes involving pricing and package sizes, Kocher said. Per case prices will increase 30 cents effective July 7. Some packages will decrease from 11 ounces to 10 ounces.
“We will resize a number of core SKUs to better match consumer interests and our competitors’ norms to improve our profit profile,” Kocher said.
The company’s banana division is also operating under a new strategic plan, Kocher said. North American volumes for the first quarter were 5% higher than in the first quarter of 2013, but volumes declines of 22% in the Middle East, 9% in the Mediterranean and 5.4% in Europe left the division with an overall volume decline of 0.4% for the quarter.
“We do have good renewals in North America with moderate price increases,” Kocher said, adding that the company also has new business equaling 2 million boxes for 2014.
Chiquita also plans to offer a broader banana portfolio in Europe, including organics. the company is expanding its container shipping capacity “strategic Guatemalan ports” to take advantage of front and back haul opportunities in that region, Kocher said.
One problem with its banana division has been declining rainfall in tropical regions. Company officials said they are adding irrigation to growing operations in Panama can Costa Rico to increase yields in their own fields so they won’t have to rely so heavily on fruit from other sources.
“There were many times we chose not to buy fruit and therefore sold less because the (high cost) would have made our overall results worse than they are,” Lonergan said of buying bananas from other sources.