Even though banana business was up compared to the first quarter of 2013, Fresh Del Monte Produce Inc. officials say the company’s off-shore melon business was the pot of gold at the end of this year’s first quarterly report.
The Coral Gables, Fla.-based company posted gross profits of $106.7 million for the first quarter of 2014, compared with $98.6 million in 2013, said Richard Contreras, chief financial officer, during a conference call April 29.
The company’s net sales of melons dropped 1% to $51.2 million and volumes declined 19%, but pricing increases of 23% gave the company a big boost.
“The majority of our gross profit increase this quarter is attributable to this year’s off-shore melon season,” Contreras said.
Fresh Del Monte’s net banana sales — which accounted for 29% of its gross profit for the quarter — increased, as did overall volumes, but unit costs also increased.
“If it wasn’t for our other areas I don’t think we would have been able to deliver a quarter like this,” said Mohammad Abu-Ghazaleh, chairman and chief executive officer. “Our melons were very important.”
Abu-Ghazaleh said the first quarter demonstrated Fresh Del Monte is making progress with strategic initiatives. He said he is closely watching several factors related to the banana side of the business, though.
Banana disease has and continues to be a concern even though it hasn’t hit main growing regions. The CEO said production volumes are also a concern. He said many fields have been producing bananas for 50-60 years and the land is becoming exhausted, meaning higher yields are more and more difficult to achieve.
But disease and yields are not his top banana concern. “Pricing isn’t that much improved,” he said, adding that costs keep rising.
“If pricing doesn’t go along with cost increases, I don’t see how the industry can survive in the long term,” Abu-Ghazaleh said. “My worry is … the market and the retailers and buyers don’t seem to realize this. One day they will end up with no fruit to sell and they will lose their golden goose.”
Abu-Ghazaleh alluded to the pending merger between Chiquita Brands International and Fyffes Plc., although he did not mention the companies by name, saying that consolidation in the industry has the potential to help everyone in the banana business.
“It could help, if the players know how to be rational, otherwise is will just be the same game,” Abu-Ghazaleh said.
Del Monte’s top officials also spoke about the company’s fresh-cut segment, which posted a net sales decrease of 11% as well as an 11% decline in volume for the first quarter.
Contreras said the decline in net sales was primarily because of lower sales in Europe because of a previously announced loss of retail business in the United Kingdom. However, Abu-Ghazaleh said he sees fresh-cut as a long-term venture with the payoff beginning as soon as the third or fourth quarter of this year.
“We are seeing (retailers) coming in and out,” Abu-Ghazaleh said. “They like to take fruit off the shelf that hasn’t sold and cut it and put it in containers. There’s a big difference in what we do in cutting the Plus-A, top-notch quality fruit.
“And we have all of the standards and hygiene that no one can have in a grocery store. We see a lot of grocers in it for a few months and then they come back to our products. It will still take some years for this to settle down and for (retailers) to understand (fresh-cut) is a business that has to be done at a professional and systematic level.”
Other statistics from Fresh Del Monte’s first quarter report include:
- Bananas: Net sales increased 8% to $436.9 million. Worldwide pricing increased 24 cents, or 2%, to $15.21 per unit. Volume was 6% higher. Gross profit was $31.0 million, compared with $30.5 million in the first quarter of 2013. Unit costs were 2% higher.
- Pineapple: Net sales increased 12% to $132.9 million. Volume increased 16%. Pricing decreased 4%. Unit cost was 1% higher.
- Fresh-cut: Net sales decreased 11% to $88.1 million. Volume decreased 11%. Pricing was in line with 2013. Unit cost was 2% higher.
- Melons: Net sales decreased 1% to $51.2 million. Volume decreased 19%. Pricing increased 23%. Unit cost was in line with 2013.
- Non-tropical: Net sales increased 8% to $124.7 million. Volume decreased 3%. Pricing increased 11%. Unit cost was 12% higher.
- Tomatoes: Net sales increased 11% to $19.2 million. Volume increased 9%. Pricing increased 2%. Unit cost was 4% higher.