Fresh Del Monte Produce Inc. reported a 67% jump in quarterly profit, though results fell short of expectations as the fruit and vegetable company cited pressure from high fuel costs, slumping melon sales and a depressed European fresh produce market.
There were “a number of external challenges” during the second quarter, Mohammad Abu-Ghazaleh, Fresh Del Monte’s Chairman and Chief Executive Officer, said in an Aug. 2 news release announcing financial results.
Weakness in Europe reflected “significantly lower banana and pineapple selling prices during the month of June, along with substantially higher fuel costs and continued competitive pressure in our melon business collectively impacted our financial results,” he said.
Fresh Del Monte’s statements echo those of Dole Food Co., which in quarterly results released in late July week also pointed to eroding fruit prices in Europe. Excess banana supplies and weak prices in Europe burdened large, U.S.-based multinational fruit distributors such as Fresh Del Monte last year.
More recently, fears that Greece and other heavily-indebted countries may default on loans roiled Europe’s markets, while an E. coli outbreak in Germany hurt produce demand. Buying power of European consumers has weakened, Abu-Ghazaleh said.
In Europe, economic conditions “are not very favorable,” Abu-Ghazaleh said during an Aug. 2 conference call with analysts that followed the release of results. “I believe it will continue to be under pressure.”
Stronger markets in Asia and North America offset weakness in Europe, according to the company. During the quarter, North American sales rose 8%, to $514 million, or 49% of total sales, according to the release. Asia sales rose 4.5% to $138.4 million, while Europe’s declined 2% to $257.1 million.
In bananas, Fresh Del Monte’s largest business segment, net sales were $466 million during the quarter, an increase of 3.1% from the same period in 2010. Global banana prices averaged $15.50 per 40-pound box, up 7% from a year earlier, according to the company.
In other commodities, melon sales sank 23% to $41.9 million as volume tumbled 22% and prices fell 2%. Fresh Del Monte is “aggressively” restructuring its melon program, which will enable the company to shift resources to its new specialty melon program, Abu-Ghazaleh said.
The melon business “isn’t rational,” Abu-Ghazaleh said during the call, adding that many retailers “don’t care” about quality, but rather are focused on price. “We don’t see much of a future in traditional melons,” he said.
For the three months ending July 1, Fresh Del Monte had net income of $35.2 million, up from $21.1 million in the same period a year earlier, the company said. Net sales rose 4% to $1.04 billion.
On a per-share basis, Fresh Del Monte earned 77 cents during the quarter excluding special items, down from 85 cents a year earlier. That’s about 19 cents below analysts’ average estimate, according to Thomson Reuters I/B/E/S.
In midday trading Aug. 2, Fresh Del Monte shares fell 97 cents, or 3.9 %, to $23.67. The stock is still up about 12% over the past 12 months.