Fresh Del Monte Produce Inc. said third-quarter profit fell 3.7% as a weak banana market in Europe, high fuel costs and declining melon and tomato sales outweighed strength in the fruit company’s North American businesses.
An oversupply of bananas in Europe was among Fresh Del Monte’s challenges during the quarter, Mohammad Abu-Ghazaleh, the company’s chief executive, said during a Nov. 1 conference call following the release of financial results.
“We do not believe Europe’s economic problems will end any time soon,” Abu-Ghazaleh said. “We haven’t seen the worst yet.”
Fruit market weakness was compounded by the “dumping” of subsidized product from Africa and other regions into Europe, he added.
European banana prices in September sank to the lowest levels in a year, dropping 23% from a springtime peak, according to World Bank data. Fears that Greece or other highly-leveraged European countries will default on debt roiled financial markets over the summer, sending the euro tumbling amid concern the region was heading toward recession.
Market turmoil combined with last spring’s deadly E. coli outbreak, linked to tainted sprouts from Germany, to hurt overall produce demand. More recently, an outbreak from Listeria-contaminated cantaloupes from a Colorado farm that killed at least 28 caused a drop in melon demand.
The Listeria outbreak “just froze the industry,” Abu-Ghazaleh said during the call, referring to cantaloupes.
Fresh Del Monte’s sales in Europe fell 12% during the third quarter, compared with the same period a year earlier, to $174.7 million, the Coral Gables, Fla.-based company said in a Nov. 1 statement. North American sales rose 5.1%, to $399.9 million, or 50% of total sales, while Asia sales were unchanged at $93.6 million.
In bananas, Fresh Del Monte’s largest business segment, net sales were $375.1 million during the quarter, up 1.4% from a year earlier. Global banana prices averaged $12.91 per 40-pound box, down 4.2% from $13.47 a year earlier, Fresh Del Monte said.
Weak European banana markets have also burdened Fresh Del Monte’s primary U.S.-based competitors, Chiquita Brands International Inc., and Dole Food Company, Inc. over the past year. Chiquita is scheduled to report third-quarter results Nov. 3.
Fresh Del Monte said its non-Europe businesses, including fresh-cut fruit and North American bananas, performed better. Net sales in fresh-cut fruit rose 18% during the quarter, to $92.6 million as volume rose 14%.
The company continues to gain market share in fresh-cut fruit amid strong demand and rising prices, Abu-Ghazaleh said. “We expect to expand our position as the global leader in this category,” he said.
In melons, sales dropped 28% to $13.3 million as volume plunged 44% even as prices rose 30%, Fresh Del Monte said. Net tomato sales fell 32% to $16.5 million as volume slumped 30%.
Fresh Del Monte previously said it was restructuring its melon program, downsizing sales of traditional varieties and shifting resources to a recently-launched specialty melon program. The melon business is “an ongoing battle,” Abu-Ghazaleh said, “but we feel like we’ve turned a corner” toward greater profits.
For the three months ended Sept. 30, Fresh Del Monte posted net income of $12.9 million, down from $13.4 million during the same period a year earlier, the company said. Net sales rose 0.3% to $795.2 billion.
On a per-share basis, Fresh Del Monte earned 22 cents during the quarter excluding special items unchanged from a year earlier. Per-share earnings were about 2 cents above the average analyst estimate, according to Thomson Reuters I/B/E/S.
In midday trading Nov. 1, Fresh Del Monte shares fell 76 cents, or 3 %, to $24.70. The stock is still up about 15% from a nine-month low of $21.41 reached Aug. 8.