Weather woes led to a tough first quarter for Chiquita Brands International, Inc. Drought conditions in Central America disrupted supply, and winter storms in North America affected demand, contributing to a net loss of $25 million.
Chiquita said its proposed merger with Fyffes, a Dublin, Ireland-based fruit and produce distributor, will better position it to mitigate weather-related risks.
“With Fyffes, we will benefit from broadened growing areas, multiple shipping options to reach key markets, and an expanded team of seasoned, skilled experts to manage the disruptions,” said Ed Lonergan, president and chief executive officer, during a May 9 call with financial analysts. “As well, the combination of the tropical fruit business with the melons and salads and healthy snacks platforms provides added risk balance across fresh categories and markets and growing environments.”
Chiquita said it has begun the regulatory review process for the proposed merger, ChiquitaFyffes, which was announced March 10. The company expects to close the transaction by the end of the year.
“In meetings with customers, investors and team members from both companies, we see universal excitement for the combination and broad belief that ChiquitaFyffes will be able to provide better performance than either company could achieve on its own,” Mr. Lonergan said.
In addition to the Fyffes merger, Chiquita continues to bet big on its strategy to focus on its core businesses of bananas and salads. The company grew North America banana volume by more than 5% compared to the prior-year quarter, benefitting from contract wins and growth from existing customers. Retail salad volume grew 5% as a result of private label and Fresh Express contract wins and higher velocities with existing customers.
However, winter weather resulted in substantially lower food service and fruit ingredient volumes. For the first quarter ended March 31, Chiquita reported a net loss of $25 million, which compared with net income of $2 million in the year-ago period.
Net sales during the quarter declined to $762 million from $774 million.
Steps Chiquita is taking to restore profitability include improving plant efficiencies, pursuing new business, increasing marketing support, and resizing some of its salad products.
“March and April results reflect substantially improved performance year on year and against our plan,” Mr. Lonergan said. “We believe that the return to a more normal banana market and the cost actions we have taken there will positively impact our results and offset our shortfall in the first quarter over the course of the year. In salads, we also see the dissipation of weather-related variances but as well see accelerated cost inflation in the business. As such, we’re taking actions in the marketplace to raise prices and realization and internally to improve efficiencies so as to change the profit profile of this business.”
