Higher banana sales gave Fresh Del Monte optimism in its third-quarter financial report, despite net sales and gross profit being down from 2008.

The Coral Gables, Fla.-based company reported its quarterly results Oct. 27.

Bananas give Del Monte optimism in third quarter report

That tight supply-demand situation led to a 5% increase in net sales in bananas for the company, which reported total net sales of $766.2 million for the quarter, down from $832 million in the third quarter of 2008. Bananas were responsible for $351 million of the net sales.

“In terms of highlights for the quarter, our performance was driven by strong growth in our banana business segment,” said Mohammad Abu-Ghazaleh, chief executive officer and chairman, during a conference call for analysts and investors.

“The results were characterized by higher worldwide banana selling prices as demand for bananas outpaced global supplies.”

Volumes was tight for Del Monte, too, partly because of flooding late in 2008 and early 2009. Heather Jones, senior vice president and analyst for BB&T, said her firm was expecting better gross profit on bananas than the $69 million del Monte reported, down from $79 million in the same quarter of 2008.

“With bananas, gross margin fell year over year, gross profit fell year over year,” Jones said. “Even though pricing was up, gross profit was way down because of cost issues.”

Jones said she knew the company was struggling because of cost issues, but thought the issues wouldn’t proceed into the third quarter.

“But actually it was worse,” she said. “We knew Q3 would be impacted, but we didn’t expect it to be worse than Q2.”

Richard Contreras, Del Monte’s senior vice president and chief financial officer, said the $14 million in gross profit for bananas in the third quarter, down $10 million from one year ago, was primarily due to significantly higher costs associated with procurement of fruit in Central and South America. Unit cost was up 8%.

Decreasing volumes and sales of gold pineapple were largely responsible for offsetting the banana category’s strong sales performance, leading to the lower net sales overall. Higher banana procurement costs and weak performances for melons and tomatoes also played a role.

Foreign exchange translation gains, lower interest expense and tax benefits led the company to an increase in net income, though, which was $38.6 million, up from $29.1 million for the third quarter of 2008.

At a glance:

  • Banana net sales increased 5% to $351 million. Worldwide pricing increased 4% to $13.75 per unit. Gross profit was $14 million, down from $23.6 million;
  • Gold pineapple net sales decreased 15% to $104 million;
  • Melon net sales decreased 34% to $21.7 million;
  • Fresh-cut net sales decreased 2% to $82.2 million;
  • Nontropical net sales decreased 4% to $46.9 million;
  • Tomato net sales decreased 15% to $26.7 million;
  • Prepared food net sales decreased 17% to $85.5 million.

For many of these categories, volume decreased significantly. Gold pineapple saw an 8% decrease in volume because of cool weather in Costa Rica during the second quarter.

“While we see supply conditions coming back to normal levels, we cannot control economic conditions that continue to pressure consumer price sensitivity for this product line in the near term,” Abu-Ghazalah said. “We believe pineapple consumption will continue to grow and expect that when the economy recovers, we should begin to see gross pineapple pricing improve.”

Melon volume was down 39% because of a decrease in sourcing from third party growers in California.

For nontropicals, volume actually increased 15%, but pricing was 16% lower than the third quarter of 2008, leading to the decrease in net sales.

The company’s cash flow and debt situations are strong, investors mentioned during discussion at the end of the formal presentation. The company’s debt was reduced to $314.4 million, down from $512.8 million at the end of 2008. Net cash from operating activities was $269.9 million for the first six months of 2009, up from $245.9 million in 2008.

Although the company’s earnings per share of 45-cents beat Wall Street’s estimate of 37-cents, the company missed the mark on analysts’ prediction of $819 million for net sales, according to the Wall Street Journal. The company’s earnings were $28.6 million, down from $29.3 million in 2008.