Fresh Del Monte profits, EPS slip on bananas plagued by inconsistent supply, drug smugglers

By Elizabeth Crawford contact

- Last updated on GMT

Source: iStock
Source: iStock
Between a shortage at the start of the year, a glut at the end and illegal drug smuggling throughout, 2015 “was a very tough year in terms of bananas,” and by extension for Fresh Del Monte Production, according to the company’s CEO.

In 2015, the fresh produce giant’s gross profits slid 6.1% to $342.3 million compared to 2014. Net income also fell 54% to $66.4 million as did earnings per share by 53.7% to $1.17 compared to figures in fiscal 2014.

The decline is attributed in large part to bananas, which suffered many unexpected and uncontrollable hitches during the firm’s fiscal 2015, results for which were reported Feb. 23.

The most significant impact came from an “explosion of production”​ in the last few months of 2015 that “resulted in us missing several key financial targets in the fourth quarter and constrained our ability to deliver optimal earnings for the year,”​ CEO Mohammad Abu-Ghazaleh told analysts Feb. 23.

This followed a “big shortage”​ in the first two months of the year that forced the company to buy additional loads from Ecuador at a very high price compared to earlier purchases, he saidi.

And while Mother Nature may be a force with which to reckon, so too are drug smugglers who favor banana and pineapple shipping containers and “spoilt this whole picture”​ in 2015, Abu-Ghazaleh said.

“It seems that bananas [are] becoming a very easy conduit for this trade and the banana becomes irrelevant compared to the other cargo inside,”​ he said.

He further explained that market prices of $4-$5 a box at repeating high volumes don’t make sense.

The prices make “you wonder how anyone can survive with such loses forever,”​ he said.

“What is lacking is more intervention and government control and government … supervision worldwide,”​ he added.

Reflecting on the problem, he added: “What is distorting this business is not supply and demand, it’s other reasons that we don’t have any control over.”

While he is not confident government will rein in the drug smugglers any time soon, he is more confident that the weather and supply will even out in 2016 so at least in the near future there should not be such drastic shortages and gluts influencing price and cost.

A few bright spots

The bad news with the bananas overshadowed several company achievements in the fourth quarter.

Among those was a 5% increase in net sales in the fourth quarter to $978 million, which helped the company surpass $4 billion in sales for the first time.

The company also expanded its footprint by opening new distribution centers and fresh-cut facilities, Abu-Ghazaleh said.

In addition, “we advanced our global presence through new sourcing initiatives and we increased our market share in several product categories, led by strong sales of our other fresh produce business,”​ he said. This included a 34% increase in avocado sales in North America over the previous year.

Looking forward, Abu-Ghazaleh said he is confident in the company’s potential to leverage its experience and expand its global distribution network “to meet rising consumer demand for healthy, for convenient and safe Fresh Del Monte branded products.”

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