Chiquita's Profits Fall Partially due to Higher Sourcing Costs

Operating income from bananas fell 19 percent, which Chiquita said was due to higher sourcing and logistics costs

Aug. 07--Profits at Charlotte-based Chiquita Brands International slipped in the second quarter, as the banana company moves closer to its merger with an Irish produce firm.

Once again, Chiquita ascribed much of the blame to dry weather. The company earned profits of $18 million in the second quarter, down 42 percent from the same quarter last year.

"We realized value and volume sales increases in our banana operations, but reduced productivity, principally due to dry weather, on both owned and third-party farms in Central America resulted in higher sourcing costs and less fruit to sell in our weekly pricing markets," Chiquita CEO Ed Lonergan said in a statement.

The company's revenue climbed just under 2 percent in the second quarter, to $826 million. But its cost of sales grew at a faster rate, 3 percent, eating into profit margins.

Bananas remain the biggest seller for Chiquita, accounting for $537 million in sales during the quarter. That's up 3 percent. But operating income from bananas fell 19 percent, which Chiquita said was due to higher sourcing and logistics costs.

Sales of salads and salad ingredients, Chiquita's other main business line, fell 4 percent, to $249 million. The company said it sold fewer bagged salads, food service ingredients and processed fruit ingredients. Still, operating income from salads more than doubled, to $7 million, because Chiquita cut costs.

Chiquita reported disappointing results last quarter, when the company lost $25 million. Executives blamed higher shipping costs and shifting rainfall patterns that hurt crop production.

Lonergan said Chiquita is still on track to close its deal with Irish produce firm Fyffes by the end of the year. The combined company, called ChiquitaFyffes, will be headquartered in Dublin, though most of the company's 320 corporate jobs in Charlotte are expected to remain. Fyffes CEO David McCann

Chiquita and Fyffes have set Sept. 17 meetings for shareholders of both companies to vote on the $1 billion deal.

One outstanding issue is what Charlotte and Mecklenburg County will do about their share of the $22 million worth of state and local incentives used to lure Chiquita's headquarters away from Cincinnati in 2011. The incentives deal, however, called for Chiquita to keep its headquarters in Charlotte for at least 10 years or repay the incentives.

Lonergan left the door open to repayment in May, saying "We don't want anything we don't deserve." Spokesman Ed Loyd said this week that Lonergan's words still stand, and the company is continuing to negotiate with government officials about the incentives.

So far, the city and county have paid Chiquita $510,000 each, totaling more than $1 million. They're scheduled to pay the fruit company about $1.5 million more in coming years.

The rest of the incentives money is from the state. More than $16 million, equal to75 percent of the company's estimated state income tax withholding for the new jobs, will be paid over 11 years. The state also agreed to give Chiquita $2.5 million to match the city and county money.

Chiquita has thus far met its hiring targets to receive incentives money.

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