Fresh Del Monte Produce Inc (FDP) 2003 Q2 法說會逐字稿

Ladies and gentlemen, good morning, my name is Brett and I will be your conference facilitator today. Please note that today's call is being recorded.

At this time I would like to welcome everyone to Fresh Del Monte Produce's second quarter 2003 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during that time, simply press star, then the number 1 on your touch-tone phone. If you would like to withdraw your question, please press the pound key. I will now turn today's over to Ms. Christine Cannella. You may begin.

Thank you, Brett, good morning, everyone, and welcome to Fresh Del Monte's second quarter 2003 conference call. I'm Christine Cannella, Director of Investor Relations and Corporate Communications.

I am joined today by Chairman and Chief Executive Officer, Mohammad Abu-Ghazaleh and Executive Vice President and Chief Financial Officer, John F. Inserra who will discuss our results for the quarter ended June 27th, 2003. We released our results this morning by a business wire, email, and first call. If you have not received a copy of the earnings release, please contact Fresh Del Monte Investor Relations at 305-520-8451. You may also visit our website at www.freshdelmonte.com to register for future distributions.

This conference call is also being webcast live on our website and will be available for replay approximately two hours after the conclusion of this call. For those listening to the call live via the webcast or who are participating in our listen-only mode, please feel free to contact me directly with any questions following today's call.

This morning Mohammad will review our operating performance during the quarter and will discuss our recent developments and outlooks, after which John will review our financial performance. Before we turn the call over to Mohammad, please let me remind you that much of the information we will discuss this morning, including the answers we give in response to questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the Safe Harbor provisions of the Securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors, including those described under the heading, "Description of Risk Factors" in the company's Form 10-F for the year ended December 27, 2002.

With that please allow me to turn this call over to Mohammad Abu-Ghazaleh. Mohammad?

Thank you, Christine. Good morning, everybody.

We are delighted to report solid second quarter financial performance. Net sales rose 24% to $701 million compared with $567 million in the second quarter of 2002. Net income increased 22% to $81 million from $67 million last year at this time.

Earnings per share climbed to $1.42 which includes a $5.5 million one-time gain from the sale of the company's interests in a Guatemala box manufacturing plant. This compares favorably with last year's second quarter EPS of $1.18, strong pricing in Del Monte Gold Pineapple, together with increased sales from our new products tomatoes potatoes and strawberries and favorable exchange rate drove these results.

Banana sales, banana net sales for the quarter were consistent with last year's levels. This is a result of increased pricing in Europe and higher volumes in Asia which offset reduced pricing in North America and Japan. As we move through the summer months, other nontropical foods continue to demand consumer on the produce aisle. Consumers just don't eat as many bananas during the summer. This lower consumption trend is normal for this time of the year and we are comfortable with our banana pricing in North America, Europe and Asia.

During the quarters, Del Monte Gold Pineapple volumes increased as did pricing, contributing to strong net sales growth across all markets. Our premium pineapples are faring well against rising competition in the gold pineapple category. Fresh Del Monte leads the gold pineapple field by a comfortable margin and we continue to see rising product demand.

Our gold volumes are also increasing with consistently strong pricing. There are several reasons for this. One of them is the market for gold pineapple is expanding. Secondly, the Del Monte Gold pineapple is a unparalleled product in terms of quality. Not only do we offer a superior pineapple but we offer consistent quality that our competitors have found difficult, if not impossible, to match. Thirdly, the power of the Del Monte brand and its high level of consumer recognition and acceptance helped to drive the consumer preference for our Gold products.

Lastly, we are not just the gold pineapple category leader, we are the category founder. Our years of experience, knowledge, and R&D expertise are factors that collectively make our gold pineapple the best in the marketplace. We have set the standard in the industry. In fact, that is why we are recognized by our competitors. Fresh Del Monte is the only company that really understands how to grow its ship and deliver gold pineapples to retail and food service providers. For this reason we believe that we will retain our leadership in this marketplace.

Let's move on to melons. For the quarter melon net sales and volumes were lower due to adverse weather conditions in our growing regions in Latin America. However, these factors were partially offset by strong global currency pricing in Europe and North America.

We told you at the end of the first quarter that we were progressing in the fast food arena with fresh, prepackaged food and salad. Our fresh fare team is now targeting several major prospective fast food customers in Europe and North America. Most of these chains are committed to providing healthy food choices to their customers, and because of our global infrastructure, we are exceptionally well positioned to cater to their needs.

During the 2002-2003 school year, Del Monte Fresh Produce participated in the test phase of a new national healthy foods program that promotes the introduction of fresh fruit and vegetable into the schools. During the second quarter, it was announced that the goal is to expand this program to the schools in all 50 states over the next year and we are well positioned to take part in this program.

With regards to our Dallas-based acquisition, we have made significant headway over the last five months in rolling this business into our distribution network. By year end, we expect to have tomatoes, potatoes and onions in at least six of our U.S. distribution centers. We expect the increasing availability of these products on a national basis to give us tremendous leverage with large national chains such as Sam's Club, Wal-Mart, and Kroger.

During the quarter, we will prove to these customers and others that Fresh Del Monte is a supplier upon whom they can depend. During widespread tomato shortages in June, we were able to deliver top quality tomatoes in a timely manner.

Develop acquisition presents a host of future growth opportunities for Fresh Del Monte. As you know, through this acquisition, we gave the market distinction as the nation's leading repacker of tomatoes and one of the country's top repackers of potatoes, strawberries and onions.

During the second quarter, we added the Del Monte brand to tomatoes and in the near future we will add our brand to potatoes, onions and strawberries. Like eggs, butter, milk and bananas, these are basic food staples that are found in nearly every consumer household but these are also staples to food service and fast food operators, our long-term strategy is to supply global fast food operators with fresh and fresh cut potatoes, tomatoes and onions. We already supply Subway and Jack in the Box and we are aggressively seeking customers in this arena. We see this as a potentially large and profitable business for us.

I'm also pleased to report that our balance sheet is stronger than ever. Stronger, in fact, than most companies in this industry. We are currently debt-free on our revolving credit line. Recently "Forbes" magazine listed Del Monte produce as one of the world's 2,000 largest companies. We were also ranked in the top 40% in terms of profits.

Fresh Del Monte's future outlook continues to be excellent. We continue to expand our banana, melon and pineapple operations in Brazil and we believe that this will be a substantial growth market for us in the near future. We expect to begin harvesting Del Monte Gold pineapples in Brazil by the end of the year and we are optimistic about the prices that this product will bring in the marketplace.

The growing healthy trends in the fast food industry and Fresh Del Monte's vast ability to serve the needs of these customers on a global basis point to future revenue opportunities as we expand.

Once more, we believe that we are right on track to continue to deliver strong sales, growth and profit performance throughout 2003. At this point, I would like to hand it over to John to give you some information on all the financials. John?

Thank you, Mohammad. And as Mohammad indicated, we are very pleased with our financial and operating achievements during the second quarter and for the first six months of 2003.

For the quarter, net sales rose $133 million to $701 million, primarily due to the growth in our Del Monte Gold pineapple business, new product offerings from our acquisitions and favorable exchange rates. On a six-month basis, net sales rose to $1.3 billion, a $240 million increase from the first half of 2002. Overall, gross profit for the quarter increased $12 million to $109 million.

The increase came from higher gross profit in gold pineapple, grapes and nontropical produce, as well as the additional gross profit from acquisitions. The increase was partially offset by higher container board and sea transportation costs, lower banana pricing and reduced melon volume.

Gross profit for the six months was $216 million, an increase of $13 million, driven by sales in gold pineapple, nontropical produce and sales generated from acquisitions. EPS for the quarter was at $1.42 which includes a one-time gain of 10 cents per share from the sale of our interest in the Guatemala box manufacturing plant. I should mention that exchange rates benefited net sales for the quarter by approximately $29 million, primarily in the Euro.

During the quarter, we continued to increase the volume of our products funneled through our North American distribution centers generating $136 million in sales. In North America, sales to our distribution centers now represent 30% of the total regional sales, up from 16% a year ago. Year to date, we have generated $244 million in sales through these distribution centers, up from $95 million last year.

Regarding the balance sheet, as Mohammad said, our revolving credit facility remains undrawn. At quarter end, we had $54 million in debt, which is down from $87 million at year end. This includes the repayment of the $100 million related to our Dallas acquisition in January 2003. These reduced debt levels have resulted in lower interest expense on a quarterly and year-to-date basis.

At quarter end, our debt-to-equity ratio was a healthy 6%, and we had $51 million in cash. Our cash balance as of today is approximately $70 million.

Now I'll provide details on our other business segments for the second quarter and six months. For the quarter, banana net sales of $277 million paralleled last year's second quarter. In Europe sales were up due to strong global pricing in Southern Europe and favorable exchange rates. Banana net sales were up in Asia with higher volumes offsetting lower pricing.

In North America sales were lower than last year's level as a result of reduced pricing. Gross profit of $28 million declined $3 million with worldwide banana pricing averaging $10.23 per box for the quarter, down slightly from last year.

For the six months banana net sales rose $26 million, driven by an increase in volume and the benefit of favorable exchange. Gross profit for the six months was $62 million, up slightly from last year with worldwide banana pricing averaging $10.26 per box, an increase from last year's prices.

In our other fresh produce segment, net sales for the quarter rose 49% to $416 million and gross profit increased $17 million to $79 million. These increases were driven by increased pricing in our gold pineapple and nontropical product line, the benefit of acquisitions, partially offset by higher container board and sea transportation costs. For the six months, other fresh produce sales rose $209 million to $765 million with a 27% increase in volume and an 8% increase in pricing.

Gross profits reached $149 million, a 9% increase over the same period last year. Del Monte Gold pineapple continued to perform exceptionally well in the second quarter.

In North America, sales were up as a result of increased volume. In Europe sales were up significantly due to higher local pricing and the benefit from positive exchange rates. Sales were also up in Asia with higher volumes and slightly lower pricing, and we also benefited from favorable exchange rates. These positive factors in all regions translated into a 17% increase in sales of gold pineapple.

For the quarter, gross profit increased 20%. On a six-month basis, Del Monte Gold pineapple sales increased 11%, primarily from a 10% increase in volume.

Melon net sales volume for the second quarter were down 10% and 20% respectively due to adverse weather conditions in the growing areas which affected production yields, higher pricing and the benefit of exchange partially offset this decline. For the six months, melon net sales and volumes were down 5% and 6% respectively compared with a year ago. Again, this decline was due to adverse weather conditions.

In our other Fresh Cut business for the quarter, net sales increased to $60 million with significant volume gains. Fresh Cut net sales represented 9% of the company's total net sales in the second quarter due to growth in the U.K. and North American markets. Fresh Cut sales for the last six months increased to $104 million.

For the quarter, our Dallas acquisition contributed $90 million in net sales from repacking and wholesale activities, principally from tomatoes, potatoes, strawberries and onions. We continue to expand these businesses in our North American distribution network. For the first six months of 2003, net sales from this acquisition were $147 million.

Net sales, volume and pricing rose in our grape and nontropical produce line during the quarter. Net sales increased 31%, and volume increased 13%. Net sales of grapes and nontropical produce for the first half of the year rose 15% across all regions with volume gains in North America and Asia.

Sales and gross profit for the quarter and year to date in our nonproduce segment continue to be in line with last year's level. Selling, general and administrative expenses for the second quarter increased $4 million, primarily as a result of acquisitions and related administrative expenses. For the first six months, selling, general, and administrative expenses increased $5 million.

Interest expense decreased by $2 million from the prior year as a result of debt reduction. On a six month basis, interest expense decreased $4 million. Other income for the quarter increased by $2 million, primarily due to the sales of the company's Guatemalan box manufacturing plant, offset by lower exchange gains.

On a year-to-date basis, other income increased by $17 million as a result of the second quarter's increase of $12 million of insurance recoveries related to hurricane Mitch in the first quarter of 2003. Tax expense in the second quarter of 2003 increased $3 million due to higher North American taxes. For the six months tax expense increased $2 million.

I would now like to open up the call to our question-and-answer session. Brett, are you there?

Yes, I'm standing by. If you would like to ask a question or make a comment, you may signal us by pressing the star key followed by the number 1 on your telephone keypad at this time. We'll take as many questions as time permits today. Once again, press star, 1 on your telephone keypad if you would like to ask a question or make a comment.

We'll take our first question today from Terry Bivens at Bear Stearns.

Good morning, everyone.

Good morning.

Morning.

Just a couple of questions. Mohammad, it sounds as though things are progressing pretty well as we go through the year here, and I'm wondering at this point, we haven't heard much yet on your outlook for '04. Would you be willing to share that now or do you think it's too early?

I believe it's too early, you know, but we are always optimistic, Terry.

Okay. As you look then, just to kind of separate it out a little bit, what's your analysis of where banana prices are likely to go as we move into the fall and winter, what's your feeling there?

As far as North America, we are going to have soft pricing at least for the next two months in my opinion.

Okay.

It will remain more or less in the same level we are seeing right now. And as far as the Asian markets, I believe that we are maintaining extremely good pricing for this time of year and I believe that this is going to be maintained and probably end by late September. As far as Europe is concerned, we see reasonably good prices even for July. I hope that all that could be maintained but we see better pricing as we go forward to the end of the year.

Okay. And as we move into the winter, are you looking at pricing that you feel will be on par with last year, up, down? How are you looking at that?

I believe that it will be more or less on the same level.

At the same? Okay. I've got several questions on the -- from clients on the lawsuit in Florida. I'm not sure the extent which you are able to talk about that, but to the extent that you are, could you bring us up to date on where matters stand there?

Well, you know, as we have our lawyers, it's public information that we asked for dismissal on certain technical grounds in the Florida case. We have--the judge has granted us dismissal on certain counts and prepare to find more facts regarding these allegations and we are starting in the discovery stage right now and hopefully this will end as soon as we can. We are aggressively pursuing this lawsuit. We are actually on the, let's say the party that really wants to finish this before much time further.

As far as New York is concerned, it's the same story. We are now in the discovery stage and hopefully it will not take too many months to come to a conclusion, and I just reiterate our position that we believe that these cases are meritless and governing will prevail.

And just one last question and I'll yield the floor. In terms of the McDonald's opportunity, what's your feeling there as to what that could amount to?

Terry, we have -- as far as McDonald's, we supply McDonald's in Europe, we have been supplying them in the U.K., we supply them now in Norway and other markets in Europe and we will be including additional countries within the European union.

However, as far as the U.S. is concerned, we did not come to an agreement on the supply of mainly apples, to McDonald's and pricing was a factor and we are not here to -- first of all, I would like to highlight that as far as Fresh Del Monte is concerned, we are a company that really works on profits. I mean, profit is our primary target. If we are not making business with reasonably decent margins on our products, we don't do it. So I think that explains things.

However, very soon we will be announcing new fast food chains that will be receiving food from Del Monte. So, you know, the market is quite big and we believe we will grow wherever our interests are.

Okay. Great. Thanks very much.

And moving on we'll go to Merrill Lynch's Leonard Teitelbaum.

Good morning.

Good morning.

Let me ask a couple of questions. I'll leave the concern over some fruit prices until later, after some other people, but I know you've been working on the school lunch program for at least two years now and it's my understanding that the concern is not the desire to put it into the program but who is going to pay for it, whether it's going to be done under a federal grant or whether it's going to be done under a local tax obligation or a state obligation. Is that correct so far?

We don't know really. We have -- you know, we have contributed to these tests in four states in the last school year and to my knowledge they have been very successful and that's now why they decided to have fruit in the 50 states in the coming years. Who will pay for it, that's something -- definitely not us. [ LAUGHTER ]

Well, that's my point, Mohammad. Look. Everything's fine and dandy, but we're more interested in making money than you are and what my biggest concern here, is one of timing and I don't -- I mean, to me the school lunch program offers a bigger potential than any restaurant chain out there and I know you are going to announce a couple of them, at least we think you are anyway.

But I'm more concerned about the advent of the school lunch program and if it comes to a full program, what your timing on that would be?

We don't believe that they can go to 50 states all in one --

But who is paying for that test?

I, really I can get you the answers maybe later but I don't know yet, to be honest with you.

Well, somebody's paying your bills, aren't they?

Yeah, definitely, definitely. I don't know who is paying the bills but we can supply this later on.

Okay. Because I mean, it's important to note if you are going to expand this to all 50 states and one or two states go at the end of the year into a fresh fruit program into the school lunch program, I don't want to guild a lily here but this is -- I don't know if you realize how significant this could be and I would like to know more about what you are doing to encourage that. Is that a price issue on your part like it is with the fast food chains or is there anything in Fresh Del Monte's strategy that would keep this from happening sooner rather than later?

No, it's not a price issue. You know, the school programs, we have certain budgets and we can work along these budgets and we can give them the products and the packaging that meets these budgets. So really this -- I mean, this issue has been already overcome.

Now they just wanted to see if the children, if the school, you know, community will enjoy it, accept it and that was why the test was done. It's been proven successful, it's been proven that it will work and, you know, it's a good thing for the kids and that's why now they decided to make it nationwide application.

Given your capacity, would you have -- how much of the school lunch program could you supply with your existing capacity and how much excess capital would you have to put in if this is accepted on a national basis?

This is now a premature question. We can supply with this kind of information later on, Leonard.

Explain that again. I'm not sure I understood your answer. Excuse me.

No, no, I said that for us, really I don't have an answer for you right now at this stage but we definitely can give you more information as we go forward, Lenny.

Okay. We're using a down gross margin, or when I say down, I'm referring to last year. We're using a reduced gross margin on both bananas and pineapples, you know, that sounds like that's where it should be and still coming up with, you know, with some pretty good earnings. John, do you have any guidance you could give us or directional guidance you could give us for the balance of this year?

Well, I think as we go forward, we should see this, you know, third and fourth quarter maybe a little less in banana gross profit because of the pricing but we'll see how that works out and I think in pineapples, you know, we've always been very conservative in our pineapple predictions.

Okay. So should we look at the quarters that resemble this quarter for the balance of the year?

In gross profit margin, I would -- no, I think it should be more in line with historical levels rather than the second half of the year. The margins overall are much, much less than we have at the beginning of the year. You know, that's normal.

Right. Okay, now, look. You know what most of us are looking for, I guess, on a consensus basis for this year. Can you -- you can live with those earnings estimates, or can you give us some feel as to where --

I think what is the market consensus is acceptable, we can live with that.

You can --

We can live with your consensus.

Okay. Thank you. Now just one final question. Foreign currency was $29 million this year?

Yes.

This quarter, excuse me?

In the quarter, yes, it was $29 million.

And I think you told Terry, if I'm not mistaken, you are looking for levels to be about where they are for the balance of the year in terms of FX, or did I misunderstand that?

No, we didn't give any prediction on that. I wish. If I knew that, we would be in great shape, Lenny. No, we're not predicting where the exchange rates will go for the rest of the year. They did contribute to the second quarter results and the six months and we'll see how it plays out for the rest of the year.

Okay. Just so that you know, we're using, you know, 380 for this year, and I just can't -- I just get the feeling that's going to be low and I don't know --

No, no, no. This is very, very, very fast, it's very good, Lenny.

All righty, fine. Terry, get your report out quick, will you? And you, too, Eric. I've got to get this thing written up.

And moving on we'll now go to Bill Leach with Banc of America Securities.

Good morning, everyone.

Good morning.

Hi, Bill.

I just have a question on your dividend. You initiated dividend, then you doubled it but your parent ratio still looks like it's only about 10%. From what John said, you have more cash than debt right now. Given the change in the tax law, why wouldn't you consider raising the dividend substantially?

We never said we never considered.

So you are considering?

Did you hear me say I never considered?

So is that a possibility for your cash?

Of course that is a possibility.

Okay. That's my only question.

Thank you, Bill.

Thank you, Bill.

And moving on we'll go to Piper Jaffray's Eric Larson.

Hey, how are you? Hi, everybody.

Hi, Eric, how are you doing?

I'm well, thank you. John, this is just a quick financial question. Obviously your revenue's benefited by $29 million in the quarter. You know, obviously all that doesn't flow to the bottom line because you've got to bring costs and expenses back as well. What might be a net foreign exchange contribution?

Well, that's really very difficult to predict how much exchange goes all the way down to the bottom line. We did have several million dollars of exchange losses and year-over-year losses in the "other" income line that we talked about.

Right. Well, that's what prompted the question because that was actually down year over year if you strip out the gain on the sale of your asset.

Right.

Okay. The next question is for Mohammad. Mohammad, could you give us a quick update? I know that you have a lot of initiatives that you are working on, and one you did not mention which I would like you to maybe please have some comment if you can is your citrus initiative in Florida. That seemed to be another, you know, pretty big opportunity over time for you people.

We are still working. You know, the machineries that we are using in Florida are being supplied by the Citrus Board here, the Florida Citrus Board and they are still working on some issues regarding the yields on this machine. So far it's been progressing well, but not significant volumes at this time as we are looking at it's official production really, Eric.

Okay, good. And then could you talk a little bit about Europe? Now that you are sort of going at it on your own in Europe, I believe your adding DCs there as well. Do you have any comment on how that, those initiatives are moving forward?

Yeah. As a matter of fact, you know, we started the beginning of this year in Germany on our own, and at this present stage we are actually in the process of -- we already identified a site near Frankfurt where we are going to put a very important DC and ripening centers, you know, in the heart of Germany which is going to expand our operation there significantly by hopefully the beginning of next year. So we are working on this production, as well as looking at other opportunities, you know, hopefully in Eastern Europe to put a presence on ourselves.

Okay. Good. Thanks.

And then one just final question for John. Your sea transportation costs, I'm assuming that you are basically referring to bunker fuel in that comment; is that correct?

Right. That's primarily bunker fuel and then, you know, operating expenses also included in there but primarily bunker fuel.

And have you covered for it on any of that for this year at all or where do you sit maybe on some of your hedging?

We don't hedge bunker fuel, container board, but it does impact the business, and we're monitoring it very closely.

All right. Thank you.

Thank you, Eric.

And before moving on to our next question, I would like to remind our audience to press star, then the number one on your telephone keypad if you would like ask a question. We'll now go to BB&T Capital Markets' Heather Jones.

Thank you. I was just wondering, if North America and you had said -- I was just, just in general, golden pineapple volumes, how much were they up for the quarter? You had given I think the six month number but not for the quarter.

Gold pineapple volumes in the quarter for North America was about 4% increase.

Okay. What about in overall, for the whole, for the whole golden pineapple business?

The gold pineapple business, overall volume was about an 8% growth quarter over quarter.

Okay. And I was wondering if you would tell us how much North American pricing was down for the quarter.

The pricing in North America overall is about a 1% decline overall.

Down 1%?

Yeah.

And you said that what Standard added to sales, I was wondering how much the U.K. acquisition added to sales and also if you could give us the number acquisitions added to gross profit.

Let's see. The U.K. sales are about -- the gain was about $32 million and it's about $60 million is the overall U.K. acquisition -- sales from acquisitions during the quarter.

$60 million?

Yeah, $60 million is a good number.

Okay. What about gross profit for Standard and the U.K.?

We don't go into that detail, only on a product line basis do we provide that information.

Okay. Now, you mentioned that in the tomato repacking business, that you are in four -- now have that business running through four of your DCs, and I was just curious, have you won new business in the tomato, potato, onion, or are you just spreading out Standard's business through some of your DCs?

No, we have won new business. As a matter of fact, we just won a new DC for Wal-Mart in New Orleans.

Okay. For tomatoes and is that tomatoes or potatoes or all of them?

Mainly tomatoes and strawberries.

Okay. And I guess my only question is, just looking at your results that you reported today and also your first quarter results, I mean, currency definitely boosted results and if you take away currency in all, I mean, gross profit for both quarters was down significantly and you had some significant contract losses in the U.S. and I just am curious, when you say you are comfortable with the rest of the year, are you assuming that the currency stays strong because the underlying trends wouldn't point to a strong performance. So I'm just wondering, are you assuming the Euro stays at around $1.10 or so?

Don't forget that we are hedged quite comfortably for the Euro even over $110. So that is to take care of the Euro question.

As far as losing contracts, we did lose some contracts but we won more contracts, other contracts that compensated and even gave us more than what we lost. Probably -- I don't have this information.

I mean, could you give us that information? Because --

No, I can't give you this information but I can say it very clearly that we have gained more volume than what we lost.

In the U.S.?

In the U.S..

Okay.

And as far as spot sales, we are believed among the competition, we sell between 20,000 to 30,000 only a week in the marketplace.

Now, when you are saying spot market, are you talking about what is literally out there to wholesalers, or do you -- are you excluding your distribution centers?

Exactly. That's what you sell to the wholesalers where they buy it.

Okay. Now, is all the sales that go through your distribution centers, are those all under contract to a certain retailer or are they being sold through the DC's on a spot basis?

It depends. Some of this, some of that. But everything goes through our DCs sold on contract pricing or above contract pricing.

Okay. And the final question is, you said North American banana pricing was down 1%. It sounded like North America was pretty bad for the quarter. So when you are talking about pricing just down 1%, is that factoring in the increased sales price you get from flowing it through a DC, the upcharges or, like, if you stripped away the increased distribution revenue, would it still have been up -- been down just 1%?

Yeah, we don't segregate our bananas by the different types, different categories. We just have total bananas. That's the way we manage our business. Otherwise we would get totally confused and those are the numbers we present.

Okay. Thank you.

You're welcome.

And as a final reminder press star, 1 on your telephone to answer a question. We'll now go to Lenny Teitelbaum with Merrill Lynch.

Actually my question was answered. Thank you.

Thank you. This concludes the time allotted for the question-and-answer session today. I will now turn the call over to Mr. Mohammad Abu-Ghazaleh for closing remarks.

Thank you very much. However, what I would like to emphasize here and focus is that so many rumors and so much talk about our inability to continue performing and the gold and all this issues that keep arising, you know, with some coverage in the market. What I would like to emphasize here, is that we have stated for seven years that this company is a leader in its league.

We are a leader in this business and we will remain the leaders and we know the business better than anyone else and we will keep performing, and I'm looking forward to the end of -- to the rest of this year, and I have very -- it looks very promising and I hope that we'll continue doing the same work that we have been doing always and would like to thank you again for participating in this conference call and hope to talk to you soon.

Thank you, everybody.

That concludes our program. Once again, everyone, thank you for your participation and have a pleasant day.