Fresh Del Monte Produce Inc (FDP) 2004 Q3 法說會逐字稿

Good morning, everyone, and welcome to Fresh Del Monte's Third Quarter 2004 Conference Call. On the call today are Chairman and CEO Mohammad Abu-Ghazaleh, and EVP and CFO John Inserra, who will discuss the Company's results for the quarter ended September 24th, 2004.

(OPERATOR INSTRUCTIONS)

Fresh Del Monte issued a press release this morning via Business Wire, email, and First Call. If you have not received a copy of this press release, please contact Eva Torres (ph) at 305-520-8156.

This conference call is being recorded and webcast live on Fresh Del Monte's website, and it will be available for replay approximately two hours after the conclusion of this call.

This morning, Mr. Abu-Ghazaleh will review the Company's operating performance, recent developments and outlook, after which Mr. Inserra will review the Company's financial performance for the third quarter of 2004.

Please let me remind you that much of the information that the Company will provide this morning, including the answers they give in response to your questions, may include forward-looking statements regarding their beliefs and current expectations with respect to the Company's business. These forward-looking statements are intended to fall within the Safe Harbor provisions of the Securities law. The Company's 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 20-F for the year ended December 26, 2003.

With that, I'd like to turn this call over to Chairman and CEO Mohammad Abu-Ghazaleh. Please go ahead.

Thank you. Good morning, everybody. And I'd like to start today by saying that the third quarter of 2004 was indeed difficult and characterized by unusually difficult inventory and environmental factors that adversely affected our results. I would like to highlight these factors so you can have a better feel.

We have witnessed the worst pricing on banana contracts in North America, which made shipping -- with North America -- and food and banana pricing in Asia. To give you an idea, Asia pricing declined from $10.83 to $8.60 quarter-over-quarter. We had a significant increase in containerboard and bunker fuel costs, which made shipping our product both by truck and by ship more costly. Fuel was up by 11 percent. Containerboard was up by 22 percent.

Higher cost of related materials went into effect around our daily business, including fertilizers, other agricultural products and plastics. To give you an idea, plastic bags, we had an increase of about 10 percent. Reasons which we -- the raw material which are used to make plastics rose about 50 percent. Fertilizer's up by 25 percent, and Ticka (sp) Tonga Oil, which we use to spray, up by 10 percent.

We had a payment of 1.7 million in nonrecurring Costa Rica cuts from duties of fruit shipments to Europe in the third quarter, and 4.8 million in the first nine months of the year.

An elevated incidence of sigatoka fungus caused financial levers 25 to 50 percent higher than average at our Costa Rica banana plantation. Sigatoka, combined with blow downs forced us to discard approximately 1.4 million boxes of bananas, resulting in approximately 14 percent of our annual production in Costa Rica, and significantly increasing our production costs.

Next, severe worker conditions in the U.S., including four hurricanes in Florida, and multiple storms in California affected the production, quality and consistency of our fruit and vegetables. This drove up the costs and reduced the revenues of many of our products.

Finally, earlier this year wind storms in Tatalan and floods in Brazil caused us to lose an additional 1.4 million boxes in banana production during this year.

Although the third quarter of the year is always the most difficult in our business, this rare combination of factors caused us to generate results that were substantially lower than those in the third quarter of 2003. Our YTD results were also lower than the first nine months of 2003. In years in which conditions were as favorable as this year's were unfavorable.

As we discussed in our press release of September 30th, the impact of the factors that we have faced in 2004, combined with lower melon productivity in the U.S. and higher fruit costs in Costa Rica requires us to revise our earnings estimates for the year. As we announced in that release, we expect EPS in the range of $2.05 to $2.15, excluding any net benefit in the third quarter. This guidance is based on our assumption that we will continue to be affected by challenging banana pricing, high fuel and containerboard prices, and generally unfavorable climate conditions for the remainder of 2004.

Despite these market conditions, we continue to be confident about our future prospects and our ability to drive profitability and shareholder value over the long term.

During the third quarter, we closed the acquisition of Del Monte Foods Europe. In completing this important transaction, we advance our vision to a multi-national diversified food company offering Fresh and Fresh Cut produce and processed foods, including fruit and vegetables, juices, snacks and desserts. We have already begun to put in place a new management team at the Del Monte Foods Europe and we have begun to work with the company's many talented people to combine our offices managing Del Monte Foods Europe operation with those of Del Monte Fresh Produce to drive operating efficiencies.

Maximizing the value of this acquisition will take time and effort, but we also believe that it will make a marked difference in the picture of our Company in terms of revenue growth, income stability and product mix. We will report further on the progress of the integration of Del Monte Foods Europe when we conduct our fourth quarter and year-end 2004 conference call.

During the quarter, we expanded our capabilities by acquiring Can-Am, a trucking company with a national reach and base operations in North Dakota, Texas and Ohio. Can-Am provides trucking services to customers in the food, retail and other industries and optimizes low services by using logistics and key management software to orchestrate cost effective transportation.

This small, but strategically important acquisition transfers our logistics platform by enabling us to provide new distribution services to all our retail and food service customers in the U.S., minimize transportation costs, and improve (indiscernible) equalization and efficiencies. Equally important, it enhances our ability to fully control distribution of produce, further ensuring our ability to deliver safe, high quality produce to our customers.

Finally, it helps us to address a growing shortage of convenient trucking and transportation resources in the U.S., providing us with a competitive advantage in providing timely delivery of our products. Our vision is to expand our present fleet and grow the logistics portion of our business to increase our ability to serve our U.S. customers and provide third-party shipping where it makes sense, thereby filling a significant need in the marketplace.

On the Fresh Cut front, our operations are steadily expanding and we continue to be satisfied with our progress in this arena. We have forged new inroads in the U.K., in particular, securing a number of major retailers and food service operators and penetrating new markets. Similarly, we have made significant progress in obtaining new business in North American markets. Overall, Fresh Cut sales increased 23 percent for the quarter, with volume growth in North America of 29 percent, and margin growth of 151 percent.

Our competitors continue to try to imitate the success of our flagship Pineapple Del Monte Gold Extra Sweet, but we still enjoy profitable market leadership in this category despite some price and margin erosion during the third quarter. During this period, net sales increased on higher volumes, which is typical of this time of year. And just to give you a feel of what margin erosion we are talking about, we are talking about 3 percent for the first nine months of this year. In the U.S., we have almost a flat price.

As we move toward the end of 2004, we believe that some of the difficult conditions we faced earlier in the year should improve. First, we are heading into the holiday period, which typically means increased consumption. Secondly, production always increases during the fourth quarter, so we expect to see a rise in volumes as we return to the quality level and consistency that are so important to our customers. Third, we have to get over the feel of the control in Costa Rica as retro levels return to a normal range. As we head into 2005, however, we expect continued pressure on banana pricing and delivery of fuel and containerboard pricing.

For our business, our long-range outlook continues to be favorable. Market analysts that I monitor is reporting that the global fruit and vegetable market is expected to grow by approximately 18 percent in terms of value and volume between 2003 and 2008. This industry growth, combined with our many inherent strengths, positions Fresh Del Monte to outperform our peers in the industry in the years to come.

At this point, I will ask John to make a presentation.

Thank you, Mohammad. As Mohammad said, the third quarter of 2004 was unusually difficult. Weak banana pricing in Asia, combined with a $5 million increase in fuel and containerboard costs, poor weather conditions in a number of growing areas provided us with major challenges during the period.

Also, this year the E.U. assessed duties on pineapples and melons from Costa Rica amounting to $1.7 million in the third quarter, and $4.8 million for the nine months. These duties will not impact us next year. The combination of these factors resulted in weak performance during the quarter.

Net sales for the quarter were $610 million, compared with $563 million last year. Gross profit for the quarter was $31 million, compared with $65 million last year. For the nine-month period, net sales were $2.1 billion, compared with $1.9 billion last year, while gross profit was $197 million this year, compared with $281 million last year.

From an EPS perspective, we have had a loss of $0.03 per share at the end of the third quarter, our first loss in four years. As we have indicated, this includes a net benefit of $0.27 per share, primarily from U.S. tax settlements.

By way of background, Fresh Del Monte has been under audit by the U.S. tax authorities for tax years covering 1997 through 2001. The audit was resolved on August the 12th, and the income tax expense for the third quarter includes a net gain of $20.6 million, or $0.36 per share, primarily from the reversal of tax contingency provisions, net of changes in deferred tax assets for the settlement of this audit.

You know from our press release this morning that we had an asset impairment charge of $5.4 million, mostly due to underutilized and obsolete equipment primarily in North America and the United Kingdom.

Moving on to operations, we are pleased with the finalization of our acquisition of Del Monte Foods Europe. We are moving swiftly to integrate the acquisition and we will consolidate its results in our fourth quarter. However, we don't expect any real impact on our earnings until 2005, when we believe that we will be slightly accretive to earnings.

I will now provide details on our business segments for the third quarter and nine months of 2004. For the third quarter, banana net sales were consistent with last year at $220 million, with 5 percent higher volumes and significantly lower pricing and aging. Banana gross profit declined by $19 million from $8 million a year ago, resulting from overall lower pricing, higher fuel and containerboard costs, and increased fruit costs from lower production.

For the first nine months, volume increased by 6 percent, while pricing declined by 2 percent, overall resulting in a $30 million increase in sales. However, increased containerboard, fruit costs and distribution costs resulted in a $40 million decrease in gross profit for the nine months compared with 2003.

In the other Fresh produce segment, net sales for the third quarter were $350 million, compared with $314 million in the third quarter of 2003. And gross profit was $41 million compared with $54 million this time last year.

For the nine months, other Fresh produce sales were $1.2 billion, compared with $1.1 billion in the same period in 2003. For the nine months, gross profit was $160 million, compared with $203 million during the same period last year. The gross profit for this segment during the quarter and YTD was negatively impacted by customs duty, fuel, containerboard and tree fruit costs related to weather issues.

Net sales on Del Monte Gold Pineapple increased slightly on higher volumes during the third quarter. And for the first nine months, volumes and sales of Del Monte Gold approximated last year's level.

Melon volumes decreased by 20 percent in the quarter, primarily due to reduced volumes in California, while pricing decreased by 3 percent. For the nine-month period, net sales of melons decreased by 3 percent due to lower pricing and volume.

During the quarter, non-tropicals, including grapes, enjoyed a 29 percent increase in sales, resulting from higher volumes in both North America and Europe. For the nine-month period, net sales increased by 13 percent on higher volume.

Sales of tomatoes during the third quarter increased by 8 percent on higher volumes. And for the nine months, tomato sales increased by 33 percent, also on higher volume.

Fresh Cut sales increased 23 percent for the third quarter on 29 percent volume growth in North America. Gross margin for the quarter was at the low double-digit level.

As we indicated earlier, we continue to expand our vegetable and fruit offerings in the North America and U.K. markets to major retailers and food service operators. For the first nine months of 2004, sales of Fresh Cut were approximately $200 million, 22 percent higher than last year. On a YTD basis, we have more than doubled our gross profit in this category.

During the third quarter of 2004, we increased product volume through our North American distribution centers by 25 percent and generated an 18 percent increase in sales. Year-to-date, we have generated $468 million in sales through our distribution centers, up from $369 million last year at this time as we expanded our re-pack business.

Our foreign currency exchange benefit was $13 million for the quarter, significantly lower than last year's benefit of almost $30 million. Sales in our non-product segment for the quarter and nine months increased due to higher third-party cargo sales, while gross profit remained consistent with prior years. SG&A expenses remained consist with the prior year for both the quarter and nine months.

Our cash balance was $80 million at the end of the quarter. This is before the completion of the Del Monte Foods Europe acquisition on September the 30th, 2004.

Operator, could you open it up for the question and answer session.

(OPERATOR INSTRUCTIONS)

Terry Bivens, Bear, Stearns.

Mohammad, could you briefly address the performance of the banana business in Europe and North America during the quarter?

In North America, as we mentioned earlier, the pricing was -- especially on the contracts -- was very, very poor. On other edge of the pricing and the market, the stock -- stock market, was better than last year. Europe pricing -- John, can you give us Europe, please?

Yes. The Europe pricing in the third quarter was $10.90 compared to $10.59. Of course, that includes the exchange impact.

Right. Okay. And I'm not sure that I captured all of the Golden Pineapple results that you talked about. For the nine months, did you say volumes and sales were really in line with last year?

That is true, yes.

Okay. And how about the profitability?

It was off slightly, but--.

That's what I said. We have an off 3 percent overall for the first nine months.

Yes, that's the duties and other costs that we mentioned driving it up there.

Eric Larson, Piper Jaffray.

A couple quick questions. John, in terms of -- in terms of looking at fuel going forward, have you -- is there -- obviously, hedging is always an option. Is that something that you've done anything of or are you pretty much on spot with fuel?

No, we have never hedged, Eric, and, you know, we continue to keep that view.

Okay. And then Mohammad, in the -- you know, obviously, you closed your European acquisition and you're going to talk a bit more about that in your -- in your fourth quarter, and you gave some guidance on financial performance. But, is it -- in looking at that business, is there anything you can add that -- in terms of what the opportunity could be or is it a little bit too early on that?

I think that the opportunities are extremely high. I mean, the potential for our business in the food and the processed side, I think, will be tremendous. To give you an idea, I mean, Hani and myself, we were traveling. We traveled almost all the locations around the world, wherever Del Monte Food had operations. We spent almost a week in the U.K. reviewing operations and getting to know the -- our key people and their processes in all the locations.

And after that visit, we believe that our expectations were even much more modest than the reality that we would realize in the future. I think that the (indiscernible) with the result once we have the corporation under control.

Okay, good. And then sort of back to the exchange question again, John. What was -- was there any -- what was the foreign currency benefit in the quarter?

We indicated $13 million, Eric, was the benefit in the quarter. It was about $30 million a year ago, in the same quarter last year.

Okay. Yes, I missed that for some reason. And then, is there any -- in terms of -- in terms of production in Costa Rica, your still expecting sort of a difficult year through the calendar year. Is there -- is there any -- is there visibility in sight that 2005 could be better, or are there structural issues there, particularly with disease control, etc.?

No, no, no. The disease was particularly because of the rain, the unusual rainfall that I mentioned. There was about 25 percent or even more rainfall in Costa Rica during the -- I would say a period of four to five months, which was extremely unfavorable for the banana production, which resulted actually in losing a lot of bananas in the fields. This has, as I said minutes ago, this has already rectified itself. The weather is much better now. We have a dry period. And the -- Hani and I have been traveling and we see better ratios on the -- on the trees.

So, we have got everything -- you know, as we (indiscernible), we don't know what will be the weather tomorrow. But, from normal patterns, we believe that the weather will be in a much favorable, you know, situation next year.

Jonathan Feeney, Wachovia.

Just one follow-up I had. On the -- you said -- looking at that other Fresh produce margin, that's -- specifically the Sweet Gold Pineapple within that. John, was your answer to that question -- are we to imply that excluding fuel and, you know, the weather and some of the one-time things that affected that, you know, those margins would have been flat to up?

I think the margins would have been on target with last year. We took a look and -- and it really had a very significant impact out of the cost of all of those items on the profitability.

So, about -- about in line with last year's, you--?

Probably I think it would be the same as far as the margins are concerned.

Okay. And just -- my one other thing on pineapple then is, you know, is that something -- I mean, that those Sweet Gold Pineapples have been historically a very fast growing product. What would you estimate the category growth has been in Sweet Gold Pineapples? I know it's a new competitor that's kind of come into this space.

Yes, I think that the category continues to grow very well. We've seen in the prior years, and we don't have any new specifics, but the category's been growing about 10 percent annually over the last eight or nine year. So, I would imagine it would probably pick up some steam as more volume comes in.

So, again, it's probably fair to guess then that the category grew about 10 percent year-over-year?

At this point, I think that's a good guess.

Leonard Teitelbaum, Merrill Lynch.

I really wanted -- the previous question, I think, asked what I thought was probably one of the key ones here. And that is, if we have a recovery, if next year looks "normal" as opposed to the unusual charges we've had this year, what could be the recovery potential for next year? I mean, that's -- and I'm -- I wasn't sure from the answer -- maybe it's I didn't catch all of it, but have you been able to quantify that, John or Mohammad, as to, you know, what kind of a turn around we could look at? If nothing else changed in volumes, what the weather and the fuel, etc., if that were to recede, what could that be for next year in terms of -- let's say earnings per share or however you want to do it.

Leonard, it's very difficult, you know, because the company picture is changing. You know, I mean by next year we will be talking about a completely different company. We will have food, we'll have a lot of processed items that will be a lot, you know, in the market. Our Fresh Cut will be in a different position than what it is today.

So, I believe that it is -- I wouldn't be able to -- more possible to give you a better indication at the end of the fourth quarter, you know, next quarter as far as maybe we'll have more information and better, you know, vision to give some indication. So, if you can be patient with us, I don't know, a couple of months or a few months.

If I had patience, I'd be a doctor like my mother wanted. The key thing, too, is what about melons, you know, that we've had this year, how it's -- I don't want to say it always seems to be something, but after we've asked the bananas and the pineapple questions then we get the melon questions. I mean, how much of these things are just like one time in nature and how much of it is the structure change in the business?

How many times do you get the perfect storm? It's just about the perfect storm.

Perfect week in my business.

Well, in our business you can get the perfect storm. And I think that 2004, unfortunately, came out to be a perfect storm in every respect, as we earlier indicated. You know, everything worked really against us in terms of growing conditions, market situations, quality. So, we really had a very unfavorable practice. I believe and I hope that this -- at least not all of them, but some of them will disappear going forward.

And I believe that our -- because you know, the melons, really, if you look at the Costa Rica melons starting -- if you go back a pinch from January 1st, we had some Brazilian melons which were affected by very bad quality because of too much rain in Brazil at that, you know, the end of last year. Then Costa Rica came with a lot of also flooding and rain, which affected the quality in a very negative way. This has, of course, affected our pricing and condition of the food.

Then came Arizona, you know, in the Spring. Also we had very bad weather conditions and very bad quality to start with. And so on it continued. Right now, we are harvesting Arizona melons for the fall crop and the picture looks much better. Pricing has improved; not substantially, but has improved. We look for a much better Costa Rica melon and Guatemala melon harvest, which will be starting by end of next month in Guatemala.

So, we -- we look at the better picture. We see less competitive pressure as so many of the exporters/importers during the last six, seven months have suffered really substantially. And we see less production in these (indiscernible) and we believe that the markets are going to pick up. That's, you know, that's what we see down the road. So hopefully, that this will materialize and -- and better values.

I mean, one final question, and I think Diane has one. Any update on what you think is going to happen in mid-'05 when the E.U. sits and takes a look at what its current policies are and keep them the same or change them, or if they're going to change, how they going to change?

We are for the change. We are -- at Del Monte, we are very much for the change and we will insist on the change because really, this is an unfair practice, an unfair, you know, kind of arrangement that prefers one over the other.

I mean, just to give you an idea, if it wasn't for the licenses, we would have saved many of millions of dollars during 2004. I mean, because of the licensing matter, licensing system, we have to pay sometimes up to 3 Euros per box just to get these licenses to import bananas in Europe.

So, we believe that, once these licenses are out of the picture and we can be a free access, which would be against, of course, the tariffs. And they are now in discussion of what would be the tariffs, the duties, to be paid on these bananas. But, whatever is the tariff, we believe that this will be a more, let's say even playground for everybody to -- to perform at his best.

Okay. Diane?

Yes. Just the -- the balance sheet you provided obviously doesn't include the debt for the acquisition. Can you just -- can you just give us an idea about how much long-term debt you took on for the Del Monte acquisition?

The debt now -- we started -- it's going to be about $300 million. That's where we are right now in the -- in the revolving debt level. That's where we are after we utilize some of the cash.

Heather Jones, BB&T Capital Markets.

Real quick, as far as just some housekeeping items. Do you have some interest expense guidance for Q4 and for '05?

I think we'll run around 3 million or so in interest expense.

For Q4?

Yes. I believe that's -- should be in that -- yes -- or no, it's actually about a million -- I'm giving you the nine-month number. About 1 million to 1.2 million for '04.

So, looking to '95--.

For fourth quarter, I mean.

Yes. Looking to '05, should we just annualize that as far as what you anticipate your interest expense will be after taking on the Del Monte Europe acquisition?

I would think so. At this point, that's the best we know right now.

Okay. And I was wondering how many ships you currently own versus charter.

Twenty-three ships. Twenty-three ships our own.

Twenty-three ships are owned?

Yes.

Okay. And how many do you charter?

We have about 42 in service right now.

Okay. Now, one thing I didn't understand listening to your comments is, you spoke about North America being weak and Asia being down, just back of the envelop, like about 20 percent or so. And your competitor, Chiquita, gave an intra-quarter update about a month ago and they talked about U.S. being down just 1 percent ad the vast majority of their volumes are contract and E.U. was up dramatically. And so I'm just -- I'm trying to understand why your business seems to be such -- it's such a disparity with theirs as far as the pricing you're receiving.

You know, I think here we have to identify one important thing. If we talk about Europe, there is completely unequal comparison because we are talking about a Del Monte that buys licenses in the market and pays between 2.50 to 3 Euros per box and somebody who doesn't pay the same. So, this is again one (indiscernible) that will disappear by the end of 2005. So, in order to compare apples to apples, you know.

Number two -- number two, for North America, I'm not sure that this -- the contract pricing was very poor. But, the stock market or the open market is not as poor as last year, or even as poor as the concept. So, we have been walking away from contracts. As a matter of fact, we have less from contracts that we have not accepted pricing. I mean, pricing which is ridiculous, it's below cost even, at farm level maybe. So, we are not interested in taking this contract. However, our major -- let's say push is through our distribution centers, which actually, you know, achieve for us much higher prices than the contract itself. That's our policy and that's how we are proceeding.

Okay. The volume losses in bananas you mentioned because of Cameroon and Brazil and Costa Rica. I think one paid 3 million or whatever. Is that just for this quarter or was that the YTD?

No, we mentioned some figures for the year and we mentioned some figures for YTD. The figure that I mentioned was for the year.

Okay. And now, when you talked about pineapple profits being down 300 -- I mean 3 percent, are you talking about 3 percentage points like going from, whatever, 15 percent margins to 12 percent? Or are you talking about the total absolute dollars are down 3 percent?

Quarter.

Okay. And I guess -- I have a -- this question relates to Q4 and to next year. As far as earnings, your guidance implies earnings of about $0.24 to $0.29 for Q4. And it seems as if fuel prices, charter prices, banana prices, listening to your comments, are going to remain weak. And I guess I'm just wondering what's going to change in Q4 that's going to allow you to earn that kind of $0.24 to $0.29? And also, looking into fiscal '05, since Del Monte Europe's only going to be slightly accretive, how -- what do you think the profit outlook will be for that year?

We stick by what we've said and what we indicated. And, you know, I cannot discuss on the conference call what would make the profit or what not would make the profit. But, we believe that we will achieve our results for the fourth quarter and we believe that our business going forward in 2005 will be just as robust and -- and healthy as we have performed during the last so many years.

Paul Viechy (ph), Viechy & Field.

Could you please just expand a little more on the banana pricing area? What is the -- what is the supply situation and what leads you to be less than optimistic on the trends for next year?

The supply situation is not going to -- in my opinion -- is not going to change. (Indiscernible) enough supply in the producing countries. What we hope is that there will be (indiscernible) in the market because I don't believe that the -- the sustainability of (indiscernible) that is occurring right now in the market is going to keep players doing the same things that they are doing today. However, I think there is a very important point that we have to highlight here, that shipping costs have increased by almost -- year-over-year -- I think over 50 percent.

And I believe that, as we go forward next quarter and the future, I believe that we are going to see a far more higher rather than what we are seeing today. And as the Company, I think we have done a very good -- we have, you know, adopted a very good strategy several years ago by buying ships, second hand ships, at very favorable values, which are going to turn into a very important asset as we speak now and in the future. And that makes us really different from other players by having this advantage or this leverage to enjoy very high freight rates at a time when we all need ships. And we've encouraged other exporters and importers from shipping these bananas into this market. I think that's an advantage that we will see going forward in 2005.

Chamel Scotacon (ph), Vastwood (ph) Partners.

I want to ask a little bit about Fresh Cut margins, first of all. I guess when we had talked prior, you guys had always told us that Fresh Cut margins would come up, that it, you know, it might take some time to get to double-digit levels. And you know, I guess you've already hit the double-digit level this quarter, which is excellent. But, what I'm wondering is, does that mean that you already have enough scale at this moment in time in the business to be able to produce double-digit gross margins in that business? And I'm not saying every quarter, necessarily, but let's say annualized, so that in '05 and '06 we should -- you've already hit the volume levels so, in those year, it would be reasonable to think that it's possible to do a double-digit gross margin.

Yes, I believe that this is sustainable and I believe that, as we go forward, even our growth in this category would be quite, you know, substantial and we can maintain these margins.

Okay. The next thing is, last time we talked about the avocado business that you were developing in Mexico. And I guess, you know, if you listen to sort of the numbers, you know, it seemed like it could be quite a big business, maybe $100 million or more eventually. Didn't hear anything about that this time, so can you talk a little bit about that, how that's going and what the margins there look like as well?

Yes. Well, right now we -- most of the volumes that we're working on this year will come in the fourth quarter. The business is really getting underway. It's more of a fourth quarter item for us and that's why there was no mention of it. We'll see how we do. We're moving forward on the product.

Okay. The next thing is, in terms of commodity costs, you've talked a lot about a lot of the different costs that are affecting you and the one-time nature of those. And I'm just wondering, to what extent do you view the increases in container board and fuel and shipping costs in these resins for the plastic as a permanent thing that is a permanent effect on your business? And to what extent do you -- will those subside in the future, if any? And do you have any ability to pass those costs through to your customers over time?

About the cost to customers, you know, it is very difficult, especially in our business. However, if you ask me what is my opinion, I believe that these costs, I mean these prices, our raw material prices, would have to level off and then come down in the next -- I don't know, maybe six months (indiscernible).

From our experience, I mean, from historical trends, you know, nothing would stay up and nothing would keep going up. So, we have seen these trends before and we have seen prices container board and fuel and other materials climb ad they come down over a period of time. So, it's just a matter of time. We have to be more efficient and control our costs better in order to be able to contain this tough period.

Okay. And then I guess the last thing is just, you know, in terms of trying to understand some of the economics of the business. You know, when you look at the last couple of years when you've done sort of earnings north of 3.50 and this year they're going to come in, you know, 2.05 to 2.15, just -- I understand the changes in terms of the banana business and where that is this year. But, you know, when you look at the main sort of drivers, right? So, there's bananas, there's melons, there's these commodity costs, there's weather problems. I wonder if you could just sort of rank how those, you know, have affected -- you know, we know bananas is number one, but how has it affected profitability? And talk about, you know, within any of those, is there anything permanent that has changed that -- that leaves you to believe that that category cannot be as profitable as it's been in the past for you?

No, I think it's from -- from -- if you're (indiscernible), which I have been for many years, I have seen situations -- you know, I have seen periods where every few years you get a bad year. And this isn't my opinion. It's not -- it's a bad year in comparison to last year and the year before. However, it's not a bad year when you consider, you know, over $2 EPS in a year like this. But, I mean for our company, for Fresh Del Monte, I think things are going to be completely different, as I said before, once we go into, you know, in 2005 and beyond as our process business starts taking off and, you know, our new products come into the market and better management and sales in this market. I believe that the potential for us is tremendous.

You know, I mean if we look at Fresh Cut and Del Monte Foods presence in Europe and other countries. You know, we have a hundred countries to cover. And when you look at where we are today, we are (indiscernible) in eight or nine or ten countries, really. And a margin (indiscernible) the market. So, the potential for us is -- is really unlimited. And I am very comfortable that, once we have the efficiency in place and the production also in place, that you will see a completely different company, as well as don't forget that probably we are the only company in the world that has the Fresh and the process, a branded product that can go to the supermarket or to the buyer and offer something that no one else can offer through close merchandising and cost promoting and other ideas that will be, you know, offering it to all of its customers. I think that this (indiscernible) potential with that being realized, you know, in 2005 and beyond.

Right. A last thing is, do you believe you can do -- do you want to do any more acquisitions before you pay off the debt from the Europe acquisition, or do you want to pay down the debt first before you bring on anything else that's, you know, significant in size?

You know, it's too early to say, but I think our debt, if you look at our ratios, they are quite reasonable. And I -- if we see the right opportunity, I think that we will look at it.

Right. Okay. Thanks. You know, there are a lot of good things going on underneath that I think aren't being seen and I'm impressed. So, thank you.

Heather Jones, BB&T Capital Markets.

I'm sorry, I just had a quick question. John, did you say that fuel and container board were $5 million for the quarter?

Yes, I did.

Okay. And now, the ships that you charter, do you -- what I understand is they're usually two to three year charters. Are you all similar to the industry or do you do shorter or longer charters?

No, we do -- we do mainly long-term charters, three years. And some ships we do on the spot (indiscernible) because for the peak -- say we have melon season, you know, where we need a ship or two during the season, that's what we do.

I would now like to turn the call back over to Mr. Abu-Ghazaleh for closing remarks.

I'd just like to thank everybody for their position on this conference call. And as I said to our friend, Lenny, just be patient with us and we will be giving you better news as we go forward. Thank you very much. Have a good day.