Fresh Del Monte Produce Inc (FDP) 2004 Q4 法說會逐字稿

Good day, everyone, and welcome to today's Fresh Del Monte Produce conference call. I would like to remind you that today's conference is being recorded and that all lines will be muted during the conference. After the presentation we will begin the question-and-answer session. (OPERATOR INSTRUCTIONS) I'd like to turn the conference over to Ms. Christine Cannella for the opening remarks. Please go ahead, ma'am.

Thank you. Good morning, everyone, and welcome to Fresh Del Monte's 2004 fourth-quarter and year-end conference call. I am Christine Cannella, Assistant Vice President of Investor Relations. I am joined today by Chairman and Chief Executive Officer, Mohammad Abu-Ghazaleh and Executive Vice President and Chief Financial Officer, John Inserra who will discuss our results for the fourth quarter and the year ending December 31, 2004. First Del Monte issued a press release this morning by a business wire email and First Call. If you have not received a copy of the earnings release, please contact Eva Torres at 305-520-8156. You may also visit our website at www.freshdelmonte.com to register for future distribution. This conference call is being webcast live on our website and it will be available for replay approximately two hours after conclusion of this call.

This morning Mohammed will review our operating performance during the quarter and the year, along with recent developments and our future outlook. John will then review our financial performance for the fourth quarter and for the full year. Please let me remind you that most of the information that we will discuss this morning including the answers we give in response to your 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 business, risk factors" in our form 20-S (ph) for the year ended December 26, 2003. I would also like to add that this call is the property of Fresh Del Monte Produce; redistribution, retransmission or rebroadcast of this call in any form without our written consent is strictly prohibited.

With that I would like to turn the call over to Mohammad Abu-Ghazaleh. Mohammed.

Thank you, Christine. Good morning everyone. Fresh Del Monte's fourth-quarter financial results, advanced from the third due to a range of improvements in our business. During the fourth quarter we saw a record melon pricing, substantial supplies of high-quality, everyday from Chile which continued to be in strong demand around consumers. Increased good bilateral volumes with heightened demand in Europe and Asia during the holiday season and contribution to earnings by the newly acquired Del Monte Foods Europe .

As you know the most important 2004 development for Fresh Del Monte was our acquisition of Del Monte Foods Europe. The largest acquisition in our history. This deal transformed Fresh Del Monte from a fresh and Fresh Cut produce company into a multinational prepared foods company with a productline that now includes prepared fruit and vegetables, juices, beverages, snacks and desserts. It has also provided us with the ability to consolidate the Del Monte brand in key regional markets, fortify our competitive position in Europe, raise our profile with retailers and sell our branded products in Europe, the Middle East and Africa.

In addition, we believe that the acquisition will help to stabilize our earnings over the long term. The strongest sales period in the annual cycle for our prepared foods line is the second half of the year as opposed to the first half when our fresh and Fresh Cut produce line excels. We expect that this factor could in future years provide Fresh Del Monte with more predictable second-half earnings as well as a better year around balance to our financial results.

During the fourth quarter of 2004 we made substantial progress in integrating Del Monte Foods Europe into the Fresh Del Monte family. We began by restructuring the foods group and supplementing our existing Del Monte Foods Europe management team with a group of seasoned executives who bring extensive packaged goods experience to the enterprise. In conjunction with bolstering our leadership, we began configuring the fresh and prepared foods organizations. In the UK and Germany, for example the two groups moved physically to one location, and we began to merge their marketing and administrative functions.

In countries where we have both fresh and prepared foods operations, we undertook ambitious efforts to cross market fresh product to supermarkets that once carried only our prepared foods. And to market prepared foods to our fresh produce customers, as well. Over the last several months we have also affirmed our ability to develop new products into fresh and prepared food productlines that would provide us with a significant competitive advantage in the marketplace.

During the quarter we also began to enter markets that had been previously untapped by the foods group, including markets in the Middle East, Eastern Europe and North Africa. We believe that there is tremendous potential for growth in these areas, and we have allocated resources to these regions to maximize their full potential.

In addition, we began to introduce several exciting new products including seasonal food drinks such as Winter Warmer which was a hit in the UK over the holiday. And the healthy new fruit snack called (indiscernible) which will soon be (indiscernible) in the UK. We will discuss other new products as they are launched.

The year 2005 is a year of development for our prepared foods business and we will invest significantly in growing the business. In doing so, we will maximize the Del Monte brand in Italy, Germany and the developed countries, and we will launch the brand in markets where we have never been or had a presence. We will continue to develop and launch marketable new products such as expanding our juice line. In addition, we will deliver a wider range of products to our foodservice customers in new and existing markets serving more and more of their needs with our growing fresh and prepared product selections and delivering those products through our distribution network.

Finally, we will seek ways to source products more cost effectively, in the past Del Monte Foods Europe had sourced products from Kenya, the Philippines, South Africa and Greece. In 2005 we expect to leverage our own large infrastructure in South America to source several new products profitably from that region. As a result of these and other efforts, we expect to generate over $400 million in revenue from our prepared foods business by the end of 2005. We also expect the acquisition to be slightly accretive to earnings in 2005, and this is due to the significant marketing investment we will make in maximizing the brand in major markets.

During 2004 we also made substantial inroads into the expansion of our Fresh Cut business. During the quarter we agreed to provide Del Monte grapes, Fresh Cut pineapples, melons from honeydew and about foodservice format to end this with 6800 fruit store food outlets in the U.S. and Canada. Wendy's provides our fruit to its customers in cups or bowls along with a low-fat fruit yogurt (indiscernible). As more fast food operators look for ways to provide their customers with healthy many options, they will be searching for fruit suppliers like Fresh Del Monte to help them meet their customers changing food preferences.

We have the ability to serve major retailers, quick serve operators and convenience stores through our North American distribution system, and we offer the consistent high-quality foods that customers want. We also have the global experience that many of the foodservice customers are seeking. For example, we have supplied McDonalds in the UK with sliced apples and grapes since April 2003. And sliced lettuce and tomatoes for many years. Our vast capabilities, our high-quality products and our worldwide foodservice experience positions us favorably to capitalize on future opportunities in this industry.

As we discussed in our last call, we gained greater control over our supply chain in 2004 by acquiring Cam-Am Express, a national trucking company with a proven ability to use technology to orchestrate cost-effective transportation. Today, with the addition of Cam-Am we have nearly a 400 truck fleet, and we are taking steps to increase the number of trucks that we operate. During the fourth quarter, it became apparent that this acquisition was a smart, long-term business decision.

The U.S. economy is gaining momentum, and demand for over-the-road transportation far outweighs the supply of trucks and qualified drivers. With trucking needs that were significantly higher in 2004 and increased fuel costs that are being passed along to shippers by surcharges, we are in a better position to ensure delivery of our products to our customers and improved efficiencies.

In an additional enhancement to our supply chain we expanded our global value added distribution of Fresh Cut network during the year, adding a new Fresh Cut facility in (indiscernible), a new distribution center in Germany and expanded a Fresh Cut facility in the UK. As you know, our distribution centers and facilities position us to deliver the value added services that our customers want. So (indiscernible) distribution to ripening just in time delivery and sorting and repacking. We have no plans to expand our distribution center network in the near future.

Del Monte has had a solid reputation for product innovation. First to introduce our (indiscernible) Del Monte goal, extra sweet pineapple. In 2004 we continued to develop groundbreaking new produce variety and to undertake aggressive new measures to protect our intellectual property. During the fourth quarter we began to test a new cantaloupe variety which is significantly sweeter than ordinary cantaloupes exclusive to Fresh Del Monte. This melon has a (indiscernible) color and a unique rich outer skin and a most exceptional flavor and a delicious aroma as well as a longer shelf life. We expect to introduce this new cantaloupe in 2005.

We also applied for and received a patent on the distinctive Del Monte Honey Gold, our delicious new pineapple (indiscernible) by providers with exclusivity related to this innovative new product. Limited supply of Honey Gold will be available in late 2006 as we expect to introduce the new pineapple in a Fresh Cut format. This will maximize exposure of the new product to consumers and help to ready the market for the entry of the whole fruit which we believe will help to increase demand and boost sales. As we move into 2005 we do so with optimism about our future and about the environment in which we conduct our business.

We see the growing of fast-food providers searching for innovative ways to provide healthful food choices as good for our business. Deliberating the growth ahead, we will focus on fulfilling several short-term objectives. First we will finalize integration of Del Monte Foods Europe to generate new synergies and greater revenue growth throughout this market. Second, we will apply the Del Monte brand to new products, creating a marketing advantage that we can utilize in the years ahead. Third, we will undertake measures to lower our trucking expenses, utilizing our Cam-Am Express operations.

Finally, we will also continue to capitalize on our core competencies to expand sales and improve margins. In doing so, we will continue to invest in Del Monte Foods Europe today so that we can generate greater shareholder value tomorrow. We must try to monitor and work through the challenges that may come in 2005 by remaining sharply focused on our business and delivering the strongest results possible. We expect to deliver earnings per share of $2.30 to $2.40. At this stage I would like to hand it over to John for some financials.

Thank you, Mohammed. Good morning everyone. The tough industry conditions and accelerating costs we experienced in the third quarter as a result of expanding global economies eased at least temporarily during the fourth quarter, allowing us to drive improvements in our business and to deliver improved financial results. Comparing quarter-over-quarter net sales were $818.2 million compared with $578.7 million in the fourth quarter of 2003. Net income was $19.1 million compared with $22.8 million in the prior year period. Earnings per diluted share were 33 cents per share compared with 40 cents per share last year at this time.

For the year net sales were $2.9 billion compared with $2.5 billion in 2003. Net income was $139.2 million compared with $226.4 million last year. Earnings per diluted share were $2.14 cents per share compared with $3.65 per share in the prior year excluding non-recurring net benefits.

Let's now move on to review the 2004 fourth-quarter and full-year performance of our different business segment and products. For the quarter banana net sales rose to $259.9 million compared with $229 million in last year's fourth quarter with pricing increasing $1.16 per box to $9.74 in the fourth quarter of 2004 compared with $8.58 per box in the fourth quarter of 2003. Local currency pricing in our major overseas markets was higher than the previous year.

Gross profit was a loss of $6.7 million compared with a loss of $1.4 million in the prior year. The increase in selling price in the quarter was not enough to offset higher fruit costs, fuel and containerboard costs. For the year banana net sales were $1 billion compared with $969.6 million in 2003. Volume was up 4 percent with worldwide pricing increasing by 2 percent to $9.80 per box compared with $9.62 per box in 2003. Gross profit for the year was down 67 percent due to higher production costs, as well as third-quarter challenges, including higher commodity costs, Sigatoka disease and poor weather conditions in Costa Rica and Brazil. Bananas now represent only 35 percent of total sales, down from 39 percent in 2003.

In our other fresh produce segment net sales for the quarter rose 34 percent to $429.1 million compared with $319.9 million in 2003 due to higher sales in the tomato, Fresh Cut, gold pineapple, nontropical and vegetable product lines. Volumes were up 12 percent, and gross profit rose 20 percent to $55.9 million from $46.6 million in 2003 due to strong melon and non-profitable pricing and higher volumes of our Chilean grapes. For the year net sales for the other fresh produce segment rose to $1.6 billion compared with $1.4 billion in 2003. Volumes were up 14 percent, but gross profit slipped due to significantly higher production and transportation costs.

Our gold pineapple business continues to advance during the quarter and the year with higher sales and volumes with consistent, year-over-year pricing. As Mohammed said, we saw heightened demand for our golden pineapple in Europe and Asia during the quarter. Melons had a significantly stronger quarter with lower volumes across the entire industry due to whitefly issues in Guatemala. This melon shortage led to record pricing with sales increasing 20 percent from last year's fourth quarter with 33 percent coming from pricing. For the year sales were up slightly and volumes were down 3 percent.

For the quarter and the year sales and volumes of grapes and nontropicals were up significantly. Grapes benefited from better weather conditions in northern Chile and on a full year basis price increased over all. During the quarter and the year we had substantially higher tomato sales due to continued expansion of our North American tomato repack business. However, as you know, there were significant tomato volume shortages during the second half of 2004 due to the unprecedented number of hurricanes that negatively affected our tomato business.

In our Fresh Cut line sales for the quarter were up 35 percent on higher volumes in North America and the United Kingdom. For the year Fresh Cut sales to rose 25 percent on higher volumes in North America and the UK. We continue to expand our North America distribution business with sales of $215 million for the quarter and $781 million for the full year, which represents a 33 percent increase for the full year.

As Mohammed said, we closed our acquisition of Del Monte Foods Europe on September 30, 2004. Sales of Del Monte foods during the fourth quarter were $88.8 million, which represents 11 percent of total sales. This product category had a $16.3 million gross profit with an 18 percent gross profit margin. The Del Monte foods business required a significant marketing effort, which is included in our SG&A expenses. The Del Monte foods acquisition was moderately accretive to earnings in the fourth quarter.

Sales in our other products and service category or of the nonproduce category for the quarter and the full year increased due to our third-party freight sales with gross profit consistent with the prior year. For the quarter we realized a foreign currency benefit to net sales of $15.2 million due to the strength of our major currencies against the dollar. For the year we experienced a $70 million benefit to sales for the same reason.

Interest expense for the quarter increased by $4.5 million, primarily due to the borrowings associated with Del Monte Foods Europe acquisition. Taxes for the fourth quarter and full year were in line with the prior year excluding the non-reoccurring tax benefit in the third quarter of 2004 of $20.6 million. This concludes the comments of our results. Could you open it up for the question-and-answer period?

(OPERATOR INSTRUCTIONS) Leonard Teitelbaum with Merrill Lynch.

Just a couple of questions. Number one, the increase in SG&A expense, was that all because of Europe, or John you had mentioned some higher brand building. I'm sorry, could you give us kind of a breakdown on why the SG&A went up as much as it did?

Well on an overall basis when we exclude Del Monte foods which is around 13 million, it is about 4 percent of sales and that is consistent with the prior years. So there really isn't an uptick if you take it in relation to sales.

Okay. Second, what is your ForEx assumption for next year? And you went into your guidance?

ForEx assumption is pretty much stability in rates overall.

So you're not looking for a major change?

Right now it looks like they are pretty much in line with this year's rates.

And that is what you put into your numbers so if we see a major fluctuation in the dollar, up or down we should, that would change your assumption? Is that the point?

We had some hedging, Lenny, so we won't get the full benefit. But we would get some.

Okay. Now on the Fresh Cut side of the business, as you stated in the past that you are going to stick to some pretty significant contracting rules to get into the QRC business. Is the contract with Wendy's -- number one is there a contract with Wendy's, or is this something that is going to get reviewed on a regular basis to see if it continues or are we locked in for a period of time here?

No, we had a contract, Lenny, and this is for a period of time, and of course we anticipate and we hope that this will be a very long-standing relationship with Wendy's and not only with the Fresh Cut fruit but I hope in the future we can develop other items and products as well.

Now are they cost plus contracts?

No, we don't like to discuss (multiple speakers) on a conference call, but no, it is not a cost plus.

Thank you. Do you anticipate any losses or down quarters as we get into the year?

Not at this point, Lenny. We think we are in decent shape. We think some of the balance -- we will have to see how it proves out for the Del Monte foods business, but we are hoping that that's going to help out especially in the fourth quarter.

And finally, is there any update on the situation regarding quotas in the EU?

No, the situation is still as is and I think discussions and negotiations between the European Commission and the producing countries is ongoing. The situation that the EU is (indiscernible)on their tariff system only and I think that the issue now is how much is the tariff. So as we go forward, we would know more.

Thank you very much.

Ken Goldman with Bear Stearns.

Good morning everyone. A couple quick questions. In your press release this morning you mentioned adverse weather conditions will continue to present challenges in 2005. I am just wondering if you could perhaps add some color on that in terms of timing and regions that you're thinking about that.

We are talking about as we speak now there is still cold weather in the tropics, and this is delaying growth of fruit as well as the loss of fruit that we experienced in the last few weeks because of the floods. So we are speaking about the present period. We don't know what can happen in the next nine months or eight months.

We are talking about history, not future.

Question about banana prices. Obviously they have been up pretty high in the first quarter so far. I am just wondering when you guys think they might if at all come down, and how that might affect your earnings in this first quarter.

It is difficult to predict when banana prices, usually historically the first part of the year is always a good market for bananas and usually prices are much higher than the second half of the year. So we anticipate that prices will hold on, we are talking about different markets, we are not talking about only North America. North America definitely has improved over the last month or so and we expect that improvement will continue hopefully through the first quarter. As far as Europe and the Far East, we see s much stronger operation right now, and we hope this will continue throughout the second quarter. So that is how it looks right now.

Okay and one last question about Cam-Am. Do you expect to buy more trucks or more trucking companies and when can we see that possibly happening?

We are not planning to buy other trucking companies but we are in the process of expanding our trucking fleet -- actually we have orders now underway, and we are planning to expand our trucking fleet definitely.

Thank you very much.

Linda Wang (ph) with Wachovia Securities.

Question about pineapples. Have you guys been able to maintain your market share like the (indiscernible) competitors?

More or less yes. I believe that our volumes increased as we produced more volume from Brazil right now and some increased volumes was also in the Philippines with additional volumes coming from Costa Rica. I think we have maintained our market share in our opinion.

On a global basis that is where we are.

Do you know how much volume has increased for the entire industry?

We don't have the figures upfront, but the figure has increased I would say significantly during the year. But the market has been absorbing these volumes without really much difficulty. Yes, we did have some periods during the year during 2004 where we experienced soft pricing when volumes were extremely high. But these situations usually correct themselves quickly afterwards.

Heather Jones with BB&T Capital Markets.

Thank you and good morning. I have a couple of clarifications; I just didn't know if I heard correctly. Did you say that banana sales were 259.9 for the quarter?

259.9, yes.

Okay. So I guess I am just going from that, I was wondering what happened to costs because we tracked your cost on a per box basis. And that would show your costs being up more than 10 percent on a per box basis compared to like up 4 percent or so for Q2 and Q3, and I was just wondering the sequential jump. Is that due to the purchased fruit more than anything? Because I think you were affected by fuel and all and in the earlier quarters, I am just wanting to know what the difference is between the two quarters.

Well, we did have some increases in purchased fruit, and we did as we stated we had some Sigatoka problems which also raised our own costs of the volumes that have come out of the ground. And of course we had the fuel and containerboard cost increases which are significant even in the fourth quarter.

What does fuel and containerboard run as a percentage of costs now?

I am not going to clarify that. That is the numbers we don't make public, Heather.

Okay. In your guidance for '05 I was just wondering what interest expense and tax rates you're assuming.

We are assuming a tax rates about 12 percent, and the interest will be somewhere in about 4 percent.

Four percent of sales?

No, no interest expense the rate would be about 4 percent.

Okay, sorry. There has been I'm sure you have all seen, speculation that you all are pursuing the Fresh Express acquisition from Performance. And I was wondering if you could comment is that something you would be interested in or if you can provide any commentary on that.

We don't comment on acquisitions at all, Heather, is our policy.

Okay. Now in Cam-Am, are you all servicing -- is that just your business that you're servicing? Are you doing some hauling for other customers?

No, we are working for (indiscernible) usually.

Okay and now in the other produce business, that I can't remember what you said, I want to say up 35 percent or something but anyway, the sales were up significantly. And it well exceeded my estimate, and I was wondering is that primarily the melons that you said sales were up 20 percent? How big are melons? Did that really drive the increase?

It was substantial. It helped drive the increase. It was, as we said, it was tomatoes, Fresh Cut products, gold pineapple nontropicals --.

I just want to add to that that since middle of last year almost we started distributing, shipping and distributing Mexican avocados and Chilean avocados into the U.S. and Canada. And right now as we speak we are the third-largest shipper and distributor in the United States on the avocado business. And we hope by sometime this year we will lead the, probably become the second-largest shipper of exporter, which is a very significant, I believe initiative and development for the whole business.

What was that for the quarter? Because that may have been one of the reasons --.

No, no, no that is an additional business that was not at the beginning of 2004 or 2003. But I just highlighting new businesses that we just entered, but as John said I think across the board we have much better sales and revenues, and don't forget tomatoes were extremely high in prices during the fourth quarter. So that has helped as well. So it is a mix of different products that we are marketing.

So on that tomato business am I correct in that you are a repacker so your sales line might go up, but your costs went up as well? When tomato prices go up is that a margin benefit for you, or do you bear a higher cost and therefore you just pass through your cost and you maintain a similar margin?

Well, it depends we have contracts with some of our businesses on a fixed-price with growers, and the rest is on spot market. We do have a lot of contracts also with our buyers with the supermarkets. So it works both ways but usually we are in good shape, and we did have some relief during the high pricing period by our buyers that (indiscernible) and we had to add on the price.

Right, similar to what you all did on bananas and all?

Something like that, yes.

The Wendy's business, are you putting out any numbers for what you think that will do as far as a revenue annual run rate?

No, we are not doing that. We covered 6300 outlets with Wendy's, but we were very pleased to have that business.

Okay. And I guess my final question is I was wondering just how to track the currency impact for the quarter because I was looking at the spot rates, and roughly 45 percent or so of your revenues are Japan and Europe. And you look at the year-over-year increase and come up with a much bigger number than 15 million, and when you talk about a net benefit, is that the benefit to the bottom line, or are you all hedging a lot of your upsides?

We mentioned, Heather, that that sales and that is just the sale impact. We had discussions on calls and so forth in the past and we told people that you cannot put that to the bottom line. It is just a sales impact.

Did you just hedge away a lot of the upside or something?

We had some hedging of course. Always protect the downside impact.

Okay. Thank you.

Piper Jaffray, Eric Larson.

Good morning everyone. I am just a housekeeping question to start with. John, in your 6-K or your 20 -- will you show Del Monte Europe as a separate item, or will you lump it into one of your other categories for disclosure?

No, we will show it as a segment. That is why we provided the gross profit.

Okay, good. Thanks. And then looking at the strength of your melon business in the fourth quarter, clearly I think you have had very favorable growing conditions year-to-date right now. And last year I think you had a pretty difficult first quarter with melons. Would you expect that melons would be a positive contributor to revenue and earnings in the first half of this year?

We believe so, we believe so.

It wasn't that terrible, Eric, melons last year in the first quarter. It wasn't as great as the year before, but it was decent.

Okay, okay good. And then Mohammed, a little bit more on some of your plans for Del Monte Europe. Obviously it is a huge opportunity for you, and you had mentioned that I think you said that '05 sales from that business is projected around 400 million. When you look out a couple of years, how big is that business for you? What kind of -- if you let your imagination wonder a little bit, what could that be for you?

I hope that within a few years this could be $1 billion business for us. The potential for this business is unlimited because of the productline that you can develop and the market that has not been fast or even (inaudible). We do believe that the potential is going to be not only in Europe, but in all these markets that have not been developed so they are very, very promising markets. And extremely high margin markets.

I am assuming that the product mix you are talking about on future growth would resemble the type of financials that you disclosed today. Would that be correct?

Do you mean gross margins?

Yes, gross margins.

Yes, we hope this is a normal kind of margin, a little bit of this kind of business.

Okay, great. Thank you, everyone.

(OPERATOR INSTRUCTIONS) (indiscernible)

(indiscernible) from Bassett Partners. I just want to ask about the European tariff situation on bananas. Can you explain what right now -- so if there is no agreement in this negotiation, does the situation go to some arbitration? When would that happen, and if you were to see a much higher tariff, I do not know what the chances of that are, but if you were to see a much higher tariff than you're seeing today, would that throw the sort of European banana situation in chaos for a certain amount of time?

We don't -- that issue has to be finalized before the end of the year. It has to know what is the rate, what is the tariff, what is the system that will be adopted. Secondly, we don't believe that there will be a complete collapse in the banana market in Europe even if the tariff is higher than what we are anticipating. It would work both ways. I believe in one way it would make the market I would say more transparent because today what is happening is that there are people that have nothing to do with bananas but just happened to have licenses -- they are trading in the licenses and taking advantage of this. These people of course will disappear from the picture, and what will remain are the real players, banana players that have the ability to deliver these bananas, and I believe that either producers or big marketing companies will benefit from this in the long term.

Is there anything that can happen in terms of the tariff coming into a certain level that would permanently impair profitability for you guys out of Europe?

I don't believe that the tariff is going to impair profitability because the higher the tariff, the higher the value for (indiscernible). Don't forget that if we have to put, let's say two or three or four dollars per box, that is a lot of money for anyone to put on the table just before having your fruit in the country.

Okay. On the Fresh Cut business you had talked about sort of continuing to be able to leverage the gross margin there as sales improve as you sort of gain sales. How is that going? We talked in the past about getting into the teens. Are we close to that level yet? Is it something you think you can get to in the near future?

We are working towards that, but the more that we can put through these facilities, the lower the fixed cost and the higher the margin. It is simple arithmetic.

Okay. The last thing is in terms of investment in CapEx, are you expecting to stepup CapEx investment next year because of the investments you feel you have to make in the European business?

I think overall we are still similar to what we had this year we had about 96 I think it is, and we see maybe 100, we will have to see how it goes; we will keep you updated as we go forward. That is our plan right now.

Okay, thank you. I appreciate the help.

Heather Jones.

I was wondering your outlook for '05, given how strong pricing is currently in most of your productlines, I was wondering whether you are expecting a significant cost increase across your major input costs for all of '05, or first half weighted or what is the outlook for that?

As we speak now Heather you know that the raw material costs are up still high. But this could change sometime in the future. Who knows by the middle of the year the oil prices can come down and raw material can follow that as well. So we do hope that price of raw materials will come down and that will improve our costing. But as we speak now we are assuming that the costs will remain the same.

What about charter rates? They seemed -- I think they are at all-time highs, and I believe that you have been signing some contracts. But I was wondering are you considering buying additional ships to maybe protect yourself just to have less exposure to that market, or what's going on there?

I wish we can. The ships that we bought a couple of years two, three years back, a ship that we bought for 3 or $4 million or $2 million we have to pay today -- if we buy the same ship today -- we would have to pay maybe $10 to $12 million for that same ship. So it is really ships are not available to start with and secondly, they have become so expensive that its impossible to buy the ship. However, we are enjoying definitely the 23 ships that we own today. So the freight rates have climbed up beyond imagination. Even the freight costs now is more than the truck cost of any product that you want to ship.

Okay. Now how much production did you lose in Costa Rica? Or were you one of the ones that really impacted?

I don't think we were impacted that significantly in the actual flooding area, we didn't have too much production.

Okay. Now looking at your full year margins, they are roughly half of what they were, and I am talking about EBIT margins, roughly half of what they were in '03. And I guess do you think there is any structural change in your business that if charter rates normalized, that fuel rates normalized, whatever, that would prevent you from returning to EBIT margins similar to what you had in '03?

I don't really think we want to get out there and predicting the future. I think we're going to work with what we have forecasted, and that is our number Heather and I really don't think we can project on what happens if and what.

And besides, I think that to take two or three as an indicator (indiscernible) I believe that it will be distorting, 2 or 3 as I said earlier, several quarters before that was a very, very special year, a perfect year in terms of bananas and pineapples and melons and any other product that we handled. And so I think it would be unfair to use 2003 as yardstick to compare to the future. I think I would consider 2004 a normal year. I hope that 2005 will be a better year. But in the produce business it is always difficult to predict because of weather and so many other variables since we have so many commodities that we deal with. However, I think as far as Fresh Del Monte is concerned as we said on our conference call today, our prepared food and our new business is going to give us tremendous leverage -- I am not saying today or tomorrow but sometime in the future that will change the texture of our company and really take us into a different level than what we are today.

This is my final question but you all mentioned Brazil several times, and I believe you were going -- I think you all said you're growing pineapple, bananas and melons there and I guess I'm just wondering three things. How big is that? How big do you want to make it, and is the end marketer Europe or is sit U.S.? I mean what are the plans for Brazil because it seems to become a much bigger factor in your production.

Brazil is becoming a very important source of supply for us right now. We have bananas coming out of them on a weekly basis. We have pineapples, we have melons, of course seasonal during the season from there. So it is not -- it is a significant source of supply today and I think it will become more significant as we go in the future. We are expanding our production in bananas and in pineapples from Brazil.

Okay thank you.

Leonard Teitelbaum also has a follow-up question.

Just a quick one. I'm trying to write down numbers here quickly and thank God Diane may be able to do that Mohammad, it seems to me that the revenue line is just fine, its the costs that are creeping up and I can't figure out if they are just agronomic and if they are then presumably as the season begins or are they just general operating costs that we have to wait in Europe until we get volumes up to cover them? And I mean pricing doesn't seem to be the problem unless I am hearing this wrong and I need to be corrected if I am. Versus how fast the prices are going up versus how fast the costs are going up. And if that's the case, when do you see it going the other way?

Are you talking about fresh or (inaudible)?

I think we could talk about either of them. Let's talk about the foods first, and then finish up with fresh.

Don't forget that we only have acquired the business in September, end of September and I believe that during the last three, four months we have a lot of restructuring and a lot of onetime costs that we have to absorb, as well as a lot of new (indiscernible)that we introduced the business. And we have to also invest in marketing in several countries recently. So I think that many of these factors have contributed to this additional costs you are talking about.

Won't that continue into the (technical difficulty) '05?

Well I think we will still have the marketing effort. You are breaking up a little bit (multiple speakers)

I will follow-up off-line. I'm getting confused with some of the way we are expressing it. So let's move on, and I will follow-up off-line.

Okay.

This concludes the time allotted for the question-and-answer session. I would now like to turn the conference back to Mohammad Abu-Ghazaleh for closing comments.

Thank you very much. As we always have promised we deliver results, and we will keep doing that. We believe that we have done a great quarter and a great year. And we hope that 2005 will be on the same course. Thank you very much for participating with us today, and I look forward to talking to you again in the near future.

Thank you, that does conclude today's teleconference. And thank you all for your participation. At this time you may disconnect.