Fresh Del Monte Produce Inc (FDP) 2005 Q2 法說會逐字稿

Thank you and good morning everyone. Welcome to Fresh Del Monte Produce's second quarter 2005 conference call. I'm a Christine Cannella, Assistant VicePresident of Investor Relations. Joining us today are 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 second quarter ending July 1, 2005. Fresh Del Monte Produce issued a press release this morning via 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 web cast live on our website and it will be available for replay approximately 2 hours after conclusion of this call. This morning Mohammed will review our second quarter operating performance, along with recent developments and our future outlook. John will then review our financial performance for the quarter.

Please let me remind you that much 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 belief and current expectations with respect to various matters. These forward-looking statements are intended to fall within the safe harbor provisions of the security applied. Our actual results may differ materially from those in the forward-looking statements as those described in our description of business risk factors in our form 20-F/A for the year ended December 31, 2004. This call is the property of Fresh Del Monte Produce and its redistribution, retransmission or rebroadcast in any form without our written consent is strictly prohibited. With that I'd like to turn this call over to Mohammad Abu-Ghazaleh.

Thank you, Christine and good morning everyone. I am pleased to report a good second quarter and first half of 2005 for Fresh Del Monte with financial results in line with what we expected and organic sales that were 9% higher during the quarters. The second quarter was an interesting period full of promising new opportunities for Fresh Del Monte. Over this 3 months period, we continued to build our growth platform, implemented our strategy and advanced our transition for a vertically integrated fresh and fresh cut produce suppliers to a global diversified food company. To accelerate our transition, we continue to aggressively structure ourselves based on prepared food and other value added components of our business. We believe that these components, along with our core fresh produce business, comprise the future potential of Fresh Del Monte. We worked steadily during the quarter to leverage our growing strength in our prepared food business as we move toward fulfilling our goal of establishing leading positions in the European prepared food and beverage categories. In doing so, we capitalized on our strong position in the U.K. and we forced inroads into markets throughout the U.K., Europe, Africa and the Middle East. We maximized our shipping synergies, coastal related our European prepared food regional office into our existing office, and fortified our European management team. We also reintroduced several existing juices and launched new ones in the U.K., Poland and Africa. In addition, we continue to develop new youth oriented twelve cap advertising campaigns slated to launch later this year in several key U.K. and European markets. These are all extremely important achievements for Fresh Del Monte. Our efforts have begun to reestablish this business and restore our market presence in Europe.

We expect to harvest the rewards of these and other efforts in our prepared food business in 2006 and beyond. As we continued to develop our global food business we also expanded our reach into the fresh cut marketplace, identifying numerous new avenues through which we can place fresh cut products readily into consumers hands. We engaged in tests with several casusal dining chain prospects that could provide us with hundreds of new distribution outlets by year-end 2005. In fact, we've seen numerous new opportunities with convenience stores, also known as sea stores. They handle perishable products carefully and maintain an unbroken courtship which insures excellent product quality at the point of sale. That expertise also provides us with an opportunity to market our whole fresh products and we are now in the testing phase with several sea stores, foodservice outlets, and major retail chains. On the fresh produce front, our premium pineapple business performed nicely during the second quarter. Supply in the premium pineapple category is often a topic of interest to you and it's worthwhile to remind you that Fresh Del Monte has 2 primary distribution outlets. First, supermarkets that sell fresh whole produce, such as the Del Monte Gold pineapple, and quick serve operators who serve our fresh cut produce, such as the fresh cut pineapple that goes into fruit cups. In fact, fresh cut Del Monte Gold comprises a good portion of our fresh cut product line. As consumers liken, the fresh cut format makes the pineapple easy to eat and this builds the demand that ensures its long term success in the marketplace. In the meantime, we are still slated to introduce the new Del Monte Honey Gold pineapple at the end of next year. Our teams our continually taste testing Del Monte Honey Gold, and they are delighted with its sweetness and delicious aroma. We believe that these unique qualities will drive demand once consumers test the product for themselves.

The second quarter of 2005 was an excellent period for melons, with slightly higher volumes and stronger pricing. We finished with a strong offshore season, especially in April, from our Rocky Mountain and Costa Rican operations. Cold weather in March in California delayed the melon season in that region, and we were able to capitalize on the delay by marketing our Del Monte melons from Arizona. This provided us with a significant competitive advantage in the Melon category in the second quarter.

As I mentioned in February, we continue to expand our avocado business. During the first 6 months of 2005 we quadrupled our sales to $24 million and we believe that this will be a strong growth product in the future.

The greatest challenge we faced during the quarter was in the Asian and North American banana markets where intense competition put pressure on prices. We also saw substantially higher fuel and containerboard costs during this period, which we could not pass on to our customers due to our fixed contractual credit price obligations in North America. As a result, we experienced a negative impact on gross profit. We worked diligently over the quarter to establish new distribution channels beyond the supermarkets and [inaudible] more food for all distribution centers. Though the European banana market was strong during the quarter, our volume was restricted by the number of licenses available to us. However, [inaudible] at the end of 2005 and is replaced by a [inaudible] system, as we believe it will, we'll be competing on a level playing field. This would be a substantial benefit to Fresh Del Monte. In addition, during the quarter we began to export our honey bananas from the company's new plantations in the Philippines. In the past, all our bananas from the Philippines were grown by independent farmers who have long-term contracts with Fresh Del Monte. We decided last year to add our own production, so we leased land in the southern Philippine Highlands and started planting the Highland Honey bananas. Part of our strategy is to drive up production of these ultra sweet and high quality bananas in 2006. In summary, we are pleased with our performance in the second quarter and we are confident about our future prospects. Our global diversified fruit business is gaining momentum and we expect to see strong results from these operations as we move forward. Our fresh cut business is growing in tandem with the health and wellness trends and we are sharply focused on the existing new opportunities that arise every week with food sales outlets, coffee shop chain, and the casual dining restaurants and food service operators.

We also expect to face several challenges for the next 6 months, including higher fuel costs and fluctuating exchange rates, though we expect certain costs such as paper and template to stabilize. While our [inaudible] efforts will help us to address some of these issues, we are still taking a proactive approach to containing mounting strategic costs without injuring our ability to invest in the Del Monte brand. We expect the factors that influence our performance in the first 6 months of the year to continue, and for this reason we are reiterating our 2005 earnings guidance in the range of $2.00 per to $2.40 per durated share. At this time I would like John to give you some financial results.

Thank you Mohammad and good morning everyone. As Mohammed said, Fresh Del Monte had a good first half of 2005 considering the uncontrollable challenges the company faced. Net sales were $923 million compared with $764 million in the second quarter of 2004. This 21% gain was driven by a 44% increase in fresh cut produce sales, a 27% increase in melon sales, and a 7% increase in banana sales, along with the net sales contributions from prepared foods of $90 million. Year-to-date sales were 1.8 billion, 19% higher than the $1.5 billion reported in the first 6 months of last year. Gross profit was $104 million compared with $89 million in the 2004 2nd quarter. The increase in gross profit was due to our acquisition of prepared foods business and strong performance on our melon and fresh cut products. This increase was partially offset by a lower gross profit in all other major categories due 2 higher costs. Gross profit year to date was $221 million compared with $166 million in the first 6 months of last year. Net income for the quarter was $47 million compared with $59 million in the prior year period. Net income year-to-date was $104 million excluding the $2 million asset impairment charge. Earnings per diluted share were $0.80 compared with $1.03 in the second quarter of 2004. However, for the 6 month period, earnings per diluted share of $1.84, excluding $0.04 per share asset impairment charge in our North American business for the first quarter of 2005, were in line with the prior year.

As you can see, during the quarter we were not dealing with a sales issue, but rather with an issue of rising cost. In fact, in our banana and other fresh produce category, costs rose on a per unit basis 11% or approximately $70 million in the second quarter compared with the same period last year. This increase was related to substantially higher costs related to production, sea and inland transportation, and containerboard. The company's diversification strategy in our fresh product line, however, enabled us to offset almost all of these in cost increases. As we move forward, we expect to implement a cost-containment program that will curtail spending while still enabling us to invest strategically in advertising promotion and selling in order to build Fresh Del Monte's future potential in our growth areas.

I will now review our performance for the second quarter and first 6 months of 2005 for our different business segments. Net sales of our prepared food business were $90 million in the second quarter of 2005, which represented 10% of Fresh Del Monte's total net sales. Sales for the first 6 months of the year were $169 million. Gross profit for the second quarter was $17 million, and year-to-date gross profit was $30 million. Gross profit margin was 19% for the quarter and 17% for the 6 months of 2005. As we continue to reposition and reinvigorate our brand and strength, our prepared food business SG & A expenses for the quarter were $16 million, and $29 million for the first 6 months of 2005.

As you may recall, we acquired the previous distress prepared food business in October 2004, and we have been making appropriate and highly targeted investments in advertising, promotion, selling and administrative functions since that time. In the other fresh produce segment, overall net sales increased 10% to $486 million, compared with $442 million in the 2004 2nd quarter. The increase in net sales for the quarter was due to the contribution from many of the Company's products in this category. For the quarter, gross profit was $61 million, compared with $60 million in the prior year. Net sales to date was $926 million, compared with $860 million. Year-to-date gross profit was $126 million, compared with $120 million in the first 6 months of 2004. Fresh cut produce net sales rose 44% to $106 million, compared with $74 million in the second quarter of last year. More than 60% of these sales were in of the North American region, which experienced a 72% increase in net sales and 70% increase in unit volume. Net sales of fresh cut produce in Europe rose 22%, with a 16% increase in unit volume. During the quarter, Gold pineapple represented 11% of total worldwide fresh cut volume. In the North American region, Del Monte Gold pineapple represented 16% of the total fresh cut volume. Net sales of whole fresh Del Monte Gold pineapple were in line with the second quarter of 2004, with a 2% increase in volume that was offset by a 2% decrease in price. As in the past, these specifics excluded the Del Monte Gold pineapple that was sold in our fresh cut operations. Overall, per-capita consumption of pineapple is on the rise. The most recent annual statistics available indicate a nearly 17% jump in per-capita consumption in the United States; a figure that signals a bright future for our Gold pineapple business.

As Mohammed said, we saw a very strong melon market in the second quarter of 2005, with a 27% increase in sales, a 19% increase in price and a 6% increase in volume. The quarters melon growth was generated in the North American region, where pricing and volumes were substantially higher than in the same quarter of 2004. Net sales of tomatoes for the quarter increased compared with last year at this time. We continue to experience tight supplies and high per [inaudible] cost due to production delays as a result of inclement weather in California.

In our banana business, net sales increased $21 million or 7%, offset by a $23 million increase in overall cost. Gross profit declined by 7% due to higher fuel, inland transportation and containerboard costs, along with increased prices of raw materials, used in production. Worldwide banana pricing rose 4% during the quarter to $10.96 per box, compared with $10.53 per box in the same period last year. During the second quarter of 2005, banana pricing and mobile currency in Europe was strong. We saw a decrease in North American banana sales, with a slight increase in selling prices. However, in Europe, banana sales were 21% higher with considerably higher selling prices. Banana sales in Asia were down slightly, with significantly lower pricing and higher volumes, due to normalization of weather conditions. On a 6 month basis, banana sales were $582 million and gross profit was $58 million. Metrics that [inaudible] underscore the strong 2005 1st quarter in Europe and North America.

In our other products and service business, net sales for the quarter rose to $38 million from $34 million last year at this time. Much of this increase was generated from steady poultry and third-party cargo businesses. Year-to-date, net sales rose to $85 million from $67 million, with gross profit year-to-date in line with last year at this time. During the quarter, we incurred an additional $26 million in SG & A expense, approximately $16 million was related to our prepared food business. The remainder was from higher selling and promotional activity in our value added businesses, professional services associated with Sarbanes Oxley Compliance, IT Consulting Services to support our growing business model, expenses associated with expanding our global management team, along with other professional fees. For the quarter, we realized a foreign currency benefit to net sales of $23 million. However, the exchange gain on sales was essentially off that by higher costs and local currencies associated with our expanding activities in Europe and Asia. Interest expense for the quarter increased approximately $4 million compared with last year at this time. Due to the Del Monte Foods Europe acquisition, our tax rate for the second quarter and first half of 2005 were in line with last year at this time. During the first 6 months of 2000 we reduced our total debt by $66 million to $297 million. As of today, we have further reduced the debt by another $25 million down to $272 million.

Operator, would like to turn the call over to the question and answer session .

Thank-you. [ OPERATOR INSTRUCTIONS ] We will go to Jonathan Feeney with Wachovia.

Good morning guys and congratulations.

How're you doing John?

I am doing terrific. Mohammad, I was wondering if we couldn't -- I think you're accurate in that pineapples is an area of tremendous interest to us and I'm wondering if you couldn't give us a little bit more color about the 17% jump in per-capita consumption implies a pretty substantial climb overall in U.S pineapple consumption. There's clearly a lot of competitive activity up there, maybe some competitors growing market share. Do you see this accelerating over the second half of the year?

By competitors you mean?

Yes, by competitors. As far as Del Monte is concerned, I believe that we are maintaining our position in the market. We're not undercutting our volumes in the U.S., on the contrary, we are increasing our volumes in the U.S. and we are allocating it at the prices that we want to allocate at. So from that point of view, I believe that, first of all, we have seen -- and I would like to highlight this -- I was on a trip with some of our executives in the United States last week and I met with our fresh cut people, and one of the interesting points that they highlighted to me, that some of our customers that have been with us for quite a long time, using the Del Monte Gold, have switched to other brands because of pricing, because we refused to reduce our pricing, and they went away for 2 or 3 weeks and they came back asking us to resume again supplies for them, and the reason for that was quality. Even though they have much reduced prices than ours, they could not continue with the other plants. They came back to us - and that's, I think, our leverage as far as fresh Del Monte is concerned. We are not really concerned, and this I have been saying for the last 5 or 6 years, of course we are always cautious and aware about competition, but we know our business and we know what we are doing, and we continue to perform the same way that we've been performing since 1997. And then I would like to assure you again that this will continue. Competition is increasing, consumption is increasing and position of Fresh Del Monte is steady and the same. Thank you for that, but when I think about the decrease in pricing that's going on -- I agree, whether it's from our channel checked, it's clearly a price issue with other competitors are out there. Would it be fair to say though, that because of maybe slightly declining pricing, even slight declines in that pineapple franchise, that the contribution to profits is down, you know, substantially from pineapples?

Not really substantially because, don't forget that we have the fresh cut [inaudible] and we cannot disclose the figures, but we do maintain our margins that come from Del Monte Gold is more or less the same and I don't believe that it is eroding too much of our [ INAUDIBLE ] and that's really - in our competitive environment, I don't believe that it is significant.

Okay, thanks. If we can move to bananas for a second. We got an, I guess, widely expected ruling out of the World Trade Organization yesterday about throwing out [inaudible] position tariffs. I think this pleases you. Can you maybe walk through for us what the likely outcomes are for Fresh Del Monte produce and specifically, how you - and I know it's open to chance - but specifically, what you guys are doing to prepare yourself for what could be a tough '06 in Europe?

Well, we have our distribution centers and fresh ripening facilities. We are extremely strong in the U.K., as far as the ripening and distribution centers. We are already establishing ourselves in Germany and other markets to be prepared for the - we know that it's going to be probably a tough 6 months or maybe longer in 2006 to position ourselves in the market. But I believe the outcome at the end of the day will be much more beneficial to [inaudible] - and let me give you some, maybe, facts here, because I was reading a coverage about our company this morning, which says that Chaquita will have a better results than ours, and though it's the same conditions in the market, we didn't do well. But let me give you these facts. During the high season, in Europe, which is the first half of the year, we import between 450 to 550 boxes per week. Out of this, we have to buy 325,000 boxes -- we have to buy licenses I mean, for 325,000 boxes. In the off-season we buy about 225,000 boxes. We do have, ourselves, Fresh Del Monte, 224,000 boxes that we own; licenses that we own. The rest, between the 224 and the 500,000 boxes that we have to buy these licenses, this cost us about, in my opinion, 50 million dollars. If you consider our competitors, and Chaquita in particular, probably they have over double the figures that we import in Europe, I believe it's even much higher than that, and they own most of these licenses. They don't buy licenses in the market. So, if you just consider the cost of the license, and the upside on the selling price as well, you can imagine what we are missing in terms of potential in this market. We prefer to have a free market, even [inaudible], where everybody can demonstrate his ability and efficiency to market or to make money or to lose money, according to his abilities, rather than being a captive to licenses. That is unfair to anybody - you have something that the others don't have, which is not fair. That's our answer to the regime system.

That's very helpful, but could you -- how do you think, if you have an opinion, things will turn out as far as tariffs per box? I mean, is it going to be somewhere in between?I know that's speculation ...

That's speculation. I believe that at the end of the day they have to come to an agreement, they have to come to a level where everybody accepts --

Okay, thank you .

We'll go next to Eric Larson with Piper Jaffray.

Good morning everyone. A couple of questions. In the U.S. market, in the banana side, what are some of the weekly shipments coming in? Is it over 4 million boxes a week right now?

It's about 4.5 or 4.6 million that comes every week. That's why the market is very, very, very depressed.

Yeah, I was going to say, that's a lot of volume. The outlook for that, how should we be looking at the second half for kind of that shipment volume? Is that a near-term phenomenon, Mohammad, or do you expect that to come down a little bit in the near term?

Well, it will come down with the second quarter once we have the cold weather, usually volumes come down by the 1st, but we still consider -- we want to consider that the competitive environment will continue in this market. And I believe, my own belief -- this is my own analysis -- is that the market in North America will come and [ INAUDIBLE ] one day. I don't know if it's today or tomorrow or one year from now, but I believe that the markets in the North America will change - because nobody can take this kind of beating all the time. The costs in the tropics are increasing, freight rates are increasing, fuel is increasing, everything is going up and the prices are depressed. Either static or going down, and I don't believe the situation can continue forever.

I agree. Could you make a further comment on the Asian banana pricing? That has been weak, as well. Could you make a few comments on how you're looking at that Asian market. You supply most of that, I think, through the Philippines, do you not?

Everything, yes. A hundred percent comes through the Philippines. The pricing last year was, especially here, we had [inaudible] prices and for a long period during that year, maintain these prices. I think it was exceptional, as far as pricing last year. I believe this year we could see improvement in the pricing as we come into the winter months. Right now we are looking at prices around, in Japan, 900 yen. And I believe that this is going to improve once we go over to the summer period. In general, we see a decent market in the far East. With our Highland bananas, which we just introduced, actually few weeks ago, and the production will start increasing by the end of the year - beginning of next year, pricing on these bananas is much higher; significantly higher than the normal bananas, and I think this will help us on our average sales in the region.

Yes, that makes sense. Do you still maintain your long-term relationships with your independent growers in the Philippines?

Oh yes, of course.

Okay. Okay, and then the final question, talk a little bit about -- I'm looking at third quarter outlook, possibly, not in the actual pricing, but looks like there could be a fairly substantial increase, just how the growing season has worked for pineapple out of Costa Rica, you could have a significant volume increase in Q3. Obviously, you're putting a lot more of that through fresh cut, which helps as well, but is there any thoughts on your second-half outlook for pineapples?

I believe we maintain the same outlook that we had in the first 6 months. As far as the pineapple is concerned, you know that during the last couple of months, I would say 6 or 7 weeks, there has been quite an increment in the supply chain. There was a lot of volume coming from Costa Rica and other countries. We knew that, in anticipation, we knew that about 4 or 5 months ago that this period will be much higher in production because of weather related issues, especially on the Atlantic side, and we were expecting this. I believe that within the next week or so we will see a significant reduction in these volumes from competitors on the competition side because the Atlantic side now will have the cycle where it slows down significantly. On our side, our volumes are steady since we are on the Pacific and we have adopted different agricultural practices to cover the production during this period of the year.

That makes sense. And then finally, Mohammad, you just starting exporting production out of your new plantations in Brazil - does that continue to go well? Are you happy with how the production is working in Brazil?

It's according to plan, yes.

Okay, thank you everyone .

We'll go next to Heather Jones with BB&T Capital Markets.

Thank you. I have a couple of questions. As far as the second-half outlook, as you mentioned, Mohammad, the U.S. market is weak, Asia is still weak and July has been weak so far as far as pineapples. I'm wondering, to reach your guidance, in applies, I don't know, 50, 75% EPS growth, I'm just wondering what you expect to drive that growth in the back half?

You know Heather, the problem is, with your coverage, you only cover fruits. We do have a lot of other products in our bag than fruits. We have prepared food, we have national poultry, we have shipping, we have so many other things that are improving on a daily basis. And I think that's something maybe you did not consider. We have so many other things that are moving in our direction that it's taking a lot of the burden of the fruit fluctuation and the fruit market. And I think that we reiterate our projection and we stick by our projections.

Okay, well, I mean, the prepared foods hasn't made money yet, so I was just wondering if you're expect that to make money in the back half. You've mentioned that your fresh cut fruit doesn't make any money on a unit basis, so I was just curious as to what was going to be driving this improvement.

Let me answer this. I think you are assuming wrong function, Heather, but anyway, that's your own opinion.

I was just telling you what you all have said in the past, those are not my assumptions, those are things that actually you all stated. I was wondering what was in other income.

Other income? Mostly it was foreign-exchange, some miscellaneous income, and some equity income, pretty much balanced it out.

Okay. In Asia, what did pricing do in local currency?

Local currency pricing in Asia?

Uh-huh.

Was very weak, very weak.

Okay, and then I just wanted to clarify something. Mohammad, you have said that the licenses cost you, I want to say you just said $50 million.

About.

About a year ago you said licenses cost you $19 million. I was just wondering which one it was.

No, we are talking about 2005. In 2005, the licenses weren't up even to 6 euros per box.

So they more than doubled this year?

More than doubled.

Okay, thank you .

[ OPERATOR INSTRUCTIONS ] We'll go to Leonard Teitelbaum with Merrill Lynch.

Good morning. Let me just try to get a couple of things straight, I want to make sure Sandy doesn't get me after the call, that's private. It's been about 10 months since the acquisition in Europe. I want to make sure that we are on the right track here. When do you see the procedures, etc., that you've put in starting to show up in margins, Mohammad? Are we talking about another year or so before we can get that turned around, or is it going to be in the next 6 months or whatever? Could you put a time limit on that?

I think you will see something by the end of the year.

Now, when we say that, are you - first, I applaud you on getting the sales, I know it's been very hard work, and John, this is probably for you. I'm looking more at margins - and I'll let Diane, if she's got anything after this, kind of tee off on this - are we looking at margins so that it breaks even by the end of the year, or we start to see the improvement in margins that get us toward the breakeven by the end of year?

I think we should see some improvement in margins as we go in. This is more of a second half company than a first half. The company is starting to perform. We continue to invest here in rebuilding the brand and I think the company has supported itself through even the first half. We've replowed back in with more advertising, selling and promotional dollars into the company and really, has not really had much of a drag except for some interest on the business. We've seen that improving. We'll have to judge the advertising campaigns as we go forward.

Let me give you some idea about what's going on. We have so many fronts that we have to address at the same time. Production, we have canning operations in several parts of the world, we have to address the production side because we discovered an efficient very high-cost producing entities, so many issues that we needed to address from day one. And we are still addressing, as a matter of fact, but these things will take time to really come to fruition. When I say, like pineapples and Kenya, their practices are completely off our practices in Costa Rica, for instance, and Brazil. Their agricultural practices were really quite contrary to what we do in Costa Rica. Like, they almost stopped for 3 months or 4 months of year because they don't have continuous production. But that is completely unacceptable to us. Our teams for Costa Rica are in place there since almost the beginning of the your working on rectifying this. This will not happen overnight. It will take at least a year and half to start normalizing production cycles, which means that inefficiencies, much lower cost and higher yields than what we -- this is an example. In terms of marketing, they were in a shambles. You didn't know who was selling and who was not selling it. Their relations with the customers were very poor. We have so many areas that we're working on, but I can assure you, every area that we are touching is going positive, new products are in line, the people, new people are in place. Of course we had some difficulties in locating the right man for the right job, but it's coming in line. We are very, very confident about the prepared food business in Europe and the rest of the areas that we control. We will be highlighting to you on our next conference call where the new locations that we are investing in and very promising locations. But we don't want to say it now.

I was kind of excited about the acquisition before you told me all the problems. Let me continue. If a take a look, John, at the tax rate of 5%, how long can we keep that up or down? From what Mohammad has said,it seems like a lot of the profits being located in here, should be still be looking for this single-digit tax rate?

Oh yes, at least for the rest of this year, we're in fine shape and don't expect, maybe a % or 2, but despite % rate, [ INAUDIBLE ] into double digits by any means.

Back to what Heather was starting to go to, if I look at my numbers, if we take on a, not a reported basis, but taking out some unusual items as we saw, we had a small loss in September of 04 by of about $0.3 a share. You reported 24, but we took some stuff, that was our call to do so, I think. If I take a look at this year, John, are we still looking for a relatively low, and maybe even down, September quarter and then catching it all in December or we going to look more as a balance?

We only give guidance on a full year money basis.

$1.83 [inaudible] so far. If we take the midpoint of your range,that obviously gives it the second half. All I'm trying to do is figure out the waiting in the second half. Is it going to be still, the fourth quarter's going to carry through the year? Or is it going to be split between the third and fourth quarter?

We should be strong in the fourth quarter more than the third quarter. That's positional and I think the traditional assessment of the business is always where you need to go.

Okay, now one final thing, I remember a couple of conference calls ago. We'll follow-up offline on the fresh cut side, but Mohammed, I think you were very specific in saying, and I think your credit, that there was no change in the allocation of tax stamps or whatever the official term is, tax stamps in Europe, clearly that favors perhaps, comes out like a status quo, but obviously favors somebody over you. That's just the fact and the way it is. Now, when the government "throughout the system," I wasn't quite sure how to read that. Did they say that no matter what happens we're not going back to that system or we're going to go back to a system that is more affable? I'm not real sure what that means.

The system that they have to adopt now and everybody at the WTO agreed to is the tariff only system.

That's locked in stone then? They can't go back to the other way?

I hope so. I'm not a politician, but I hope they keep their word.

I think it's important because if things start to develop and then we get into the fourth quarter and find out they're going to put in a modified tax system, kind of like a bridge between the old and in new, that certainly changes the situation dramatically. We all have to place our bets. I'm not asking anything more than that, I just want to make sure I'm not emphasizing the wrong thing.

No I believe that the tariff only system will apply and I think it's a matter of agreeing on the tariff itself. I don't believe that many players are against the present status quo and we will have to change.

Okay, thank you very much. Appreciate it.

Thank you .

We'll go back to Heather Jones for one last question.

Thanks, I just have a follow-up on Lenny's question regards to the WTO. One was a question of if you've seen Columbia's latest proposal about a step down tariff and enlarging the quota each year, to basically gradually move into tariff only? Have you seen it and do you think there's any chance that will go into effect? And secondly, I was just wondering if you could give us some idea of, even though you could increase your volumes into Europe under tariff only pricing will certainly come down and just trying to understand how that could be better for you all in a much lower pricing environment.

No, no, what we are - I think for the first question, as far as Columbia, I don't think that we can act on behalf of the country. The country can publish or decide are say whenever they want. Our position is very clear as far as Del Monte. We are for the tariff on the system and that's what we are going to stand for, so that's our position and we really cannot comment on someone else's position. Number two, as far as the --what is the other question you said?

Obviously you favor a move to tariff only and a tariff only would --

Oh, you asked about additional volume. We didn't say we put more additional volume in the market, we said that it would be an even, a fair play, we never said that want to put a million boxes in Europe if it's a tariff only system. It will be a better way to judge players, because what I read all the time, that Mr. X or this company is doing better and I think it's misjudging fresh Del Monte's performance. So that, I think, will be a good platform to judge each company, according to its performance. Not according to licenses or other tools.

Well, with regards to Fresh Del Monte's profitability alone in Europe, do you think a move to tariff only is going to improve your profits there, are do you think it's going to hold flat or will your profits go down in Europe?

No, I think, in the beginning, everybody is going to suffer because there will be competition, there will be oversuppy and there'll be positioning in the market, but in the long term I think this will be beneficial to us because we don't have to be under the license system where we have to pay really abnormal fees or prohibitive benefits for some people. Secondly, I think the real players will be able market their fruit in a more efficient way.

Okay, thank you .

This concludes the question and answer session. I will now turn the call over to Mr. Abu-Ghazaleh for closing comments.

I would like to think everybody for participating on this call. I would like to reiterate our position, as we have always demonstrated, we will always perform and deliver on our promises. I would like to thank you again and hope to talk to you soon on the next conference call.

This concludes today's teleconference. Thank you for your participation.