Fresh Del Monte Produce Inc (FDP) 2005 Q3 法說會逐字稿

Good morning everyone. [OPERATOR INSTRUCTIONS] Now I would like to turn the call over to Christine Cannella for opening remarks and introduction. Please go ahead.

Good morning everyone and welcome to Fresh Del Monte Produce’s Third Quarter 2005 Conference Call. I’m Christine Cannella, Assistant Vice President 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 third quarter ended September 30, 2005 and for the first nine months of 2005.

Fresh Del Monte issued a press release this morning via business wire, e-mail and first calls. 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 distributions. This conference call is being webcast live at our website and it will be available for replay approximately two hours after conclusion of this call.

This morning, Mohammad will review our third quarter operating performance along as recent developments and our future outlook. John will then review our financial performance for the quarter and for the nine month period.

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 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 headings, “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 and 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. Mohammad?

As you know, the third quarter is generally the most difficult quarter of the year for the produce industry. However, I am pleased to report that Fresh Del Monte has shown improvement across nearly all of our business lines. At the same time, we still contended with a number of challenges that reduced our ability to deliver optimal earnings for the quarter.

First, we continued to shoulder much of the burden of significantly higher fuel prices which impacted our course. Fuel shipping costs, in fact, rose to $294 a ton from $190 a ton in the first quarter of 2004; a hefty 55% higher year-over-year.

Secondly, the North American banana market was depressed with fewer sales due to lower pricing and planned volume reductions as well as higher fruit procurement costs which offset the excellent results we saw in the OPM and Asian banana markets during the quarter.

Third, there were a number of major weather events around the world during the third quarter which had a negative impact on our ability to conduct business in certain regions. For Fresh Del Monte, the heart of this hit region was the US where our business operations were interrupted, most, during and after the quarter by an unrelenting series of hurricanes.

As you know, the southeastern portion of the country was battered by Hurricane Rita and Katrina and by Wilma just two weeks ago. These major hurricanes collectively affected Louisiana, Mississippi, Alabama, Florida and Texas. Each one of these storms influenced our business in a different way. Our distribution process in these areas slowed when our [inaudible] closed and our trucks could not enter affected markets. There were shortages of fuel in many of the impacted areas. Our North American Regional Office here in Miami closed several times for the storms and our grocers/retailers temporarily shut their stores which resulted in lost sales for us.

There was, of course, some good news along the way. For example, though many of our employees in the affected regions were displaced, all were paid and ready to get back to work as soon as possible. In addition, although some produce spoiled in our New Orleans and [inaudible] Distribution Center as a result of Katrina and Wilma, the DCs themselves sustained no major structural damage and we are pleased to report that we are operating in those facilities again. In spite of the challenges we faced in the third quarter, we still generated considerably higher overall net sales, higher gross profit and improved EPS than we had in the third quarter of 2004.

Last year at this time, excluding adjustments, we lost $0.03 and this quarter we add $0.10 per diluted share. Net income for the third quarter decreased compared with its previous period due to the resolution of the US tax audit in 2004.

On the prepared food front, in spite of the fact that we made tremendous progress by establishing new customer basis, moving into markets and introducing new products, sales of prepared foods and the [inaudible] were weaker than we expected with $72 million in sales. Our gross profit margins were also slightly lower in the quarter.

We are, however, undertaking a variety of measures to invigorate this business. We are introducing a range of attractive new prepared food products in the fourth quarter of 2005 in Europe, such as smoothies, [Fruit and Jug], a new juice - Squeezie, Pure and Natural Del Monte Gold Pineapple Juice and introducing Fruitini.

We are backing these introductions with promotions and [inaudible] advertising campaigns in the UK and selected European markets to reacquaint consumers with the Del Monte brand. We believe that these efforts will build the forward momentum we need to accelerate the progress of the prepared food business and will remain very enthusiastic about our future prospects in this arena.

Of course Europe is just one of several rapidly growing markets for the Del Monte brand in prepared foods and beverage businesses. We are also launching our products in a number of Asian markets in the Middle East and Africa. These two regions are particularly attractive to us because they are not as saturated or as competitive as Europe. I might add that our management team knows the Middle East perhaps better than anyone else in the global prepared food business. I believe that we have truly a unique opportunity to take a leading position in these markets. Our divest range of food products, our global infrastructure, our globally recognized brand and our substantial experience in these emerging markets provide us with a competitive edge and substantial potential for growth.

We have begun to build facilities for cold storage and banana ripening used by [facturing] a fresh-cut operation in United Arab Emirates. We have also made plans to serve our fresh fruit and prepared foods in Saudi Arabia. In North Africa, we are poised to grow our presence in Algeria, a vibrant market for Fresh Del Monte’s complete line of fresh and prepared products. Our goal is to rapidly establish our business in the United Arab Emirates, Saudi Arabia and Algeria, during 2006.

We have also continued to build our existing presence in Jordan. Our national poultry business has been growing steadily quarter-after-quarter and we have laid the ground work to begin marketing value-added prepared and read-to-eat products in that market.

Let’s now switch for the client and contents. We continued during the quarter to grow our fresh-cut business in North America, the market that generates approximately 60% of our total global fresh-cut sales. We attract new customers every month including a number of convenience stores which are currently testing our fresh-cut products in several US markets.

We are not only marketing fresh-cut in these stores, but we are also marketing whole fresh produce on a grab-and-go basis. We are also selling our fresh-cut and whole produce to a range of few retail sales chains, casual dining outlets and deli programs in some major supermarket chains. Our whole, fresh gold pineapple business is also expanding. Sales, volumes and pricing fluctuate quarter-by-quarter. But we continue to maintain a strong leadership position in the premium pineapple arena. We eagerly await the launch of the Del Monte Honey Gold Pineapple towards the end of 2006.

On the new product front, we started shipping Del Monte [Highland Honey] Bananas to Japan and Korea and we have commenced planting new fields in the Philippines to meet growing demand. Our volumes are increasing week-over-week and we are very satisfied with the quality of the special new entry. In addition, in the value-added area, we have ramped up our melon overall program in North America with the retail grocers making us an even more indispensable supplier providing us with another opportunity to expand our sales and delivering a stable and sustainable source of revenues.

In terms of the future of our banana sales in Europe, as you know the jury is still out on the EU status regime. We believe that ultimately the EU will proceed in favor of a tariff on the system but we’re not certain whether that will take place by the end of 2005. And October 26th, the WTO determined that the EU’s proposed solution did not rectify its market access commitments. We support opportunities for active stability in markets, banana markets, in a manner consistent with WTO provisions under a tariff-only regime to become effective in January 2006.

In the meantime, we continue to be as confident as ever in our Company’s future. We are building momentum in our European prepared food business by introducing a number of new products, supporting those introductions to advertising and promotions and making in-roads into Asian markets some of which we know extremely well; at the same time we are remaining tightly focused on expanding our fresh and fresh-cut opportunities in North America. I am convinced that we will perform strongly in all of our exciting new markets as well as continue to grow our existing business.

In terms of guidance, we are reaffirming the guidance that we provided on February of 2005. We continue to believe that we will deliver EPS in the range of $2.30 to $2.40; although we expect that high energy costs will continue to impact our operations in the near terms.

In summary, we will continue to adhere to our long-term plan which will enable us to build a stronger Company and deliver increased shareholder value. We have proven time and again that we are a Company that is on the move in the right direction with plenty of new ideas, new products, new opportunities and proven strategies to capture lost opportunities. We look forward to being able to prove this ability to you once again over the next several quarters.

At this point, I would like John to give you some brief about the financials.

Before I begin, I would like to thank those of you who have called us over the last several weeks to inquire how we have fared in the wake of Hurricane Wilma. I was reminded that in the course of doing our respective jobs, we have built some wonderful relationships with many of you through the years; a fact that was never more apparent than when many of you called us. Thank you all.

As Mohammad said, major storms had a significant influence on our financial and operating performance during the third quarter. However, we still managed to deliver strong performance in several categories. Net sales for the quarter rose 21% to $741 million compared with $610 million in the third quarter of 2004, an increase that was due to contributions from our prepared food business, continued strong banana pricing in Europe and Asia, the success of our fresh-cut product line in North America and Europe and the strong growth during the quarter of our avocado program. Year-to-date net sales rose more than $400 million to $2.5 billion from $2.1 billion in the first nine months of last year.

Gross profits for the third quarter of 2005 increased 64% to $51 million from $31 million in the prior year period due to the contribution from our prepared food business, the strength of our banana business in Europe and Asia and the improved performance of our melon program. This impressive gross profit increase was off-set by higher food production costs and expenses associated with ocean freight and distribution along with higher SG&A expenses associated with building momentum in the prepared food business.

Gross profit year-to-date was $271 million, a 37% increase from the $197 million in the first nine months of 2004. Net income for the third quarter of 2005 was $6 million compared with $14 million in the prior year period. Year-to-date net income was $110 million compared with $120 million in the first nine months of 2004 which included a $21 million tax benefit.

Earnings Per Diluted Share (EPS) for the third quarter of 2005 was $0.10 compared with $0.24 per diluted share in the third quarter of 2004. Adjusted EPS for the third quarter of 2004 was a loss of $0.03 per diluted share excluding the reversal of a tax provision related to the completion of a US tax audit and an asset impairment charge.

Adjusted EPS for the first nine months of 2005 was $1.94 per diluted share compared with adjusted EPS of $1.81 per diluted share in the first nine months of 2004.

Let’s move on to our prepared food business. Net sales in the 2005 third quarter was $72 million which represents a 10% of our total net sales. Year-to-date net sales in the prepared food business were $241 million. Gross profit was $12 million for the quarter and $41 million year-to-date. Gross profit margin was 16% for the quarter and 17% for the first nine months of 2005.

SG&A expenses were also higher as we invested aggressively in repositioning and marketing the Del Monte brand in the European regions. Year-to-date we have spent more than $40 million in promotion and advertising expense to support our efforts to invigorate our prepared food business.

In our other fresh produce business, overall net sales rose 9% to $383 million for the third quarter compared to $350 million in the prior year period. This increase was due to the continued success of the Company’s fresh-cut business in North American or in the United Kingdom as well as strong quarterly results in avocados and melons. Year-to-date net sales rose 8% to $1.3 billion from $1.2 billion in last year’s first nine months.

Gross profit for the third quarter of 2005 was in line with the prior year period. Gross profit year-to-date rose 4% to $167 million compared with $160 million last year, at this time. In the fresh-cut produce category, global 2005 third quarter sales rose 27% to $91 million compared with $71 million in the third quarter of 2004.

As Mohammad said, approximately 60% of our net fresh-cut sales comes from the North America region. In North America alone, we saw a 45% increase in net sales and a 48% increase in volume. In Europe sales rose also 12% and volume rose 22%.

In the Dole Pineapple category we saw a 3% decrease in net sales with a 3% increase in volume which was off-set by lower pricing. We indicated at the end of the first quarter of 2005 that we had begun to see significant competition in this category. However, as Mohammad mentioned, we maintain a leadership position in the premium pineapple arena and we continue to create exciting line extensions that enable us to utilize our entire pineapple production.

Our melon category delivered improved results in the third quarter with a 22% increase in sales. During the quarter we saw higher pricing in both Europe and North America on a comparable melon volume to last year’s third quarter; partially off-set by higher costs. For the first time in a year for the quarter, tomato results were unaffected by a negative weather event in the regions where we purchase tomatoes. As a result, we saw normalized pricing and we were able to generate profits in this category. Sales rose 11%, volumes were consistent with the prior year and pricing rose 14% in the tomato category. However, due to recent hurricane activities in South Florida, much of the regional tomato production has been adversely affected so we do not anticipate equally robust fourth quarter results in the tomato category.

On the banana front, overall net sales for the quarter increased 13% or $28 million to $248 million from $221 million in the third quarter of 2004. This increase in sales was a result of higher pricing in Europe and Asia partially off-set by a $19 million increase in fruit and fuel costs. Gross profit was a loss of $2 million; worldwide banana pricing rose 10% during the quarter to $9.81 per box compared with $8.96 per box for the same period last year.

During the third quarter of 2005 Euro pricing remains strong while global currency pricing in the UK and Asia were slightly lower than last year at this time. In North America we saw a 5% decrease in banana sales with an additional 1% decrease in price on the top of the four pricing experience in the third quarter of 2004. As we told you before, we decreased our volume in North America concentrating on our contract business.

In Europe, banana sales were higher driven by significantly higher pricing. In Asia, banana sales were higher with increased volume, however these factors were not enough to off-set the weak North American market. On a nine month basis bananas sales rose 8% to $829 million compared with $771 million in the prior year. Gross profit on a nine month basis rose 90% to $56 million from $30 million in the same period of 2004.

The Other Products and Services Business includes our poultry and grain and third party cargo business. Net sales in the third quarter of 2004 were $38 million compared with $41 million in the third quarter of 2004. This decrease was due to timing in grain sales and in the Company’s third party cargo business, off-set by increased sales and high double-digit gross profit in our poultry business. Year-to-date sales rose to $123 million from $107 million in the prior year period.

During the quarter, we incurred an additional $17 million in SG&A expenses; approximately $13 million was attributable to investments in our prepared food business to re-launch and expand the brand into emerging markets. The remainder SG&A expenses was attributable to the [Bangkok] food compliance, IT Consulting Services and other professional fees.

Interest expense for 2005’s third quarter was $3 million compared with $1 million of the third quarter of 2004. The increase was due to our acquisition of Del Monte Foods Europe at the beginning of the fourth quarter of 2004. In regards to income taxes, we had operating losses in a number of our overseas and US operating units due to lower pricing and higher operating costs. This resulted in a net tax benefit of $4.3 million which we expect to utilize as these units become profitable.

As we mentioned in the third quarter of 2004, we reversed a $21 million tax provision relating to the settlement of our US tax audit.

Operator, at this time I’d like to open up the call to question and answer period.

Thank you. [OPERATOR INSTRUCTIONS] Our first question comes from Leonard Teitelbaum with Merrill Lynch.

John, you’re about to get your black belt in tax management. Can you give us some idea on how much longer we can look for these benefits to come off the tax line?

Well, it all depends on – as we said – on how the operations do and in which country. We may see benefits going forward and these things could happen. But if we have operating losses in various countries, then we will put up NOLs and utilize those when the unit becomes profitable.

So I take it you’re far from done in using your NOLs?

Yes. We have quite a few NOLs. That’s what we did this period. We continue to have these high costs; that’s what’s going to happen.

Now if I look at the numbers, John, and I appreciate you giving us some detail on the cost of goods sold and SG&A, but I don’t know how much of this is one time and how much is a new level because you’re predicting in order to get your $2.30 to $2.40, you have to have a fairly [irrespectable] comparison with last year in the fourth quarter and it just seems to me that’s pretty aggressive considering the problems that have existed with the hurricanes and the continued disruptions that are going on, I know, in manufacturing over there. Can you give us some confidence booster on how you can feel comfortable with an up quarter in Q4?

I think if you look at last year I think we did $0.33 in the fourth quarter so I don’t think it’s that much of a stretch. We had a very nice fourth quarter last year.

Yes. But you made your prediction when oil prices were a lot lower, there was no hurricanes-- I’m just trying to honestly question whether or not the results that are in place going to die in this quarter with tax reversals. I’m just trying to figure out how we can see $0.43 when the trends certainly haven’t been that way.

I think the business will take care of itself. We usually finish up strong at the end of the year.

Well, let’s hope the trend continues. I’ll let others ask about-- I’ll turn the question over now.

Next we move on to Jonathan Feeney with Wachovia.

This is actually John Baumgartner calling on behalf for John Feeney. I have a few questions. Number one, your spending in the EU and UK-- Is it more than expected six months ago?

In what respect?

Just general sales expenses, marketing.

Like we said earlier that we are positioning the brand back into the market. We have to make a lot of investment in terms of human resources in terms of logistics. We have to restructure a lot of our business there. We entered new markets where we have to spend and invest and establish ourselves there. There were a lot of one-time costs that we have to put there as well as an ongoing cause that hopefully will start transforming into meaningful income as we go forward. We are establishing the markets, we are absorbing these costs but we believe strongly that it will start paying off very soon in the future.

Pertaining to the hurricane costs, can you give any estimate as far as a total cost relating to the damage involved?

Really we cannot put a very precise cost because it has affected, like I said, all our operations from logistics to sourcing, ships that had to be rerouted, delays on rotation of these ships which also affected our supplies from the Tropics, trucks that weren’t available that we could not deliver to our customers on time, fuel that was not available to have the trucks running. Many, many, variables-- To put a precise figure on each of these would not be prudent. However, we believe that we have suffered substantially because of all these delays during the third quarter. We had three hurricanes and they were sizeable and substantial in damage to which ever area they affected.

And two last questions. First, pertaining to the EU, do you have any color on your reasoning behind your tariff-only position in the EU? Any insight on the status quo situation at all? And then any updated guidance on the fiscal ’05 tax rate going forward?

As far as the EU, we still believe and we still support very strongly the tariff-only system. However, this is still in the air. Nobody knows what will be the outcome of this dialog. However, we should know, hopefully, by the end of this month or by early next month how things are moving. However, there is no consensus among the producers and we believe the tariff-only will go forward ultimately. What about the tax, John?

On the taxes we will probably see some kind of benefit, a small benefit, as far as the total year is concerned. On the year-to-date basis - nine months - the taxes are a benefit of 1.6; so there may be – tax expense is 1.6 round – so we have to see how it all ends up.

Our next question will come from Eric Larson with Piper Jaffray.

Just a couple of questions. First, regarding just the hurricanes. Could you give us a little idea--? Did it have any residual impact on any of the producing countries in the Caribbean or Costa Rica or any of those areas?

It did have some effect, maybe, in Guatemala on the Pacific side; not in our farms. We had, I would say, minimal effects on sourcing; however, it did I think have an impact in Honduras and Guatemala and we don’t know exactly the magnitude of this damage is.

And then just a little closer to home, a couple of your major competitors have more major shipping in the New Orleans ports than you folks did. And, frankly, I guess I was actually maybe even thinking that the impact of the hurricanes which may have disrupted more of the shipping unless they were able to go to different ports would have maybe actually positively impacted more banana pricing in the quarter. Can you just give an idea how the US market in total – just the whole competitive structure – changed a bit and what the pricing impact may have been after Katrina?

I believe that the affect, the positive affect was for a very short period of time, really. The general market is depressed. The hurricanes had their affect on the consumer attitude, I believe, and on the purchasing power. Don’t forget that even now we are employing here with people still without power, without energy. People are still without-- Some people even not have homes to-- especially ones that were living in mobile homes and things like that.

So if you walk in the streets or you’re moving in supermarkets you will see that it is a situation with not so vibrant-- And this I’m talking about Florida. We still have other areas like New Orleans and other places and Texas that have suffered more or less - or more even - than we did here in Florida. So I believe that this weather, climatic events, have really contributed to the general situation, depressed the market in general; aside from the over-supply situation in the US market. So it’s several variables that have really kept this market under pressure and still under pressure. I don’t believe it’s going to improve very soon unless supply and demand start becoming more in line.

Well, we don’t have hurricanes in Minneapolis. I’m sure we could find you a place to put your headquarters.

Yes. But no!

Yes. Still have tornados! Kind of a follow-up question. On pineapples, I was actually thinking that pineapples given how the production trends and et cetera were trending earlier this calendar year it would have actually had more volume coming into the United States in pineapples unless, of course, you took a bunch of that volume and you’re able to capture, utilize it in your fresh-cut side of the business. Can you talk a little bit about the volume trends that you saw in your business and pineapples in the quarter?

Our pineapple volume has increased definitely. And some of it-- Some of the increase is going to the fresh-cut in North American or Europe. And definitely, we have also made-- increased in terms of sales in Europe and North America. Like I said - like John said - definitely we have seen a down trend in the pricing; however, we have increased our volumes and we still maintain our leadership in this category. Like we said before, we knew that the competition was coming and the competition is here. They did affect us by reducing our prices marginally; however, I think our competition is suffering tremendously. And I know that for a fact that they are losing quite heavily in the market. And I don’t know for how long they can continue with that but quality and performance is on the side of Fresh Del Monte.

And then just one final question for John. John, you may have mentioned this and I may have missed it. Impact of foreign currency on the quarter?

No. We didn’t mention it. But it was about the same as the previous year. The number is around 15 million for the quarter which is roughly the same number. We had about $13 million in ’04 and on the year-to-date basis is basically the same as the previous year. So impact, year-over-year, there’s no benefit from exchange.

[OPERATOR INSTRUCTIONS] Next we move on to Heather Jones of BB&T Capital Markets.

Just wanted to ask about the taxes again just to understand what’s going on there. You mentioned year-to-date you had expenses of about $1.5 million on pre-tax of about $114 million. I’m just wondering, in your assumptions for Q4 are you building in a credit? And just looking into ’06, should we expect they’ll use more of those NOLs?

It all depends on profitability. We may be able to use some in ’04 but right now I think our outlet will have tax expense in ’06 in line with what we’ve been previously predicting. We’re anticipating profitability in our markets.

So what is--? On $114 million and you pay $1.5 million, roughly a percent. What is going on in certain markets that you are able to--? Are you steadily accruing more NOLs? Or are these NOLs you had?

Paying has nothing to do with tax expense. Those are two different situations. We’re talking about accruing taxes based on profitability in the various countries; but overall the tax payments are completely different. Tax returns are completely different; so I don’t think you can confuse the two.

I was just wondering how you can accrue $1.5 million on $114 million in pre-tax. I’m just wondering what kind of losses you’re having in certain kinds of markets that is off-setting profitability? Obviously, you are making money in other markets and I’m wondering how that--?

But that is tax accounting and it’s a whole series of college courses to get there.

Okay. As far as currency hedging, do you have any of your exposure hedged on the Yen and the Euro into ’06?

Yes. We do have a percentage of our business hedged.

And oil?

We are not hedged in fuel.

Were you hedged at all for ’05?

No. We haven’t been.

So going in to ’06, given where the Rotterdam rate has been versus earlier in the year, should we expect higher oil expenses going into ’05-- ’06?

If I knew that I wouldn’t be on this call.

And what percentage of your debt is floating?

Excuse me?

Do you have any floating debt? Floating rate debt?

We have a LIBOR plus margin debt. Yes. Our LIBOR rates are floating. We do lock them up for a period of time but they are-- It’s LIBOR-based.

And then I was wondering the agreement you had with Inter-Fruit back – I think you sold them in ’02 – and you have 3.4 million licenses that you get from them every year, does that expire when this current regime ends? Or does it expire at the end of this year?

It only expires when the regime is expired.

So it’s extended for awhile. You continue to have use of those licenses?

Of course.

And then my final question is wondering if you would tell us what percentage of your pineapple currently goes under fresh-cut?

I don’t think we’ve made that public, Heather. So I’d rather not say.

Next we move on to a follow-up question from Jonathan Feeney with Wachovia.

Mohammad, you talked a little bit about your expansion in the Middle East with Del Monte prepared foods business and some incremental spending in the EU. With all the struggle going on in the EU right now, just kind of wondering from a consumer standpoint, if these were expenditures you planned or are you needing to spend more to get these product launches done? And maybe are you emphasizing the Middle East a little more than Europe because of the tough consumer situation over there?

I didn’t hear-- The voice was not very clear, Jonathan. But let me just summarize what we are doing in Europe. In Europe, we have introduced a new product line that some of them already entered the market and some will be within the next six months [inaudible] from now until let’s say six months that they will be introduced into the market. However, some of these products are very, very attractive and very promising for us; especially the Monte Gold Juice that we started introducing in the UK market. This is a unique juice that no other sector or supplier has in the market and I think that we have a very unique situation there that we could introduce this in the rest of the European market as we go forward. We are looking very favorably to this product.

We have other products as well into in terms of what we call Fresh Express which is the small cups, ready-to-eat, mixed fruits or pineapple and others. We have Fruitini and we have so many other new products that are coming in the market and new introductions.

We have to invest and we invested a lot of money in this market. These are-- Some of them, as I said, one-time costs and some of them an ongoing thing that we are doing; but we will recover and a lot more than what we spent, I hope, in the near future.

As far as the Middle East is concerned, we have three markets that we have targeted and we are already actually started erection in the [inaudible]. We have started the project and hopefully it will be ready by August or September of next year. Operational - as I said, we will be introducing the whole fresh fruit category where we’ll be introducing fresh juices as well there; and we’ll be introducing fresh-cut vegetables and fruits. As far as Saudi Arabia, we will do more or less the same items that I just mentioned. In Algeria, we will be introducing fresh juices and tomato products in this market.

Just to give you an idea, these markets are already being supplied by Del Monte Europe, Philippine and Kenya other sources; however, we believe that once we enter this market, our terms physically, our business will multiply in a very, very good way and we will capture very high potential for this market.

[OPERATOR INSTRUCTIONS] And now we move on to Ken Goldman, Bear, Stearns.

Just one question. I’m less concerned with the cost side in terms of prepared foods than in the top line. I’m just wondering what was disappointing in this quarter – if you can break that down a little bit. I think sales last quarter were $90 million and they were 72 this quarter if I heard you correctly. I’m curious what went below your expectations?

Nothing went below our expectations. I think what we had third quarter is not a good quarter in Europe for canned food or prepared food. People are on vacations and that’s not the best time to sell. Secondly, we had a lot of new listings and new entries in supermarkets that were not there before. That also cost a lot of money to be in there. We have a lot of promotions. So if you look at the business, we are investing for the future.

So there wasn’t any particular area that you felt could have done better?

You can always do better. I never believe that we have done the best; but I believe that we haven’t seen anything unusual except that the markets were not as strong as we had expected. However, whatever we have spent during the quarter, I think it was well spent and we believe that it will have a very good pay-back in the near future.

There you said the markets weren’t as good as expected. So I guess I’m confused on what the--?

No. That’s why I said that in the summer, the sales are usually stagnant and not as robust as in the first half of the year. We started seeing movement and improvement in the prepared foods as we speak right now.

[OPERATOR INSTRUCTIONS] Next we’ll take a follow-up question from Leonard Teitelbaum with Merrill Lynch.

Mohammad, I don’t know if you’re going to be able to do this; but if we were to try to segment the business between whether it’s-- just fruit and then more packaged foot oriented products whether it’s fresh-cut or the products you’re introducing in cans, etc. What’s your mix now and what do you think--? What’s your target between those two as percentage of the Company’s revenue or more importantly of operating income?

You mean in terms of fresh and not fresh?

Yes. Let’s try it that way.

I would say we would like to see fresh in the 60 to 70% range and the balance to be in the prepared area.

That’s 60/40. Is that what I heard you say?

60, 70.

So you’re still looking for-- All right. Fine. That’s good for now. I’ll follow up off-line.

Thank you. This concludes the time allotted for the question and answer session. I’ll now turn the call over to Mr. Abu-Ghazaleh for closing comments.

I would like to thank everybody for being with us on this conference call. I hope we will give you better news as we go forward in the next quarter. Thank you, very much.