Fresh Del Monte Produce Inc (FDP) 2006 Q1 法說會逐字稿

Good morning. [Operator Instructions]

I’d like to turn this call over to Christine Cannella for opening remarks.

Thank you, Sean. Good morning, everyone, and welcome to Fresh Del Monte’s First Quarter 2006 Conference Call. I am Christine Cannella, Assistant Vice President of Investor Relations. Joining me 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 first quarter ended in March 31, 2006.

Fresh Del Monte issued a press release this morning via business flyer, e-mail, 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 distributions.

This conference call is being web cast live at our website and will be available for replay approximately two hours after the conclusion of this call.

This morning Mohammad will read to you our operating performance during the first quarter along with recent developments, and our future outlook. John will then review our financial performances.

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 Securities and 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-F for the year ended December 30, 2005. 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’d like to turn this call over to Mohammad Abu-Ghazaleh. Mohammad.

Thank you, Christine, and good morning, everyone. At the close of 2005, we told you that our company would continue to undergo a difficult and volatile period precipitated by higher costs across a range of particulars. During the quarter, we experienced the highest production costs and fuel costs, to date, in every market in which we are operate. Higher fuel costs, in particular, had a major impact on profitability. It has raised our shipping and handling, transportations, plastics, and ribbons that we use in our packaging, and the cost of fertilizers and other agricultural supplies that we use to grow our products.

During the quarter, we also experienced a $25 million decrease in gross profit on our banana business. This was due to tight banana supply in our traditional sourcing areas in Central America and lower pricing in the Far East.

Banana contracts are an important part of our banana business in North America and the UK, and I want to take a moment to clear up the misperception that some of you may have, that our banana contracts are renewed on January 1st of each year. Our contracts come up for review throughout the years, so we are usually able to renegotiate pricing relative to product market conditions. That was not the case in the first quarter of 2006. Again, the prices that we were able to negotiate during the quarter were still not high enough to offset the increased costs.

The combination of our banana supply shortage and higher fuel fruit production, and procurement costs had a major impact on our results for the quarter. John will provide you more detail on this in just a few moments.

While we have been working to address these market conditions, we also continue to focus on expanding our global footprint. We maintained our emphasis on developing the prepared food business and we are confident that, in time, it will become a major growth item.

During the quarter, we made further in-roads in expanding our prepared food presence in North Africa and the Middle East, as we discussed during the last conference call. We also began expanding into Turkey and several countries in the form of Soviet Republic for the first time. These countries offer a good couple of days for our prepared food product.

Though we have a promising outlook for our prepared food business, quarter over quarter sales were substantially lower. This is due, in part, for the fact that during the first quarter of 2005, we had an aggressive promotional campaign that increased product sales in the supermarkets at the expense of the second and third quarters of 2005, a promotional campaign that we chose not to replicate in the first quarter of 2006.

During the first quarter, we continue to build our fresh-cut business attracting new customers, expanding our product offering, and increasing the scope of our business. We continue to enjoy leadership position in the fresh-cut fruit segment in North America.

Our customer base in our fresh-cut category is growing, and we have secured several new contracts with supermarkets and a number of convenience store chains, and entered the deli section in major supermarkets.

You will recall that during the first quarter of 2005, we had begun the Wendy’s relationship, a relationship that concluded in the fourth quarter of 2005. In spite of this, we expect to hit our 2005 run rate during the second quarter of 2006, as a result of the addition of new customers.

We are encouraged with the development of our North America fresh-cut business and the level of innovation taking place in this category. We have a number of new efforts underway that I would like to share with you.

First, we have a major summer promotion planned for fresh-cut fruit in the US. This is a joint promotional effort with Dannon, a high profile brand in the grocery dairy case. The effort involves Dannon yogurt products, which will carry coupons for Del Monte branded fresh-cut fruit and whole bananas. The promotion will feature ample parts of sale materials such as in-store samplings, [inaudible] and high visibility on Fresh Del Monte and Dannon’s websites. The promotion is underway and will run through the beginning of July, nationally, in major supermarkets.

This joint promotion further demonstrates our long-term strategy for this category of our business. We believe that fresh-cut is now just beginning to obtain its position in the marketplace. The promotion is also testament to the fact that premium brands are joining together to meet customer needs by supplying healthful products that support healthful eating habits for consumers of all ages.

In addition to this summer fresh-cut promotion, we recently began working on conjunction with a leading provider of [inaudible] products to all our [inaudible] deli baskets to national retail grocers. As a result of this new relationship, we expect these deli style kits to contribute significantly to our fresh-cut base in North America.

We also have an exciting summer promotion planned for the Del Monte Gold Extra Sweet pineapple. This promotion is centered on a major entertainment company’s release of a DVD aimed at raising the visibility of the Del Monte brand and driving sales of Del Monte Gold pineapple through a two-point program. This promotion with a goal of merchandising our Del Monte Gold pineapple and the DVD in high traffic areas, at the front of grocery stores and in produce aisles.

As we move through the second quarter, we continue to face rising costs just as we did over the last two quarters. Fuel continues to be a major cost factor, but we don’t want to [inaudible] fuel, right now, due to price unpredictability.

Paper prices are also rising significantly in North America and will continue to experience the negative impact of local currency exchange rate in producing countries such as Chile, Brazil, the Philippines, and South Africa.

We can’t say how long this upward spiral in commodity prices will continue, but we believe that the disparity between price and cost will eventually narrow.

Outside from these adversities, we are confident in our long-term outlook both from an industry and a company perspective. We are steadfast in our belief that our prepared food and fresh-cut business will be the engines of growth and an impact. Our prepared food business is going to launch many new products in 2006 and 2007, to offset the intense competition we continue to face in this segment of our business.

For example, last week in the UK, we produced for the time ambient and chill versions of our Del Monte Gold pineapple juice. The new ambient and chill products allow us, fortunately, to expand our reach into a new section of the supermarket. Our plan, it’s strongest product to other markets as we go forward.

In North America, we will be distributing our fresh-cut and whole product through new agreements with major outlets including a number of convenience store chains.

On the fresh produce front, fresh pineapple consumption continues to rise in relation to canned pineapple in North America. US consumption of pineapple in 1996, the year Del Monte Gold was introduced, was in the area of 1.9 pounds per capita, and has risen to more than 4 pounds per capita by 2004, underscoring the fact that there is still tremendous room for additional consumption in this category.

With our Del Monte fresh-cut and various items, we now have additional facilities to sell more pineapples through our various distributions channels in 2006 and beyond.

We are confident about our long range outlook, announcing in March a three-year stock repurchase program for up to $300 million of our ordinary shares. This action demonstrates our ongoing confidence in Fresh Del Monte’s underlying fundamentals and our commitment to delivering long-term shareholder value.

We believe that our shares are at the value of product price levels, and as we said in our March press release, we believe that repurchasing them is an attractive and lowest means to retain capital at all levels.

Before I turn the call over to John, I believe it is noteworthy to mention that two quarters ago we implemented a cost control initiative aimed at increasing efficiencies which is ongoing. In the course of implementing a range of associated measures, we examine every core center at the company. As it is out of our findings, we have undertaken an area of corporate restructuring measures. We continue to sponsor related businesses, eliminate functional redundancies, reduce head count, and reallocate resources. These actions have enabled us to streamline our operations and gain internal leverage against the continued rising external costs.

John, will you take it from here, please?

Yes, sir. Thank you, Mohammad, and good morning, everyone. As Mohammad said, we have made progress during the first quarter of 2006 on several fronts including in-roads in the expansion of our global prepared food business segment, and the implementation of innovative new products and projects in the fresh-cut arena.

This progress, however, was overshadowed by the fact that we faced a number of difficulties including accelerating fuel prices that impacted our business by $12 million. With bunker fuel up more than 50% over last year at this time. An 80% increase in fruit production and procurement costs, a 15% decline in Gold pineapple selling prices due to continued competition, and an $8 million negative impact at the gross profit level from foreign exchange.

These variables were the major contributors to the $49 million decline in gross profit, which we could not offset through additional selling prices and sales volumes.

Our results for the quarter, across the board, were net sales of $840 million in line with the first quarter of 2005. Net income was $16 million compared with $58 million in the prior year period, and EPS was $0.28 compared with a $1.00 per diluted share in the prior year.

Let’s now review the 2006 first quarter performance of our different business segments.

Banana sales rose 2% during the quarter, primarily, driven by an increase in production in the Philippines. Though banana markets in Asia continue to be depressed, specifically, Japan and Korea, we were able to divert excess volumes from the Philippines to meet strong demand in Middle Eastern countries.

North America banana volumes were lower with the European volumes in line with last year. Worldwide pricing for the first quarter was down 6% to $11.07 per box compared with $11.73 per box in the first quarter of 2005.

These factors impacted banana gross profit by $25 million as we were not able to pass along cost increases like we did during last year’s first quarter.

In our other fresh produce segment, overall net sales for the quarter was slightly higher than last year at this time. A result of increased non-tropical and tomato sales partially offset by lower sales in our North American fresh-cut produce category.

Gross profit in other fresh produce for the quarter was $49 million compared with $66 million in the prior year period, which was primarily related to the same cost increases as we have previously discussed.

Fresh-cut sales decreased by 13% during the quarter with a 7% reduction in volume. These results were lower due to the fact that last year’s first quarter included the results of our Wendy’s alliance, which concluded in the fourth quarter of 2005. However, as Mohammad mentioned, we expect the run rate in our fresh-cut produce category to be back to last year’s level during the second quarter of 2006.

Net sales of Gold pineapple were in line with last year at this time. Our global volume increased by 17% during the quarter due to increased Gold pineapple production, which resulted in lower pricing.

Net sales of melons were consistent with last year’s levels. Pricing was 12% higher due to supply shortages offset by lower volumes in North America and Europe due to adverse growing conditions in Central America.

Net sales of non-tropicals including avocados increased 5% during the quarter, primarily, due to increased volumes with selling prices in line with last year at this time.

Worldwide net sales of tomatoes for the quarter were higher with an increase in pricing offset by slightly lower volumes.

Net sales of prepared food in the first quarter of 2006 for $69 million, a 12% decrease from $79 million in the first quarter of 2005. The decline in net sales was the result of higher than normal sales during last year’s first quarter due to the aggressive buy-in promotional campaign we initiated in the first quarter of 2005. This promotional campaign negatively impacted our second and third quarter 2005 sales. Therefore, we did not repeat the campaign in the first quarter of 2006.

During the fourth quarter 2005 conference call, we also shared with you that we had come under unprecedented competition in this segment of our business. The competitive pressure continued into the first quarter of 2006.

Gross profit for the quarter was $6 million compared with $12 million in the first quarter of 2005, primarily, a result of lower selling prices and increased costs related to the same cost factors previously mentioned.

Net sales on our other products and service segment for the quarter, decreased slightly due to lower sales in our poultry operation. Gross profit decreased 1% from last year’s level at this time.

SG&A included $1.3 million or $0.02 per diluted share for non-cash stock-base compensation expense. We expect the non-cash stock-base compensation expense to be at $1.3 million for each of the remaining quarters of 2006, totaling $5.2 million for the year. This is a result of implementing FAS 123R accounting pronouncement.

The foreign currency exchange benefit at the gross profit level was $4 million during the first quarter of 2006 compared to a $12 million benefit at the gross profit level during the same period last year.

For the quarter, interest expense was $5 million compared with $4 million last year due to rising interest rates and a higher debt level.

Our tax rate for the first quarter of 2006 was 7% compared with 5% in the prior year, primarily, due to higher taxable income in certain jurisdictions. Our tax rate is expected to remain at 7% for 2006.

Total debt was $434 million at the end of the first quarter, an increase of $73 million from year end 2005. This increase was due to higher working capital needs and capital expenditures. Our debt to capital ratio was 27% at the end of the first quarter 2006, consistent with our level at year end 2005.

I would now like to open up the call to our question and answer period. Sean.

[Operator Instructions] Leonard Teitelbaum with Merrill Lynch.

Good morning. I think there is a lot here that-- John, if you had to breakdown-- let’s talk on the cost side for a minute. If you had to breakdown the cost that you can control versus the ones that you can’t, how would you break that down in this quarter? We take a look at where your cost of goods sold are, you went through a menu here of where you got hit. Are most of these things just outside your control and just you got to take it on the chin or can you take steps to mitigate it going forward?

Well, as fuel as we talked about, just bunker fuel alone, now represents about 3% of total cost of sales. That’s up 1%, Lenny. That’s a significant increase year over year. That really hurt us quite a bit, it drove up our distribution costs as the percent now represents about 31% of total cost. So, those things that we couldn’t do much about, and on the fruit procurement side, we also suffered spending a lot more money to buy boxes of fruit. So, those are the key factors that moved out of our hands.

Okay, and as I look forward into this quarter, fuel’s actually higher going into the quarter than it was at the beginning of the quarter just ended. To me, it looks like it’s-- as Mohammad said, I think these are going to be a continuation of the same problems you had in the first quarter. Is that right?

Not to defend magnitude, but we are mitigating this by streamlining our business in a more, let’s say, efficient way, by redirecting volumes into more better markets, reducing-- we had, unfortunately, very bad season in Japan-- especially in Japan and Korea in the first quarter and the last few months of last year, and we were under the impression that the markets will improve. Until we realize that this is not going to happen, we have to-- we started directing fruit into other markets that we’re paying much higher prices.

So, we try to mitigate some of these losses by going to new markets. Unfortunately, we cannot, for instance, exchange rates as I mentioned, in Brazil and Chile, take Chile alone, a couple of years ago we were-- the exchange rate was about 800 pesos to the dollar, today it’s about 515 pesos to the dollar. In Brazil, two years back or even less, was almost 3 [inaudible]to the dollar, today it’s 220. These kinds of things-- South Africa, also, their currency has appreciated so much. In the Philippines, now we see currency has appreciated. So, it’s all adding up. We have a lot of labor force. A good part of our force is in labor and a lot of force, which is really helping us strongly.

All right, now, just to remember, we had the rains in the Southeast were you grew a lot of tomatoes and that was a real with problem with the QSR group. The rains they’ve had in California, how has that impacted your sourcing of material?

No, so far the tomato has been much better than last year and we believe that this year will be a better year. As you could see, as John mentioned, tomato has improved significantly year over year. So, we are quite happy that we haven’t seen as much upheaval as we saw last year.

Your sales dollars were higher than I thought they would be and I’m guessing that’s because you tried to renegotiate the contracts. Now, Mohammad, you did a good job saying, ‘Look, we don’t negotiate for a full year, we do this thing on a surreal basis,’ the new contracts that are coming up, are you able to get the price increases you need or are you still working at a disadvantage?

No, we are successfully trying to convince our customers that we cannot sustain anymore losses and it is a policy that we have in the company that I don’t believe that we should go on doing business losing money for no reason. So, our policy going forward is, if not to make money, at least, not to lose money in the coming months. That would be our policy.

All right. You’ve got some covenants in your debt, if I’m not mistaken, regarding dividend policy. You’re limited to the-- it’s the previous year sets the rate for the current year, is that correct?

That’s right, Lenny. 50% of the earnings of the previous year are--

You can see up to $0.90 this year, but if you have a bad year this year, you’ve got to make sure the earnings are up or renegotiate the covenant. Is that right?

Well, we’ll see how that works out. We’re a long way from the finish line and we’re hoping for better results as we move forward.

Thank you, very much, guys.

Jonathan Feeney with Wachovia Securities.

Good morning, everybody.

Good morning, Jonathan.

Mohammad, can you talk a little bit about the competitive landscape in bananas, particularly, in North America because now on it’s face it looks like somewhat of a supply disruption or higher, it’s more expensive than expected, supplies is what got you here and, maybe, other people are feeling the same thing. Are you feeling good about better pricing? Are people are finally starting to come to the resolution that you just mentioned, that they don’t want to lose money doing business in North America?

At least in our case we didn’t started to do that for many years, and I believe, that we have taken the position now that we’re not going to compromise our cost because we cannot absorb anymore additional costs, and carry more losses, and I hope that the same applies for our competitors. I cannot speak for them, but I am sure that they are in the same boat and they feel the same kind of pressure. So, I have feeling that they will have to rethink about their future studies.

Well, in instances where you’ve, maybe, left some business on the table in North America, have you seen any signs that competitors, yet, in the marketplace are, maybe, backing away from some of the practices of the past?

I believe that the general environment is improving, at least, as an industry they realize that losses cannot continue and there is a limit where you can go.

Okay, thanks. I’m trying to-- the Sweet Gold business, the pineapple business for a minute, it seems like you just channel checks and whatnot have pricing that we’ve done are showing pricing continue to come down for that product, and primarily not your doing, but the doing of competitors. Do you have any sense is there more supply coming on line that you see? Are you seeing things getting tougher and tougher from a pricing standpoint at retail or have we reached an inflexion point in terms of the whole industry has reached a margin that’s going to be sustainable and now we can maintain it from here?

As far as North America is involved-- I’m speaking about us, about FDP. As we see it, the market has been, let’s say, more stable for us-- has been stable for almost the last seven-- eight months we haven’t seen any big variation in pricing. Our pricing has been stable and we maintain our pricing. This is not the same in Europe. Europe has been fluctuating quite significantly in the last seven-- eight months, we could see the price going from-- just as an example, from EUR8 a box to almost EUR13-- EUR14 a box, and that depends on how much volume coming into the market. However, I can tell you, and I’m comfortable with that, that our pricing in this market was always EUR2 to EUR3, at least, above any other brand in the market. So, Europe, this is going fine. North America has been straighter for us as we haven’t seen any significant deterioration in pricing.

Okay, thanks.

Thank you.

Heather Jones with BB&T Capital Markets.

Thank you. Good morning.

Good morning.

I wanted to start with your share repurchase. I was wondering how many shares you repurchased in the quarter because it looks the share account, actually, went up sequentially.

We will be giving that information out in the 6-K as required, and we’ll make that public at that time.

Okay. And, then as far as revisiting Lenny’s question on the dividend, just doing the math real quick, you need to do about $1.60 in earnings this year to maintain the dividend going into Q1 of ’07. Given that you made most of your money in the first half, do you think there’s any chance of you being able to maintain the dividend at the current level going into ’07?

This is a decision that has to be taken by the Board and I believe the Board will decide what action they want to take.

Okay. Now, we’ve heard reports that [ASDAF] has lowered its banana price at the retail level in the UK, and I believe that you all are the ones that source that contract. Did you lower price or is this something ASDAF’s just going to, basically, eat the price decline?

Well, as a matter of fact, since about two weeks ago the price has been increased to ASDAF from our price.

Until two weeks ago?

Two weeks ago we increased our pricing to ASDAF from the previous prices that we had-- we had the contract with ASDAF for the last couple of years and two weeks ago this price has been increased to reflect this, of course.

Okay. Roughly what percentage of your EU banana business is in the UK?

I don’t have that right now, Heather, but we do a nice job in the UK.

Okay. And, going to the super sweet pineapple, when you remarked that pricing was down 15%, but roughly, basically, stable in the US, is that implying that pricing must have been down roughly 30% in the EU? Am I doing the math correctly?

Well, we just [inaudible] bananas in the Far East, also. I mean, pineapples in the Far East, also.

So, pineapple pricing was down in the Far East?

Yes, it’s a combination.

Okay. And, as far as the US goes, do you all have fixed price contracts because spot pricing and then what we’re hearing from other competitors in the market is pricing is down significantly here on a year over year basis and, so I wondering do you have substantial amount of your product on fixed price contracts?

On what item?

For the golden pineapple.

Well, we do have some business-- business proprietary we would not like to discuss on a conference call.

And, so how are you all maintaining pricing here in the face of 20% plus price declines for your competitors?

I think it’s a superior product over the competition’s.

Okay. And, then my final question is going to the EU banana market. The pricing data that we’ve seen has shown a significantly decline in pricing on a year over year basis going into April and I was just wondering if that’s excluding UK, if that’s consistent with what you’ve seen?

Yes, that is a fact.

Okay. Thank you, very much.

Terry Bivens with Bear, Stearns.

Good morning, everyone.

Hi, Terry.

Mohammad, could you give us a bit of an update on Del Monte Europe? I didn’t hear that mentioned specifically, and that’s one I’ve been curious about. How is that business doing?

Yes, I mentioned, actually, spent a few minutes on the prepared food. I didn’t mention Del Monte Europe, but I was talking about the prepared part of our business which is the prepared food side, and I believe it’s going in the right direction. We are expanding our product lines and we are moving forward in different new markets, and we are extremely confident that given time we will really make this business a very important segment in our total operation.

And, where would you say you are in the integration process of that? Has that been completed or-- ?

No, I believe integration is completed now. What we are doing right now is streamlining the business in a better way. We know that some of the production units, be it in Europe or outside Europe, are extremely high cost and we need to either reduce the cost or relocate to other areas we can produce in a much lower cost, but we are producing-- as I mentioned in my presentation, we are introducing the chill juice in the UK just starting this week, which is a new for the Del Monte Europe. This will be, actually, very much like Tropicana juices in the market, but on a better level because we are not competing head to head with Tropicana on the orange or grapefruit. We are introducing our Del Monte Gold juice which has an extremely good reception in the market as well as some advance with the Del Monte Gold juice, which will be unique in the market. We think that this kind of areas we’re going to gain a lot of foothold and we are very excited about what’s going on there.

Okay. Turning to the golden pineapple, one of the fears, I think, a lot of people have had on this stock is that over time there will come the day when competitors like Chiquita, Dole, etc., do come with-- quantity and the quality that will allow them to more aggressively compete with contracts for some of the bigger grocery chains. Do you have the most recent market share numbers on the golden pineapple sector? It, frankly, it’s something I don’t get, but if you have it I’d love to hear it.

At this stage we don’t have this numbers, but I can tell you for one thing, the more they bring volumes, the more they lose-- the more losses they were incur, and I’m not talking about a name here, but I’m talking about the industry in general, and we have seen that-- we’ve seen prices, probably, 50% of what we’re selling in the market at different times and they didn’t know where to go with the fruit.

So, really, we are-- I can’t say that we are much more the same, we definitely will be not rational in doing that, but we are confident about our quality, that there’s nothing in the market compared to it so far, and I don’t believe that they will, to be honest with you, because we have quite a bit of quality, and what we realize is that our customers, supermarkets, do not want to change from their monthly goal. It’s, like, any other brand. It’s a brand, it’s commodity, it’s not just a banana, it’s not just a grape-- bunch of grape, it’s Del Monte Gold, which I believe the customers are very happy with and they don’t want to displace that from their shelves. That’s an addition to our new variety which will come, hopefully, the first introduction will be in November, and I think it will make-- I believe once you see it and once the consumers have it on the shelf, it will make quite a difference.

Okay. I know you’ve been reluctant to give any earnings guidance at all, but clearly the historical pattern has been you’ve got to make the far and away the majority of your annual income in the first couple of quarters, any guidance for what you now what think is reasonable for the year?

No, we’re not giving any guidance at this time, Terry, and that’s our position. So, we really have no comment there.

Okay. Thank you.

Thank you, Terry.

[Operator Instructions] Eric Larson with Piper Jaffray.

And, good morning, everyone.

Hi, Eric.

Quick question on the outlook for when you-- I guess, it’s been a long time since I’ve, actually, begged for more production for a commodity company, any idea when you might see more of banana supplies coming from production in Latin America and where you could, maybe, ease some of your fruit costs?

No, and we believe that once we come into the summer, definitely volumes will be more than what we saw in the winter, but in reality there is not-- there is shortage in Central America, but there is more than enough in Ecuador. I believe there has been a bottleneck in the first three months of the year-- three-- four months of the year, which has created this excitement, but it hasn’t been-- fortunately, it hasn’t been everything in the spot market-- everything that we have imported in North America could be sold. On the older market, we’d have made a lot more money than having these smaller volumes on contract and have to deliver them at much reduced price than the spot market.

So, the market was good, but because of the contracts we could not take advantage of these high prices in the open market. So, it’s a Catch 22, you never know what’s the right thing to do, but and we didn’t have more volumes in Central America to cover, and that applies even to our competitors in one way or the other, but not enough volumes to go in the spot market and take advantage of the high prices.

Sure. That makes sense. And then, Mohammad, talk a little bit more about some of your summer initiatives in fresh-cut I felt were very interesting, tying in with Dannon and others. Is there opportunity going forward to, let’s say, permanently align yourself with a significant branded produce like a Dannon so that you do it up on a full year basis rather than, maybe, just a summer promotion? Is there possibilities for that?

Very high possibility, yes.

And, that would be something that could be an extension-- a global issue, not just the United States, correct?

Well, of course.

Okay, good. Thank you, everyone.

Thank you.

Leonard Teitelbaum with Merrill Lynch.

John, maybe, you could help me with this a little bit. I tried to make a list of some of the pluses and the minuses and you started out by saying what you can and can’t control, and as I take a look at this quarter, I’m missing something and I need-- and, maybe, I’m speaking for my colleagues on the phone here, but if you had us see what the negatives are going forward for this quarter-- I’m talking now in terms of operations, I’m having trouble figuring out what I think the positives are. I think, maybe, you’ve got some better contracting prices. I don’t know if the supply is greater for sale than it was or competition being faced with the same pressures has taking their foot off the price pedal here. What are we seeing differently in the quarter that we’re about to enter that we would not have in Q1? Wendy’s, I know would be one, for example. We don’t have to compete that, but what am I missing here, John?

Well, there are a lot of negatives. I think the positives of what Mohammad alluded to, the new product development I think is very key, switching gears from being just commodity based, and moving into the value added stream of fresh-cut with the new products and the protein salads, things like that. I think that give us great potential?

That happens this quarter?

You guess, but we are in the throngs of these activities coming out and we have a couple of surprises that we didn’t tell you about that is also going to come along.

Okay. The unadvertised special.

Yes. So, there’s some things we can’t say here--

We understand.

There’s more coming.

Yes, we understand. If it’s not been announced, you can’t do it, but I’m coming up by saying, okay, even if we give you-- and there was some timing shift, right, between Q1 and Q2?

Well, you have Easter this quarter.

Did you say that? Did I hear you wrong on that?

You have Easter this year in the second quarter.

Okay. Well, when I take a look at it I-- I don’t know. I got to, obviously, do some more work on the numbers, but I still come up with a really very, very difficult Q2 and I don’t want to-- and I want to be told that’s not true, that I’m missing something very blatant here and I don’t mind being embarrassed because we need to see some positives here, and while I hear what you’re saying I can’t get them ticked up high enough to get over-- fuel costs up double digits, millions of dollars and the others, and that’s-- I’m stumbling here because I don’t know where to go and I need some help.

And, I think, Lenny, in our business many has the same problem, not necessarily in the produce, but even in the food area we are facing, almost all of us, the same kind of variables, and the problem is that how can we predict what the price of oil is going to be one month from now. It could be 60 and it could 80, god forbid.

We have faith in the situation with every single commodity is on the upside. We haven’t seen one single variable.

Mohammad, let me restate my question, give me some good news.

That’s what we are waiting for right now. We are waiting to make things better, that’s what we can say, but we can’t change these fundamentals in the market that we don’t have any control over.

Okay. Thank you, very much.

Thank you, Lenny.

Heather Jones with BB&T Capital Markets.

Thanks. I was wondering besides the initiatives that you’re putting in place in Northern Africa and Turkey, etc., on Del Monte Europe, but Q2-- Q3 have you seen any abatement in the competitive pressures that you refer to?

I think the competitor pressures we refer to are mostly in the UK, not in North Africa or in the Middle Eastern countries.

But, has there been any abatement? I’m trying to get an idea of what the profit outlook would be for that business, say, in Q2-- Q3.

We believe that, because we are streamlining our business in this market and we are eliminating so many SQs that were not reflected on the profit margins that we want to see, and we believe as we go forward in this markets, like in the UK and Italy, in particular, that improvements will start showing up as we go further from second quarter onward. However, of course, if the situation is completely different in the new growth market, but there’s a competitor pressure is far less, and we have a very leading position in this market with a very high potential. So, we are, actually, working on both angles, increasing our present and expanding our market share in the new market as well as consolidating and improving our margins in the traditional market that we have.

Okay. Now, going to the Asian banana market, how much was pricing down there in Q1 and, secondly, has there been any rebound in April?

There has been a slight rebound in April, but not, actually, to reflect year over year or quarter over quarter. The pricing in 2005 was far better than what we see today and the pricing in the first-- I mean, since actually, earlier from the third and fourth quarter of last year and going forward. The pricing in Japan and Korea to effect an extent was very poor and just recently the prices has improved in Japan, but we don’t believe that they reflect values that we saw last year.

Okay. Now, you mentioned that you renegotiated a few of your US banana contracts, I was wondering if you could give us a rough idea of the percentage of your contract volume you just renegotiated and how much you’ll be able to renegotiate over the next couple of quarters?

We don’t have these figures, Heather, right now. We don’t have them and cannot give them, as a matter of fact.

Okay. And, then on the Q4 call you had mentioned that you had terminated a sourcing contract out of Columbia that was a significant number, have you all replaced that with another long-term contract, say, somewhere in Guatemala or [Sutter] or are you replacing that on the spot market right now?

Yes, we did the last part of it and we have other sources. We have some of it from Ecuador and we did replace something from Costa Rica, and Guatemala, but we haven’t-- purposely, we have not increased our volumes because we know that the European market is deteriorating right now and we don’t want to come into the summer with very high volumes. In fact, we don’t know where to go then.

Do you believe that volumes for your-- your European for Q2 and Q3 will be flat year over year as they were in Q1 or do you think they’ll be-- ?

No, they will be more, but not significantly more.

Okay. And, I just wondering what is your outlook for the pineapple market because as we understand there’s new plannings in traditional growing regions like Costa Rica, but also new countries such as Panama, so I was just wondering what-- beyond ’06 even, what’s your outlook for ’07-- ’08 as far as price in that market? You mentioned that some importers are losing money, but from what I understand once it’s in the ground it’ll be 18 months before it’s out. Do you anticipate a weak market for another or two and then it rationalizes or if I could just get your thoughts on that.

As far as we are concerned, we don’t see a weak market, we see a very good market for us. We are growing [inaudible] and Brazil, and the Philippines as well. So, we have markets for our product and we are maintaining more or less our pricing. So, as far as we are concerned, the market-- we don’t have a very blue picture. I believe that the pineapple-- the Golds will continue to perform well and I see a positive look for the future. Maybe, we will have some problems on the way, but I think this market is going to clean itself internally. So, we will see.

Okay. I appreciate you taking my questions. Thank you.

Thank you.

Pleasure.

We have no further questions. I will now turn the call over to Mr. Abu-Ghazaleh for closing remarks.

Thank you, very much for all our participants and I appreciate your patience and being with us on this call, and hope to speak to you our next conference call. Thank you, very much and bye for now.

That does conclude today’s conference call. Thank you for joining everyone. Have a great day.