Fresh Del Monte Produce Inc (FDP) 2006 Q3 法說會逐字稿

Good morning, everyone. I'd like to remind you that today's call is being recorded and that all lines will be muted during the call. After the presentation, we will begin the question-and-answer session. (OPERATOR INSTRUCTIONS)

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

Thank you, Julie. Good morning, everyone, and welcome to Fresh Del Monte third-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 third quarter ended September 29, 2006.

Fresh Del Monte issued a press release this morning via BusinessWire, e-mail and First Call. You may visit our Web site at www.freshDelMonte.com to view the release and register for future distributions. This conference call is being webcast live on our Web site and it will be available for replay approximately two hours after conclusion of this call.

This morning, Mohammad will review our operating performance during the third quarter, along with recent developments and our future outlook. John will then review our financial performance.

Please let me remind you that much of the information that we will discuss this morning, including the answers that 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 under Securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors, including those described under the heading "Description of Business Risk Factors" in our Form 20-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. Good morning, everyone.

As we predicted earlier this year, 2006 is shaping up to be one of the most difficult periods ever for Fresh Del Monte Produce. We and our industry are struggling with the same challenging market conditions that have adversely affected us for the last 12 months, including higher year-over-year fuel costs, higher costs related to raw materials, packaging, labor, and transportation, unfavorable exchange rates, and a banana market in Europe that is still in transition. These industry conditions, combined with continuing issues in our prepared foods business, have hampered our performance to date in 2006.

While we are clearly disappointed with these results, we are not discouraged and we are not standing idly by. These are tough times for Fresh Del Monte, and they require tough measures as well as the courage, confidence and leadership to implement them. These measures include an aggressive new approach to doing business, a new line of attack that has us on the offense, taking actions that are necessary to return the Company as quickly as possible to strong growth and profitability.

Before I expand on our new business strategy, let's cover the issues that impacted the third quarter. First, the banana market in Europe remained in turmoil with many small nontraditional operators flooding the market with an increased supply of bananas that resulted in significantly lower pricing. This led to poor banana performance for Fresh Del Monte in Europe, reminding us of the uncertainty in the European banana market in 1999 and 2000, when the European Union made the decision to change the banana licensing system, creating temporary turmoil in the European banana market. If you were following the banana industry then, you'll recall that the situation eventually resolved itself, and we believe that it will do so again as the nontraditional operators exit the market. Until then, we will endeavor to maintain our position in Europe as the market evolves.

Meanwhile, our North American and Asia banana sales volumes were stronger and prices were higher as we negotiated incrementally higher pricing on contracts in North America that came up for renewal during the period. However, the sales and price gains were outstripped by challenges in the European market and higher logistic costs worldwide.

The sales of our Del Monte Gold pineapple were also higher during the quarter. However, the entire North American Gold pineapple industry was impacted by an unusually heavy supply of fruit into the market from Costa Rica, Guatemala, Ecuador and other countries. In spite of increased supply, we continue to maintain our customer base and premium pricing for our Del Monte Gold pineapple in both North America and Europe. I would like to add that the long-term outlook for our Gold pineapple remains positive. One reason is because Fresh Del Monte has the staying powers that many growers do not. Growing pineapple is a knowledge-based and capital-intensive process, and growers must be able to invest in the next crop. We also continued to create exciting line extensions that enable us to utilize our entire pineapple production, so we're not concerned about the excess supply.

Finally, and this was the most troublesome issue, though prepared food sales increased by 3% during the quarter, we continue to contend with some infrastructure weakness in this business. During the quarter, one such difficulty was the withdrawal of canned pineapple in certain countries in Europe grown in Kenya in 2004, before our ownership of the Company. This particular pineapple did not meet the European requirements related to fertilizer revenues. We took the responsible action and commenced a product withdrawal and disposal program. This incident resulted in a one-time charge of $16 million in the third quarter. We believe, however, that we will be able to recover a portion of the cost through insurance.

The unfortunate combination of the challenges that I just described, along with the unfavorable industry-wide operating conditions, made the third quarter a difficult period for Fresh Del Monte. Therefore, as I mentioned earlier, we are assuming an aggressive new discipline in dealing with the issues, which will provide us with substantial traction in terms of combating these conditions.

During the third quarter, we began applying our successful Asian banana strategy to many of our other product lines and our prepared food business in Europe. Some of you may recall that, in the fourth quarter of 2005, our banana business in Asia was faced with excess supply. In December of 2005, we implemented a strategy to divest the increased banana volumes to market (indiscernible) the Middle East, Russia and China, where there was growing demand. This strategy has significantly improved our banana business in Asia, as evidenced by our 2006 banana performance in that region. Therefore, we are applying the same approach to many of our other products, including prepared food items, diverting products to regions like the Middle East and others where there is growing demand for Del Monte products. This strategy has been [official] in that it allows us to control supply and bolster pricing.

We are also adopting a bold new mandate to drive our broad products where they need to be to achieve profitability. Simply put, if a product is not profitable, we will not produce or procure it. We are intensely focused on this new mandate and we have begun to execute it with unprecedented discipline. This new approach will apply to every sales effort underway at Fresh Del Monte. We are extending this new discipline throughout the Company's Fresh, Fresh-Cut and prepared business lines and across geographies worldwide. We have already sold unprofitable businesses like the bagged salad business in the UK. We have begun to shut down our Gold pineapple operations in Hawaii. We have exited underperforming product lines like sweet onions and a number of fresh-cut vegetable SKUs. We have closed our sales operations in underperforming locations such as New Zealand and Shanghai, and we've made very difficult decisions to eliminate certain positions. We have begun to restructure our operations in Poland and Belgium, and we have also made beneficiary strategic changes to help competitively position our business better in existing markets. In South Africa, for example, this season, we will shift to producing more branded products and less private-label products to mitigate some of the regional competitive issues. This has allowed us to streamline our operations in South Africa, reduce overhead, and divest nonoperating properties.

As previously announced, we have decided to further our initiative of capitalizing on new opportunities in areas such as the Middle East, a very large emerging market with tremendous growth potential for Fresh Del Monte. This market provides us with geographic advantages in terms of exporting our products to neighboring countries, which offers cost efficiencies and saving opportunities on labor and shipping. At the moment, demand is on the rise for premium-branded products. In fact, our sales in this area have been growing rapidly over the past year and by the end of 2006, we expect to be selling more than 1 million cases of prepared food products in this region.

As a result of these market factors, we are making significant capital investments with several new facilities under construction. We have a management team that is familiar with the area and its culture with demonstrated expertise in fresh, fresh-cut, protein and juice products, and a globally recognized brand that represents quality at its best--finest. In short, we are uniquely well-positioned to capitalize on growth opportunities in this region and to generate healthy, sustainable and strong returns in the future.

Our employees throughout the world are focused on strengthening our organization during a very difficult time. We are working diligently to return Fresh Del Monte to higher profitability, yet we realistically recognize that we probably will not see significant improvement between now and year-end 2006. Though we believe fuel prices will moderate, they must trend lower to benefit the Company and improve our cost structure. While we have experience, banana oversupply in the European market before, we believe that the market will eventually stabilize.

It is within this context of a difficult operating environment that one must continue to move forward, just as we did in the third quarter, advancing our business, promoted our products and forging new relationships. For example, in the third quarter, we continued to deploy consumer-targeted advertising and marketing campaigns to increase brand awareness and promote new products. We will continue to engage in ongoing business activities like these and others, even as we move aggressively to streamline and turn around our business, restore profitability, improve shareholder value and create a solid, strong infrastructure, a platform upon which we can build for our future.

Before I turn this call over to John, I would like to add that, based on our financial performance, it was prudent for the Board of Directors to vote to suspend future dividends beyond the quarterly dividend announced earlier this month payable in December 2006 to shareholders of record on November 15, 2006.

At this point, I will turn over the call to John. Please, John?

Thank you, Mohammad, and good morning, everyone.

As Mohammad has already indicated, the third quarter of 2006 was extremely difficult. For the quarter, net sales were $730 million, compared with $741 million in the third quarter of 2005. The net loss was $84 million, including charges of $41 million for Hawaiian and Kenya operations, along with asset impairment charges of $18 million related to the rationalization of our South African canning and North American inland transportation businesses, compared with net income of $6 million in the prior-year period.

EPS was a loss of $1.45 per diluted share, compared with EPS of $0.10 per diluted share in the prior year. Excluding charges related to our Hawaiian and Kenyan operations, along with asset impairment charges, adjusted earnings for the quarter would have been an EPS loss of $0.42 per diluted share. These negative results were primarily due to the difficulties in our prepared food business, the turmoil in the European banana business, unfavorable weather conditions in our growing and procurement areas in California, Arizona and Mexico, and a 7% higher quarter-over-quarter supply and distribution cost.

Let's now review our performance for the third quarter and nine months of 2006 for our business segments. Net sales of bananas increased 5% to $260 million, compared with $248 million in the prior-year period. Gross profit declined by $7 million, due to, one, higher year-over-year fuel prices; two, higher transportation and maintenance costs; three, higher costs related to raw materials such as containerboard, resins and fertilizers; and fourth, our inability to offset our cost increases with higher pricing.

Worldwide banana pricing increased $0.20 per box during the quarter to $10.01 per box compared with $9.81 per box in the same period last year, primarily due to increased banana contract pricing in North America and significantly higher banana pricing in Asia. However, as strong as prices were in these two regions, they were still not high enough to offset the lower pricing in Europe and increased costs that we continue to experience worldwide during the period.

During the third quarter of 2006, banana sales in North America increased 18% with significantly higher contractual pricing and increased volume. The banana sales in Asia increased 8% with significantly higher pricing and lower volumes. Increased banana sales in Asia were attributable to steady demand for bananas in the Middle East and strong overall demand for our Del Monte Highland Honey bananas. Meanwhile, banana sales in Europe decreased 11%, driven by substantially lower selling prices due to the excess supply in the market.

On a nine-month basis, worldwide banana sales increased 3% to $851 million, compared with $829 million in the prior nine-month period. Gross profit decreased $42 million to $14 million. Our banana performance during the quarter--during the first nine months was constrained by several factors including, one, volume shortages earlier in the year in North America and Europe, a direct result of tight banana supply in our Central American sourcing areas; two, significantly higher transportation and raw material costs; three, unfavorable pricing obligations imposed by our banana contracts; and four, significantly lower pricing in Europe.

In our other Fresh Produce segment, overall net sales decreased 7% to $357 million compared with $383 million in the 2005 third quarter. The decrease in net sales for the quarter was primarily due to inclement weather in our growing and sourcing areas in North America, as well as our planned elimination of certain underperforming products, as Mohammad mentioned earlier.

For the quarter, adjusted gross profit, excluding the $25 million for charges associated with the previously announced closure of the Company's operations in Hawaii, decreased 18% to $33 million, compared with $40 million in the prior-year period. Net sales on a year-to-date basis were in line with last year's level, while year-to-date adjusted gross profit decreased 22% to $130 million, excluding the $26 million of charges associated with the Company's Hawaiian operations, compared with $167 million in the first nine months of 2005. The third-quarter and year-to-date adjusted gross profit results included significant cost increases in all product categories in this business segment, along with competitive market pricing issues.

Net sales of our fresh-cut produce in the third quarter were $91 million, in line with the same period last year. Excluding the impact of the closure and divestiture of our bagged salad business in the UK, in the second quarter of 2006, our sales in the third quarter, as compared to the prior year, would have increased 12%. Volume in North America and Europe were higher with pricing in line with last year's level.

Net sales of whole Fresh Del Monte Gold pineapple increased 2% during the quarter with higher industry volumes in Asia and North America, which were offset by lower volumes in Europe. Pricing was significantly higher in Europe during July and August as a result of increased demand.

Melon sales decreased 4% during the quarter. Europe pricing increased significantly on lower volumes due to tight supply, the results of drought conditions in our growing areas in Spain. North American melon volumes were lower due to tight supply and lower pricing as a result of quality and sizing issues that arose because of heavy rains followed by unseasonably hot temperatures in California and Arizona, along with greater supply of local competing fruit.

Net sales of nontropical fruit, including avocados, decreased 15% with volumes (indiscernible) third quarter of 2005. The decrease in sales of nontropicals was driven by the planned volume reductions in underperforming products in this product line, along with the lower supply of avocados, grapes, brought about by inclement weather.

Net sales of tomatoes for the quarter decreased 11% to $40 million compared with $45 million last year at this time. Though pricing was strong during the quarter, we did not benefit due to a significant decrease in volume, a result of the poor growing conditions in California and Mexico.

Net sales in our prepared food business increased $2 million to $74 million in the third quarter, compared with $72 million in the third quarter of 2005. Sales for the first nine months of the year decreased $11 million to $230 million compared with $241 million in the prior-year period. Adjusted gross profit for the third quarter was $4 million, excluding charges totaling $16 million related to the canned pineapple withdrawal and disposal program, compared with $12 million during the third quarter of 2005.

Year-to-date gross profit was $18 million, excluding the product withdrawal charges, compared with $41 million in the same period last year. The increase in sales for the third quarter was primarily due to the introduction of our chilled juice product line in the UK market in the second quarter of 2006. Based on this successful introduction, we're now in the process of introducing the chilled juice line in the emerging affluent Gulf region in the Middle East. The decrease in adjusted gross profit for the third quarter was primarily due to higher overall cost increases across all prepared product lines.

In our other product and service business, net sales for the quarter and year-to-date are in line with last year at this time. During the quarter, SG&A expenses were $10 million higher than last year at this time, primarily due to higher advertising and promotional expenses associated with our European brand imaging campaign.

The foreign currency exchange benefit at the gross profit level was $15 million during the third quarter, compared with $9 million at the gross profit level during the same period a year ago. On a year-to-date basis, the foreign exchange currency exchange benefit was in line with the first nine months of 2005.

Interest expense in the third quarter increased approximately $4 million due to higher interest rates and higher level of debt, quarter-over-quarter. Tax expense for the third quarter of 2006 was a benefit of $3 million due to operational losses.

Year-to-date total debt, including leases, has increased by $38 million from year-end 2005, primarily due to the decrease in operating activity and further capital investment in emerging markets.

During the third quarter of 2006, we incurred asset impairment charges of $18 million, primarily due to the rationalization of our Company's South African canning operations and North American inland transportation business.

That concludes my financial review.

Operator, Julie, you may now open the lines up for the question-and-answer period.

Thank you, sir. The question-and-answer session will be conducted electronically. (OPERATOR INSTRUCTIONS). Jon Feeney, Wachovia.

Good morning. I guess I want to start with, John, when you listed the problems in the world banana business, the struggles you've been facing, you actually listed three other items before listing Europe. Generally, I know when you do that, that generally reflects an order of magnitude. I mean, could you tell me a little bit more about the European markets affecting your banana business this quarter and maybe how--could you give us how that 11% decline in sales splits out between volume and price?

Well, on an overall basis, we can certainly tell you that. The volume was up 3% and overall, on a total basis, the price per box was up 2%, giving us May increase.

I see, but on a global basis, but you don't want to get (multiple speakers).

That's a global basis.

You don't want to get into it regionally?

Yes, we can give you an idea. Volume in Europe was down 2% overall, the sales were down 8, so pricing is 6.

Okay. Thank you for that very much.

Secondly, I find that changing strategy in the U.S., Mohammad, to be--I guess I'm just wondering. We talked a lot about the importance in leverageability of the sort of distribution ability you had in the U.S. over the long run. Is it the market that changed or is this just a kind of safety move on your part to kind of preserve as much cash flow as possible for maybe some ideas you look at as more promising overseas?

I couldn't understand your question.

My question is you guys invested pretty heavily in building a supply infrastructure in the U.S. to distribute all kinds of things, onions, all kinds of fruits and vegetables. I guess what I'm asking is did the market change that you no longer find that to be attractive and that's why you are rationalizing that distribution network, or is this just a sort of safety move on your part, based on I guess poorer cash flows coming from the business?

No, no, no. Our distribution network and our DCs fresh-cut operations were completely finished, built, and in place by last year. So we really are not envisaging to build any more distribution centers because we already cover the whole country. I mean there is no point to investing any more in this infrastructure.

Okay, but I'm asking more about your decision to rationalize some things that you just announced.

Yes, we did actually, for instance the potato business, the onion business that the Company has been struggling for the last two or three years hoping that it can turn around and still make money. When we realize that this is not very core of our business and stopped doing as we anticipated, we gave it enough time and then we decided that it's not any more in our interest and it's going to--some of it was already shut down and some of the facility has been sold. Others will be done very, very quickly before the end of this year.

Okay. Just finally, for you, Mohammad, you made a very interesting comment I think, how the banana marketing reminds you of '99 and 2000 in Europe, the last time that you kind of tinkered with the tariff system. I wonder. These non-traditional operators that are crowding the market right now, how long did it take for them to leave the market last time? What signs were there along the road that that was beginning to happen, so that maybe investors can get an idea of when things are going to get better for you guys this time?

Well, we do hope that, by the middle of next year, things will turn around. Of course, when you speak about the first six months of each year, usually it's the high side of the business, you know, the high season for us for bananas. So this is not a good indication because I believe that the prices-and we have seen the prices started moving up for the last two weeks from where they were, so we see better pricing as we speak. I believe this trend is going to continue towards the end of the year and into 2007, but that doesn't mean that this is a turn-around in pricing in Europe. I believe that it's a matter of rationalization by the suppliers, be it traditional or non-traditional. I think the non-traditional have to have a lot more patience and muscle to be able to withstand and continue in the market. However, in my opinion, it is rationalization by the big players or the traditional suppliers to understand that the market cannot--because we understand that some players are trying to go for market share and keep pumping big volumes in order to maintain their market share or increase their market share.

I think, in my opinion, personal opinion, this is-- this policy doesn't take you anywhere except more losses and more hemorrhage at your P&L. This is something that we are not practicing and will not practice. We will maintain our volumes that we have been supplying for the last several years, and we want to maintain our position there and [turn it to] profitability. That's our policy and that's our benefit.

Just if you could put it in the perspective of '99 and 2000, I mean you lived through this and you managed well through it. Back then in '99 and 2000, what was the sort of tipping point that got non-traditional operators in Europe out of--got that volume rationalized?

Well, actually it was not the market forces. It was the European Union itself that had changed the licensing, and they have, like, established quarters (indiscernible) quarter which actually gave the market the upside push.

I guess just--so what gives you confidence that, this time, that it's going to be market forces that rationalize it, then?

Because I don't believe that everybody can go forever losing the kind of money that's being lost in Europe unless there is a money machine somewhere that is (indiscernible) these markets. (LAUGHTER)

Well, if you locate that, let me know where it is!

Yes, I will do that.

Anyway, thanks very much. I appreciate it.

Diane Geissler, Merrill Lynch.

Just a question here on your book value--if I look at it where it was at the end of the year versus kind of your pro forma (technical difficulty) included here with the press release, obviously it's moved down because there's a loss this quarter. But could you--is there a quantification on what the asset write-down did to your book equity?

I think it (indiscernible) about $2. Yes, well, from year-end, it's about $5. We're at about 22--I'm sorry, I'm reading the wrong--I'm sorry, I was right when I first is got it. We had, yes, a little less than $20 and now we are around $17.50. I'm sorry, I was on the wrong line.

Okay, but is there between--I mean I guess what I'm looking at is sort of some of the asset write-downs that you took in the quarter. Obviously a write-down of assets is going to be a charge to equity. So what is the--is there anything contemplated over the next couple of quarters of that magnitude that we should be aware of?

At this point, I don't think we got--it won't be anything like we've seen in the past two quarters, but right now, we are looking at every business and still refining our plan. I think we've spent a lot of time these past two quarters planning what our future would be and looking at our product lines, and we will move on from here. But we may have a little more to clean or eliminate products and operations.

Okay. Can you just qualify for me, the North American inland transportation business--is that the trucking business?

Yes, that was our trucking business. We've redirected that business, refined the way we want to proceed with it and we've rationalized what we were doing.

Okay, so there wasn't any charge on the distribution centers themselves?

Not really for that purpose. There was just some products like we mentioned, potatoes and other items like that, that no longer require those kinds of facilities. But the major distribution channel remains intact and the strategy remains intact.

Okay. I just wanted to clarify that because I felt, since the last five to ten years, that's been a major strategy for your company in terms of the-

Yes.

Maintenance of the cold chain from the field to the retailer being a value-add for you guys, so I just wanted to make sure there wasn't a major (multiple speakers) okay?

(multiple speakers)

I guess my other question is you talked about prepared foods a little bit. You didn't mention any of the--some of the concerns we've had about the private-label competition. Have you seen--what's going on in that kind of UK market, the core UK market there and with what in the last couple of quarters we've seen some competition there in the private-label side. Is that correcting itself, or maybe just some color on the prepared foods business.

Private label has been a nuisance and a trouble for us for the whole year. But however, as we said, we are getting back into the shelves with our brand. As I said earlier that we're not encouraging and even we are eliminating all types of private-label, even from our own operations, from South Africa, from Kenya and Greece, other places. There was a kind of a customary tool pack for private-label, and we are limiting that to a very small extent or even eliminating it completely very shortly.

As far as the UK is concerned, we're gaining back our customers. The private label, particularly Princess, who was our major competitor on the shelf, has lost some of the businesses that (indiscernible) gained, which we are regaining ourselves. So the picture for us really is the prepared food looks much better than it looked six or nine months ago. I think our major let's say obstacles or major (indiscernible) that we have experienced during the years, the last nine months, has been factors that were not anticipated by us. As I mentioned earlier, we were faced with a recall of pineapple, canned pineapple, that mainly came from Kenya, due to the residue issue. In Europe, the tolerance is very, very minimal, while in the same pineapple, it could have been sold in North America because the tolerance is much higher. I mean, it's not hazardous to human health but unfortunately, this pineapple was tainted by higher residue because of the fertilizers that were used in 2004 just before we bought the company. It's unfortunate. We had to recall this and that cost us about $16 million, just recalling this product. So there were factors that--some operational, but they were minor compared to the major factors that were beyond our control.

Would you anticipate reentering that market with--presumably you've changed your growing practices to make them compliant with EU regulations at this point.

No, no, we did that immediately. That goes without saying. I mean, our team was there, has been there and we detected that immediately. I mean, it was detected. We have taken the steps to make sure--this was a single batch of fertilizers that were bought by the ex-management, the former management, from a Chinese supplier, which had this higher residue of iron ore in the--but now, Kenya is back supplying the customers. We haven't lost the customer base. We have actually only suffered the financial loss, which is the recall and destruction of the tainted product. But the capitalization is there. We are resuming sound product supplies and we have not (indiscernible) that.

Why did the recall take two years if you knew (multiple speakers)?

No, no, no, the recall has just happened in the last four or five months, that's all, the last actually four months. We detected that only about four months ago, at the beginning of the summer. It wasn't like two years ago. The application of the fertilizers was in 2004. You know, the crop usually takes about a year, a year and a half to be cropped and then canned. Nobody could find out the problem until it was in the can and in the market.

Diane, just for clarification, all product after that is fine. It's sent to the market and there's no problem. Even during this period, other products that we sold from Kenya were fine. It was just this selected field and selective cans that we recalled, but the rest of the products were uncompromised.

I see. What has been the market reaction to the recall?

No, it was not mainly on the retail level, I mean, the buyers level. It was not--

It wasn't a consumer recall, i.e. announced in the paper and (multiple speakers)?

No, none.

I guess, if you could just--on the fresh pineapple business, obviously we continue to see increased volumes coming out of Central America. You guys seem to be able to maintain your market share and your premium pricing, which I guess is a testament to the quality of your products. Is there some point where you see this incremental volume sort of plateau-ing? In other words, we've seen incremental pick-up here kind of year-over-year for the past several years. Is there a point where the growth rate of this incremental acreage coming online begins to slow?

I think it's stabilizing at this time. I believe, by the end of this year, we will see a stabilization in the supply chain from the different countries.

I believe what is helping the market as well is increased growth in construction and sales of pineapples in general. If this trend continues, I believe there will always be room to maintain the present status, which is we don't believe there will be a major regeneration in the pricing going forward.

Okay. Then I guess maybe for John, just the fuel side--when do we get to a point where you feel that the comparison will be--start comping and will be down year-over-year? (multiple speakers)

I think we still have a little ways to go in fuel. We shouldn't start to see (indiscernible) the fuel prices come off a little more. As Mohammad mentioned we need actually the pricing to go a little lower than where we were last year. Actually, this quarter, we did have a slight increase in fuel over the year, as a percentage of our cost basis. We were up a little bit in what we consume. Even though we had a slight benefit in pricing, as a percent of cost, it did rise up a little bit. Still, fuel represents about 3% of our gross profit, so you can see it's huge as a single factor. So even though we did have some benefit in fuel, it wasn't really significant.

When should you start seeing some benefit there with pricing (multiple speakers)?

I think it's going to take us little while longer, and we may see some as we move into next year if these prices will hold. That's the big question mark. We will we see the prices rise up again, or will they continue to be lower?

Okay, I think that's all I have for now. Thank you.

Heather Jones, BB&T Capital.

I will try to ask (multiple speakers) Thank you. As far as covenants, I took the adjusted index for the quarter and on a trailing twelve-month basis, just didn't know if my math was correct but I see your debt-to-EBITDA is 4 times and net debt is 3.6 times trailing twelve-month EBITDA. I'm just wondering if, first, is my math correct? Secondly, is that something that you're working with your lenders to get a waiver on?

I think we are okay, and I don't think we're going to go into all of that, but right now, I think we are fine with our covenants.

You're fine within your covenants right now?

Yes.

Then I was wanting to go back to the EU banana situation. You spoke about '99-2000 and believe this will end up being the same. I just wanted to delve into that deeper because, with our understanding, it's a completely different situation. I mean, you've gone from a closed market to an open market where anyone can ship volumes, and you've had the problem with the nontraditional operators but also Chiquita, Dole. You know, their volumes, particularly in Q3, have been up significantly. So I'm just wondering why you think there will be some stabilization in that market back to historical levels.

Well, I believe I mentioned that. I said that the difference between '99 and today, that the only reason why in '99-2000 is because there was no (indiscernible) and when the quarter came back, the market stabilized. But you very truly said that Dole and Chiquita have increased their volume in the third quarters, and that translates into more (indiscernible). I don't know if they are competitors that continue to pump more fruit and lose more money. That's the $1 million question; that's what I'm waiting for to hear.

I think, Heather, too, rationalization in the marketplace has to occur. Supply and demand will take over, and we've seen that traditionally happen. We also saw it; if the flip back to 1992, we had the same situation occur. So these conditions come and go, and I think that's the banana business; it's supply and demand.

Let me tell you one thing, Heather. The market takes X amount of boxes per week in Europe. If you bring in 100 or 1000 more, that is going to bring down all the volume down. You just have to dump it. Whoever brings more volume into the market, there is no more growth in the market; there is no more buyers in the market. So it's just a matter of bumping that. I don't know whether it's going to take the market, but that is a fact.

Oh, I agree. I think it has to stabilize at some point, but I just think that most of the participants in the market made all their money in Europe, and now that market has changed, and just believe that Europe is going to stabilize at a much lower margin than it had prior to '06. I'm just wondering.

I don't think we are disagreeing with you there.

I agree with you 100%.

Now, as far as your streamlining initiatives, does any of that include setting aside marginal product like onions, etc.? But does any of your initiatives include downsizing your banana business, or your pineapple business, etc., just becoming smaller but maybe more profitable?

No, we are not downsizing neither the banana nor pineapple nor melons. We have actually growth in our pineapple business, that we're growing more pineapples in Brazil, we're growing more pineapples in the Philippines. As a matter of fact, we are even expanding our farms in Costa Rica. So of course, that is going to take to compensate for whatever volumes we will lose from Hawaii that we've taken this into consideration. But overall, our growth in pineapples is increasing; our growth in melons is increasing. However, as far as bananas are concerned, we have also increasing our volumes in certain parts of the world like Asia and the Middle East from the Philippines. But our volumes from Central America and Brazil will more or less be demented.

Okay, I just have a couple of quick questions. On foreign exchange, it's been a benefit to you for some time but yet, if I look at the yen, it is down meaningfully year-over-year as well and the euro I think is flattish, maybe up slightly. I was just wondering. Have you just had positive hedges in place or what is going on there? Should we expect that to continue to be a positive for the next few quarters?

We had an impact benefit from hedging in 2006, and we're moving along the same lines as we go forward.

Okay. As far as--what was pineapple pricing for the quarter? I have that your sales were up and I have I think some volume. don't know if I missed it, but anyway, what was your pineapple pricing?

Pineapple pricing overall, we said that sales were up 2% and it basically came from pricing.

Sales up 2%, okay. My final question is your charges for the quarter--what percentage of those were cash versus non-cash?

Almost all non-cash.

Okay, thank you.

Eric Larson, Piper Jaffray.

Good morning, everyone. There's some positive news in all of this in that the trick-or-treaters tonight are going to be very safe because all of the goblins are hanging out in the fresh food industry! (LAUGHTER)

You know, just more of a general question, it was sort of asked I think by Diane, but Mohammad, you've taken a pretty aggressive swing at your business, it looks like, the last couple of quarters to get your costs down. So it seems like you've addressed a lot of things, like even your inland transportation, which I'm not sure really what that is. Is the bulk of that behind you, do you think, at this point? Are there other things that you would consider, given that it's a down-cycle in a lot of these businesses? Do you think you've taken an aggressive enough swing at this?

I think we have taken a very aggressive swing. As I mentioned earlier and John as well confirmed that we have taken--we could have delayed some of these decisions for later, you know, to make a more softer landing, but we believe that it's better to be aggressive now and take out the, let's say, the disease or the hemorrhage out and stop with it. That's what we're doing.

Whatever--like John said earlier, we have taken, I believe, most of these items out, and whatever is remaining is not going to be substantial as we have seen in the last two quarters.

Okay. Then related to your inland transportation restructuring, what specifically did you do there?

We're taking several--you know, we have both a couple of years ago, two or three years back, a small trucking company in I guess in North Dakota, and we are rationalizing this business. We are rationalizing the routing of our trucks. We're doing a lot of things that it would not be prudent to speak on a conference call, but I believe that, with what we are doing right, the initiatives and the inland transportation is going to be quite incremental to our bottom-line going forward.

Okay, good. Well, at least you were able to avoid most of the E. coli problems last summer. I've got a few other. I will follow-up with John on a few of the other questions, but I will turn it over to someone else. Thanks, guys.

This concludes the time allocated for the question-and-answer session. I will now turn the call back over to Mr. Abu-Ghazaleh. Please go ahead, sir.

Thank you, Julie. I appreciate your patience with us and your presence on this conference call. I hope that the next time we speak, we will give you better news. Thank you very much and talk to you soon. Bye.

This concludes today's conference call. Thank you for your participation, and have a great day.