Fresh Del Monte Produce Inc (FDP) 2006 Q4 法說會逐字稿

Good morning, everyone. [OPERATOR INSTRUCTIONS]

I'd like to turn the call over to Christine Cannella for opening remarks. Please go ahead.

Thank you, Mark. Good morning, everyone, and welcome to Fresh Del Monte's 2006 fourth quarter and year-end conference call. I'm Christine Cannella, Assistant Vice President of investor relations. Joining me are Chairman and Chief Executive Officer, Mohammad Abu-Ghazaleh, and the Executive Vice President and Chief Financial Officer, John Inserra, who will discuss our results for the fourth quarter and for the year ended December 29, 2006. Fresh Del Monte issued a press release this morning via Business Wire, e-mail and First Call. You may visit our website at freshdelmonte.com to register for future distributions. This conference call is being webcast live on our website, and it will available for replay approximately two hours of conclusion of this call.

This morning, Mohammad will review our operating performance during the quarter and the year, along with recent developments and our future outlook. John will then review our financial performance for the fourth quarter of 2006 and for the full year. 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 provision of the securities laws. Our actual results may different 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, everybody. I'm sure it will not surprise anyone when I say that I am not sorry that 2006 is behind us. The first three quarters were extremely difficult for Fresh Del Monte and our industry. It was the most challenging period in our history. And the fourth quarter, at least the first two months of it, was largely more of the same. Our heaviest burden during the year was high costs nearly across the board. From labor to fruit production and procurement to fuel, which had a tsunami-like effect on the costs of shipping and inland transportation. packaging and fertilizers and other agricultural supplies. These costs were compounded by unfavorable exchange rates in several producing countries and inclement weather in a number of regions.

The year was also troubled by the banana business in Europe, with the continued shakeout from the [tax-only] system and intense competition from numerous new suppliers in Europe and a tight fruit supply in our sourcing regions. Add to these challenges the continuing issues in our prepared-food business and the sum total of the year we are glad of the behind us. We certainly did not face the blustery headwinds of 2006 alone, as our industry contended with many of the same issues that our Company did. And I believe that based on our solid performance in our fresh and fresh-cut product lines during the last months of the fourth quarter of 2006, we would have turned in better results had we not had to address continued operating problems in our prepared food business.

Based on our ongoing analysis, we made the decisions that, to further prepare our business for 2007 and beyond, we needed to accelerate our rationalization program, resulting in substantial write-offs in the fourth quarter which we had not anticipated. During the fourth quarter, it became clear that to cut costs and conserve resources it made good sense -- good business sense for us to cease pineapple production, operations and shipments from Hawaii a year earlier than we had originally planned and to further rationalize our North America distribution operations. We also determined that we could further streamline our prepared food business and reduce inventory by closing an under-utilized juice facility in Italy and rationalizing our juice business in the UK. In addition, we found that we needed to write-off some of our prepared fruit inventory and to allow for the lingering effects of our withdrawal of prepared [inaudible] in cans in our Kenya operations, which we described during the third quarter of 2006 conference call. We also decided to discontinue and sell some of our facilities in South Africa. These factors and several other resulted in a significant write-offs for the quarter.

Although the full year and the fourth quarter of 2006 were obviously very demanding, we began to feel the momentum of a turn around in December. This momentum continues. Due to our concerted efforts to rationalize our business and manage aggressively through 2006, Fresh Del Monte is well positioned to [inaudible] leverage such a turn around. We are enthusiastic about a number of the positive signals we are seeing in the marketplace thus far in 2007. We have begun, for example, to experience some improvement in our fresh operations in North America and Asia. In North America, we have improved efficiencies, closed down our Hawaii and all our [inaudible] operations, and eliminated unprofitable product lines, including onions, [repacked] potatoes, and a significant number of fresh cut product SKU's. We have also negotiated higher banana prices year over year on our contracts as they came up for renewal. Although we are not yet where we'd like to be in terms of profit margin, we are seeing improvement in our North America banana business.

In Asia we continue to divert bananas to other markets where demand and pricing for the [monthly] bananas remains strong. Our success in North American and Asia demonstrates that we have the right strategy in place in these two regions and we firmly believe that once the Europe banana market settles down, we should see significant improvement in our fresh operations there as well. Early indications are good. Smaller banana suppliers unable to compete at low prices are already beginning to drop out, which will be an advantage for Fresh Del Monte in the long run. Fresh Del Monte Highland Honey bananas are selling well, particularly in the Korean and Japan market. These bananas are coming from our [inaudible] farms in the Philippines. Fresh Del Monte melons and gold pineapple lines in North America also continue to perform well. Melons are selling at higher prices with strong volumes and pineapple volumes are moderating with strong pricing.

In the fourth quarter of 2006 we introduced our new Honey Gold pineapple in limited quantities in select test markets to much acclaim, and we expect to roll out this product progressively to more customers as additional quantity becomes available. Meanwhile, we have not competition that can come close to providing a product with this flavor and even though supply is very limited, we expect that it will provide us with a competitive advantage for many years to come. In addition our Del Monte Gold extra-sweet pineapple grown in Costa Rica has gained good customer acceptance on the west coast, filling the gap created when we closed our Hawaii operations during the fourth quarter of 2006.

Our fresh-cut operations delivered improved performance during the fourth quarter. We have refined our production techniques and methodologies in our fresh-cut facilities, eliminating low volume products and consolidating our product line to focus on fewer products that is produce superior revenues. We also continue to work with convenience stores like 7-Eleven to place fresh and fresh-cut products into more locations with greater exposure to consumers than ever before. Fresh Del Monte sales have been constrained for the last two years by poor performance from our prepared food business. But we continue to address this challenge and we remain very positive about the outlook for this business. We believe that, based on all of our efforts, 2007 is the year that we will begin to see improvements in our prepared food business. We have streamlined the business and leveraged the Del Monte brand on many products.

We are moving forward to penetrate a number of new markets from the Middle East, North Africa, and Eastern Europe, markets where we expect good opportunities for sales growth. There are particularly attractive opportunities in the middle eastern countries such as Saudi Arabia, Jordan, and the United Arab Emirates. We recently opened a new distribution center in Debye that includes fresh cut and fresh juice facilities along with ripening and just-in-time delivery capabilities. Our new [inaudible] factory will open in Jordan in the second quarter and we will be producing shelf-stable juice in that area in 2008. One of Fresh Del Monte's key competitive advantages is the depth of our knowledge regarding this region and the culture of its consumers.

Industry conditions appear to be improving somewhat, with fewer costs as a major driver. The cost of fruit oil and its derivatives had a varied impact on our logistics, transportation and energy costs, and we have conservatively planned for 2007. So if these improving trends continue, we could begin to see some cost improvements at Fresh Del Monte in 2007. We have been asked how the recent chill in California, which impacted the citrus crop and other produce grown in that region, would affect our business. The fact is that we are affected, but only minimally. Though the chill damaged certain products that we provided to our food service customers, such as broccoli, lettuce, and celery, we have been successful in mitigating this impact. Grocers and food service companies have needed to replace the damaged fruit with melons and some of the tropical products that we offer in ample supply, including bananas and pineapples. We also have substantial quantities of avocados from Mexico, so in the long run the chill could actually benefit us. In addition, as fewer products will be shipped from California, inland transportation has been more readily available, another benefit to us in the short term.

In summary, 2006 was the year of transition, a year in which we dealt with lingering issues, including four year long litigation involving some former indicted minority shareholders. We decided early on to aggressively defend our position. We took a firm stand against a number of unsubstantiated claims, and the truth prevailed. For this we are grateful and eager to move forward from here. We also laid the groundwork to improve our business model in 2007. We are leaner and more efficient. We are also getting better pricing on many of our products and we are well diversified geographically and in terms of our product mix, which lowers our risk.

We are also exceptionally well positioned in our [inaudible] marketplace. There is a major cultural shift underway in America toward healthier eating and we enjoy an excellent position in fresh cut as well as in whole fresh produce. Approximately 60% of the adult U.S. population is overweight and obesity is a rising problem among American kids. Consumers are increasingly seeking ways to eat healthier, to adhere to a more nutritious diet and to get more exercise. We offer these consumers a wide range of products, including convenient fresh-cut products that speed food preparation. Meanwhile restaurants, food manufacturers and food service companies are cutting trans-fat in their foods and offering customers healthier options, such as fresh and fresh cut fruit and vegetables, as well as 100% fruit juice, preferably the products that Fresh Del Monte supplies. All of these factors we believe position us well for the future growth.

That being said, we know that we still face tough issues in our prepared food business. However, we do expect to see our efforts in 2006 begin to bear fruit in 2007, with improved performance in this business. As we move forward, we will continue to work hard and seek ways to improve our performance, building on our commitment to provide healthy and nutritious food, and delivering improved shareholder value over a long term.

At this time I would like to turn the call over to John. John?

Thank you, Mohammad, and good morning, everyone. As Mohammad said, the first two months of the fourth quarter of 2006 were difficult, but we made substantial progress in December when we began to see significant improvement in our fresh operations in North America and Asia and in our transportation costs. These improvements, however, were not enough to offset the impact of the challenges we experienced throughout the fourth quarter in our European fresh operations, a direct result of the banana tariffed-only system that has been in place in place in Europe since January 2006. Also offsetting the strong fourth quarter performance in our North America and Asia fresh produce operations were the poor results in our prepared food business, due to a decreased supply of canned pineapple, changing consumer preferences regarding the number of servings per container and ongoing intense competition that remains in this segment. These factors and costs associated with transportation and product procurement constrain our ability to reach our fourth quarter fresh and prepared food financial targets.

Excluding adjustments, however, gross post increased $18 million to $60 million, and gross profit margins increased to 8% compared with 5% in 2005. These achievements were the result of increased banana selling prices in North America and Asia, greater efficiencies in our operations, less competing fruit in Asia, and improving industry trends. As I mentioned before, we did see improvement in both operating performance and transportation costs during the last weeks of the fourth quarter of 2006, clear evidence that our fresh product strategy is working, especially in North America, which represents 49% of our total net sales.

Let's now turn to the results for the fourth quarter in more detail. Net sales were $738 million compared with $758 million in the fourth quarter of 2005, due to an increase in sales in our other fresh produce and prepared food businesses. Excluding asset impairment and restructuring charges, operating income, increased $16 million to $11 million compared with a loss of $5 million in the prior-year period. The increase in operating income is a direct result of our improvement in gross profit margin. A net loss of $60 million, including charges of $57 million relating to the accelerated closure of our Hawaiian operations, asset impairment charges related to strategic changes we made in our beverage business in Italy and the UK, and our ongoing streamlining of our North America and South African operations, EPS was a loss of $0.04 per diluted share compared with a loss per diluted share of $0.02 for the fourth quarter of 2005, excluding asset impairment and restructuring charges mentioned earlier. The EPS loss was primarily due to weakening of the dollar against foreign currency in producing countries, high interest rates and a significantly lower tax benefit quarter over quarter.

During the quarter our business was affected by moderating fuel prices and improved logistics costs, which benefited our business by $10 million, and an $8 million benefit at the gross profit level from foreign exchange. However, these benefits were offset by: Higher container board prices, which impacted our business during the quarter by $4 million, a 30% increase from the fourth quarter of 2005; a $39 million or 4% increase in fruit production and procurement costs, primarily due to higher raw material costs; and significant increases in interest, other expenses and taxes of $18 million, which includes unfavorable foreign currency translation in producing countries and lower tax benefit.

Let's now review the fourth quarter and full-year performance of our different business segments. Banana sales for the quarter rose 5% to $261 million compared with $250 million in the fourth quarter 2005. The increase in banana net sales was primarily driven by a significant increase in pricing in Asia and increased pricing and volumes in North America. This was partially offset by lower volumes in Asia and lower selling prices -- and lower selling prices and volumes in Europe. Worldwide pricing for the fourth quarter increased 12% to $10.25 per box compared with $9.17 per box in the fourth quarter of 2005. Gross profit for the fourth quarter of 2006 was $2 million, a $21 million improvement, primarily from stronger pricing in Asia and North America, along with continued demand for Highland Honey bananas and increased sales to markets in the Middle East. For the year, banana sales increased 3%, surpassing the $1.1 billion sales level in 2005. However, gross profit was $16 million, a decrease of $21 million from the prior-year period, a result of the ongoing headwinds of the tariffed-only system in Europe and higher transportation and raw material costs.

In our other fresh produce segment, overall net sales for the quarter decreased 7% to $357 million compared with $382 million in the fourth quarter of 2005. The decrease in net sales for the quarter was primarily due to continued rationalization of our North America potato, tomato and onion product lines. For the quarter gross profit increased $12 million to $63 million compared with $51 million in the prior-year period. The fourth quare of 2006 gross profit exclude $2 million associated with the previously-announced charges in Hawaii, giving us a process profit margin of 18%. The increase in gross profit margin for the quarter was due to improved performance in the Company's melon, tomato, and fresh-cut product lines, partially offset by lower performance in our Gold pineapple line. Net sales for the year decreased 4% to $1.6 billion compared with $1.7 billion in the prior year period. For the year gross profit was $193 million compared with $218 million in 2005. Gross profit for the year excludes $25 million of charges related to the closure of our Hawaiian operations.

Net sales of fresh-cut produce in the fourth quarter of 2006 increased 6% to $77 million compared with $73 million in the fourth quarter of 2005. During the quarter volumes are slightly lower than last year's level, with higher pricing in Europe and significantly higher pricing in North America. For the year, fresh cut net sales decreased 4% to $337 million, driven by the decision to discontinue our fresh-cut salad operations in the UK during the second quarter of 2006, Volumes and pricing for the year decreased slightly compared with last year. Net sales of Del Monte Gold extra sweet pineapple decreased by 8% during the quarter due to low pricing, a result of competitive market pressure. Volumes during the quarter were in line with last year, with planned volume increases in Asia, offset by declines in volume in North America and Europe. For the year net sales of pineapple were in line with last year. Volume increased 8%, with strong volume improvements in all regions offset by lower pricing.

As we mentioned earlier, we shifted our sourcing to the West Coast of the U.S. to Costa Rica. Going forward this will reduce our production and logistics costs in this region. Melon sales for the quarter increased 35% to $61 million compared with $46 million in the fourth quarter of 2005. During the quarter, pricing increased 11% with a 19% increase in volume, a result of favorable growing conditions in Brazil and Arizona. For the year, net sales of melons increased 8% with 6% higher pricing. Net sales of non-tropical fruit, including avocados, were $37 million in the fourth quarter of 2006 compared with $41 million in the fourth quarter of 2005, with higher pricing and lower volume. The 11% decrease in net sales was attributable to lower sales in our clementine, citrus, and avocado product lines. For the full year net sales were slightly lower due to the planned volume reduction in underperforming products and the lower supply of avocados and grapes brought about by inclement weather.

Net sales of our tomatoes for the fourth quarter of 2006 were $39 million compared with $50 million last year at this time. The $11 million decrease was the result of the strategies we implemented in the second and third quarter of 2006 to eliminate less-profitable varieties in this product line, making tomatoes a strong contributor to the increase in gross profit in the fourth quarter of 2006. For the year net sales of the tomatoes decreased 9% with higher pricing, lower volume and reduced costs.

Net sales in our prepared food business decreased $8 million to $71 million in the fourth quarter of 2006 compared with $79 million in the fourth quarter of 2005. The decrease in sales for the quarter of 2006 was primarily a result of the decreased sales of canned pineapple during the Christmas season due to limited supply, a result of the previously-announced product withdrawal [progreen] combined with competitive industry pressure. For the quarter, adjusted gross profit was a loss of $12 million including inventory write-offs, compared with a gross profit of $5 million during the fourth quarter of 2005. The decrease in adjusted gross profit for the fourth quarter was primarily due to lower sales and higher costs associated across all prepared product lines. Net sales for the year decreased $21 million to $309 million. For the full year, adjusted gross profit was $6 million, excluding product withdrawal charges of $18 million compared with $46 million in 2005.

In our other products and services business, net sales for the fourth quarter of 2006 and full year were in line with last year. Gross profit for the quarter and full year improved $2 million and $4 million respectively, due in part to our poultry and third-party freight businesses. The foreign currency exchange benefit at the gross profit level was $8 million during the fourth quarter of 2006 compared with $4 million at the gross profit level during this same period a year ago. For the year, foreign currency exchange benefit at the gross profit level was $42 million compared with $38 million in 2005. Other expense for the fourth quarter was $7 million compared with other expense of $1 million in the prior-year period, primarily due to unfavorable foreign currency translation in certain producing countries. On a full-year basis, other income was $400,000 compared with an expense of $3 million. Therefore, on a full-year basis, the foreign exchange lose on translation from producing countries was primarily recovered.

SG&A expenses during the fourth quarter of 2006 were $2 million higher than last year at this time. For the year, SG&A expenses were $11 million higher. The increase for the quarter and full year were attributable to the expenses associated with our European multi-media brand image campaign. Interest expense in the fourth quarter increased approximately $3 million due to higher interest rates and higher debt levels. Tax expense for the quarter of 2006 was a benefit of $2 million. As of December 29, 2006, debt, including leases, was $470 million, primarily due to a decrease from cash flow provided by operations and capital expenditures of approximately $100 million, primarily in emerging markets.

This concludes our financial review. Mark, could you open up the lines for the question and answer period? Thank you.

Yes, thank you very much. [OPERATOR INSTRUCTIONS] Our first questions today will come from Heather Jones with BB&T Capital Markets.

Good morning and thanks for the increased detail on the segment analysis. A couple of few -- a few quick questions. You're net debt went up significantly from Q3. I'm just wondering -- it was a better quarter, ex charges year over year, I'm just wondering what drove the increase in net debt?

Well, we had higher capital expenditures was one of the main uses of cash. That's primarily the reason, Heather.

Okay. And what do you all expect CapEx to be for '07?

Yes, about the same, in the neighborhood of $100 million.

Okay. And then on your U.S. pricing, you mentioned better pricing for your bananas. Is that the -- is it a similar trend as what you've seen earlier in the year and just wondering what percentage of your fixed-price contracts you've renegotiated and what kind of increases you're seeing there?

Good morning, Heather. How are you? No, we have -- contracts are renewable as they come. They're not all at the same moment or one month of the year. So we have contracts that started renewing in October, November, and -- but most of the contracts have been renewed. Still some to be renewed, but I would say the majority -- 90% of our contracts has been renewed and at improved pricing.

Okay. Now, you got improvements, I believe, in '06. Going into the '07 season, are you getting further increases on your contract pricing?

No. Whatever contracts that we have concluded in the last three to four months have been with the new pricing, so a benefit will show as we move forward.

Okay. And as far as Asia, I went back and looked at my notes from Q4 '05 and there was a significant reduction in Asian pricing that I guess you comped up against in Q4. Was wondering if you could give us some color on how Asian banana pricing trended in Q1 and Q2 of '06? Like, are the Q1 and Q2 comparisons as easy on the banana pricing side for Asia as Q4, or if you could just give us some color there?

Do you have it?

Yes, No, we won't have as easy a comp as had in the fourth quarter of '05. If you recall, in the first quarters of '06 we did have better pricing, so the comps will be much more difficult.

Okay. And then on currency, I know you all don't give out details on where you've hedged, but, honestly, I'm continually surprised at the benefits you're getting from currency, because -- I mean, the yen has been weaker year over year for some time, the Euro has flattish to weaker but yet -- I mean, do you all hedge out 18 months to two years or just if you could give us some color, because again, I hadn't expected that big of a benefit?

We do hedge, but we don't hedge too much time in advance. We do have hedging and we do have some advantages on the Yen, on the Euro, on some other currencies, and it's a policy that we have been undertaking for the last couple of years.

Okay. And then finally on your pineapple pricing, if my information is correct, pineapple pricing in the EU and U.S. was much stronger in the first half of Q1, but due to some supply issues out of Costa Rica and was wondering if you could comment on those and basically quality. I believe there was too much translucency and was wondering if you could comment on that, if that's been rectified?

Which do you want? Last year you mean?

No, this Q1, Q1 '07, so January, February of this year.

No, no, no. We don't have any problem with our -- well, we do program our supplies according to the season we are in and so we plan our supplies. It's not that -- we know what we want to bring at the end of the year and what we'd like to bring in the past quarter. So all supplies to start with are regulated in one way or the other. And the second thing, we haven't had any problem with our quality. As a matter of fact our quality is the best in the market. And I don't know if you know that recently there has been a lot of rejections in the ports in the U.S. and in Europe for pineapples from competitors and that has to be sent back to the origin countries. And that was due to certain residues, chemical residues and other matters. So, this gives you an indication of where Del Monte is and the competition are.

Well, that's what I'm referring to is have those issues been rectified, because I would assume that's what's caused the recent buoyancy in the markets and just wondering have your competitors -- have you a seen any let up in those issues?

No, we -- like we said and we have always said that Del Monte is the pioneer in the pineapple business, and that's what we maintain and that's because of our expertise and knowledge and infrastructure. Now, I cannot speak for our competitors, but we know for a fact that volumes have been [inaudible] your competitors, be it large or small, and they are having problems and that's something that Del Monte does not have.

Okay.

So none of our products has been rejected for whatever reason, and that's why we are enjoying the market and I believe that is going to be the trend for the future.

Okay. And sorry, one final thing. What was CapEx for the quarter?

I think it's in the press release.

Oh, okay, sorry. Okay, well then I'll look it up if it's in there.

I've got it. It's about $25 million, Heather.

$25 million?

Yes, roughly.

Okay. Thank you so much.

Our next question comes from Jonathan Feeney with Wachovia.

Good morning, this is John Baumgartner on Jon Feeney's behalf. Just wondering if you can walk through three items this morning. First off, we've seen reports of rising banana production out of Africa, and just wondering what your views are as far as the ability for that increased weigh on the recent improvement over there in the EU? Second, with respect to the pineapple issues, can you talk a little bit about the consumer trends you're seeing as far as demand is concerned, and any potential for some of this competitive activity to ease in 2007? Then lastly, do you have any estimate -- I guess John, do you have any estimate as far as the impact of the rationalization of the vegetables on the top line during the fourth quarter?

Well, in the tomato business is the most significant of all, and the tomato decrease was $12 million on the top line right off, of the total decrease.

Okay.

Just tomatoes by itself. That's the most significant one that related to what we did.

[inaudible]

Yes.

[inaudible] the other questions --

Could you -- you had one other one on bananas. Could you repeat that?

Sure. The rising African production, what are your expectations as far as will that weigh on some of the momentum in pricing you've seen in the last month or two here in 2007 or is that more of a non-issue right now?

I don't see any increased production because I don't see an increased production in Africa. Anyway, if total volume that is allowed into Europe and the EU for the African production and the -- all the -- not all the African but even the Caribbean producers will be [700,075] pounds per year free of customs. So I don't see -- first of all we don't see production increases in Africa. And secondly, we don't see how it can go over 700,075, otherwise they have to pay duties like everyone else.

Okay.

Yes, we've been in Africa in the Camaroons for many, many years and have very good production there.

Okay great. And then with respect to the pineapple outlook as far as competition goes there in '07, the consumer demand?

Consumer is still strong. We do see increase in expansion and consumption and I believe that this -- the pineapple will continue doing the same way it's been doing for the last ten years, 11 years.

Great, thanks for your time.

Thank you.

And our next question comes from Diane Geissler with Merrill Lynch.

Good morning.

Hi, Diane.

I have a question about energy. You noted that 2006 [inaudible] was large impact in your P&L from increased energy. Do you have a quantification year over year on energy? And then as you look into '07, your expectations about -- you mentioned you're going to have a benefit in '07 from lower energy and how that packaging in addition to bunker fuel et cetera -- I'm assuming that's what you mean by that. And then if you could give us an idea about what you might expect to pick up in '07 from lower energy prices?

What I said a few minutes ago is that we have conservatively planned our costing based on the prices of bunkers of last year. If the bunker prices goes down during '07, definitely we get the benefit of that. Now, I would not like to tell you what we paid last year and what we will pay this year but you can find out this from the market, I believe, to commit figures or numbers.

All right, but we did have an overall benefit year over year -- an increase in expense year over year of about $17 million, mostly in the first three quarters.

In '06 versus '05?

Right.

And then I guess my next question is really on -- you indicated that in the third month of the fourth quarter your started to see an improvement in some of your businesses and you gave us a lot of detail on that and I appreciate that. Is there anyway that we should think about in terms of that turn around, how much of that was industry improvement, whether that was energy that would affect everybody that's in your industry versus what the improvement from the -- some of the strategic changes that you made in your businesses?

I think it's a combination. I think the industry environment was changing, pricing in the market was improving. Of course, especially energy also was easing and of course a lot to do with our decisions and our measures that we have taken during the first 11 months of the year. So, I believe it's a combination and the industry was improving. Pricing was improving. And I think that the costs also helped us a little bit.

What I'm trying to get a handle on here is the strategic changes that you made in the face of some of the difficulties that you saw in 2006. What's the order of magnitude on getting out of the veggie business or streamlining tomatoes and some of the potatoes, some of these other initiatives, stopping the tran -- trucking business, et cetera. How should we think about it, because obviously, that'll be an ongoing benefit to your P&L, so is there any kind of quantification around what you think that that could add in terms of net income or gross profit or however you want to quantify it?

I believe it's in the millions of dollars and as we go forward in the year you will see the benefits quarter over quarter. And I'd like just to highlight we definitely had a lot of loopholes that had to defined and we closed all these loopholes everywhere that we saw kind of drainage on our efficiency or on our net income been addressed. So I would say we are almost 95% on the right track. We still have some more fine tuning to do in the next few months and we will do that, as well. So we haven't been shy of taking very drastic decisions during 2006 and we will continue to do that as we go forward. But what we see from our production -- starting from our production sourcing areas into our -- the whole chain of our business of supply, we have made changes and we have taken decisions that definitely will show the business in a different perspective as we move forward.

But from your perspective, you sound like you're pretty much done with what you need to rationalize and there may be fine tuning, but we shouldn't expect any more large charges or we're getting completely out of a certain business.

No, no, there will be some charges. Maybe John can --

Yes, Diane, I'm not going on the hook again. We didn't expect some of the ones that we had on the last call, but I think they're necessary. I don't think we have plans at this moment to do something. But we're looking at ever aspect of our business and I have to say if something needs to be done, we as a group are ready to do that. So I'm not going to commit that there's not something there, but right now we haven't got a plan.

Okay, and then I guess just on the prepared foods piece where you talked about -- we know what the problem in Kenya and the timing on that and what that meant for you in terms of the holiday business and it's importance in the overall scheme of seasonality, et cetera. But I guess the question I have is if you were out of the market because of supply issues, did that mean you lost shelf space and now you have to spend to reclaim shelf space in your pineapple business or how should we think as you to try to rebuild that business in 2007, what shall we look for there?

No, no, we are back on track. We didn't lose any shelf space or any customer. We did suffer in a way that our customers were unhappy because they didn't have enough supplies during the holidays and even during the January of this year. But we are back on track, we are filling the supply chain, and our customers are extremely happy. As a matter of fact, just to add on this, I think also this year will be a different year for canned pineapple, because Asia -- I mean Thailand and Indonesia are short on pineapples this year and we see a much stronger market going forward for the year on pineapples -- canned pineapples.

Right, plus now you have an easy comp.

And we're having a good [inaudible].

Okay, that's it for me. Thank you.

Thank you, Diane.

[OPERATOR INSTRUCTIONS] Our next question comes from Eric Larson with Piper Jaffray.

Hi, Eric.

Hi, guys. My first question relates to what you could -- what could happen here with your melon business now in the next three to four months. As I recall, last year you have pretty poor growing conditions for your melons in Costa Rica, which led to relatively poor price realization. If the weather is good and you have the limited fruit shortage now in the U.S., at least in the near term, how was the weather in Costa Rica and could that be something that you'd look forward to as a year-over-year contribution in your first half?

Well, the weather has -- hi, Eric, how are you? The weather in Costa Rica has definitely improved year over year, but it's not perfect. But definitely, to compare 2006 season to the present season, we have seen improvement on the weather and I think the market has improved as well.

Good. Okay. And then Mohammad, you alluded to you're starting to see the Europea -- the marginal suppliers starting to whittle away. Could you fill us in? Could you give us more of your thoughts on the European banana market right now? I think we're all looking for a fairly difficult market yet this year, but I guess I got some whim of some positive hope in your introductory comments.

So far, if you compare prices year over year, you are talking about 2.5 to three Euros definite in price. What we're selling last year this time probably we see between two to three Euros less in pricing. But it's tough, it's not an easy market. We as the market we are not a very big player in the European market, that as something has to be taken in considerations, compared to the other players we are not -- So Europe really is an important market for us as far as bananas are concerned, but it's not -- the market for us is North America, Asia, and the Middle East, these are really our markets. And so we will play it as it goes, and I feel confident, to be honest with you, as far as the future is concerned for Europe. But we just have to adapt ourselves to the market volatility and be always careful not to be like we did last year. Last year we did not go and do some crazy adventures in that market and that's why we did not suffer so much in Europe, and that's the same policy we are taking this year.

Sure, correct. Okay. Well, thanks. And then, John, just a final question and then I'll follow-up off line with all of you folks. Given how you look at 2007, and obviously there's tremendous amounts of variables, could -- do you expect Fresh Del Monte -- with your $100 million roughly of CapEx do you expect to return to a potentially positive free cash generation potential this year?

I believe so. We're looking forward to have a good year.

And then I suspect the priorities -- and maybe Mohammad could comment -- the priorities for that free cash would be to reduce debt if that in fact does materialize?

That is true, yes.

Okay, thank you guys.

This excludes the time allocated for the question-and-answer session. I will now turn the call over to Mr. Abu-Ghazaleh for closing remarks.

Thank you very much, Mark. We thank everybody for attending this call with us, and we hope to talk to you soon with a better news, I hope. Thank you very much and bye for now.

That does concluded our conference call. Thank you for joining us today.