Fresh Del Monte Produce Inc (FDP) 2008 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Del Monte Fresh Produce third-quarter 2008 conference call. At this time, all participants are in a listen-only mode; and at the conclusion of our prepared remarks, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this call is being recorded.

I would like to now introduce your host for today's conference, Ms. Christine Cannella, for opening remarks. Please go ahead, ma'am.

Thank you, Nicole. Good morning, everyone, and welcome to Fresh Del Monte's third-quarter 2008 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 Senior Vice President and Chief Financial Officer Richard Contreras, who will discuss our results for the third quarter.

Fresh Del Monte issued a press release this morning via Business Wire, e-mail, and First Call. You may visit our website at www.FreshDelMonte.com to register for future distributions.

This conference call is being webcast live on our website and it will be available for replay approximately two hours after the conclusion of this call.

Our press release includes reconciliations of any non-GAAP financial measures that we mention today to their corresponding GAAP measures. The press release may be found on our website, which again is www.FreshDelMonte.com.

This morning, Mohammad will review our operating performance during the quarter along with recent developments and our future outlook. Richard will then review our financial performance for the third quarter of 2008.

Please let me remind you that much of the information that we will discuss this morning, including the answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the Safe Harbor provisions of the securities laws. Our actual results may differ materially from those in the forward-looking statements as a result of various factors, including those described under the heading Description of Business Risk Factors in our Form 20-F for the year ended December 28, 2007.

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 would like to turn this call over to Mohammad Abu-Ghazaleh. Mohammad?

Thank you, Christine, and good morning, everyone. The third quarter of 2008 was a period of steady growth and solid performance for Fresh Del Monte Produce. Our business continued to expand around the world, and our loyal customers continued to purchase our fresh fruit and vegetables.

Banana pricing rose in North America, Asia, and the Middle East, and gross margin improved year-over-year. Gold pineapple sales, pricing, and volumes were all higher, as were melon sales and pricing. These results enabled us to deliver year-over-year increases in net sales, gross profit, and operating income.

I believe our strong performance clearly underscores Fresh Del Monte's primary strengths -- our business strategies, our management team's execution skills, our world-famous brand, and our solid balance sheet.

We are proud, because our performance demonstrates that our mandate to control expenditures and improve efficiencies helped us face many of the obstacles and headwinds we have encountered. Raw materials, fuel, and labor costs were still high, though we were able to address some of these cost increases through pricing actions.

We also experienced a weather-related challenge when Hurricane Ike, one of the nation's most destructive hurricanes ever, hit the Texas coast in mid-September. We swiftly diverted our ships from Galveston to Port Manatee, South of Tampa, highlighting our operation flexibility and our commitment to minimize disruptions to our customers.

During the quarter, we continued to manage our business with a focus on positioning Fresh Del Monte for solid performance in the future. One of our strategies is to control more of our own production. And you will recall that we substantially increased our banana and Gold pineapple production volumes when we acquired the Costa Rica-based Caribana, the largest acquisition in our history, in the second quarter of this year. We remain on track for this acquisition to be accretive in 2008 and even more so in 2009, as most of the pre-existing banana and pineapple contracts that we honor expire at the end of this year.

We continued our strategy of expanding our own production during the third quarter of 2008 by acquiring two melon operations in Guatemala, securing more melon volume, thereby attaining greater leverage in supplying our customers. As we continue to build our position in the melon category, many other growers are exiting the business.

Because of our solid balance sheet, healthy cash flow, and disciplined acquisition strategy, we have further strengthened our position as one of the leading suppliers of melons.

During the quarter, we also continued to expand our business in the Middle East, our most important market for expansion. The Middle East economy is comparatively healthy. As you may recall, we are building three distribution centers in Saudi Arabia; two are slated to open in 2009 and one in 2010.

Our products continue to gain consumer acceptance, and our brand is garnering consumer recognition thanks to partners like McDonald's and Yum Brands.

I mentioned the strength of our business strategies and how solid our performance was this quarter. It's being noted that Fresh Del Monte has been regarded as a defensive stock and that our business continues to perform well in strong or weak economic environments. We believe this is the case even more so in previous downturns.

In a weakening economy, consumers may stop buying or cut back on luxury items, but they are not likely to cut back on healthful fresh fruit and vegetables, as many of them have become staples in consumers' diets.

Meanwhile, our business is continuing to grow and expand, and we have a vibrant corporate culture that fosters our commitment to controlling costs and improving efficiencies.

We are also encouraged about the favorable tailwinds we have begun to feel. Fuel prices are gradually declining, which will positively influence our distribution costs if this trend continues.

In addition, I anticipate that the tightening of the credit and current economic conditions will continue to streamline the competitive landscape, as some growers and distributors are not enjoying the same financial stability. Overall, I am very optimistic about our future.

In light of all of these factors, investors might wonder why the market has not recognized and rewarded our strong position with a higher stock price. I can only respond by saying what I have always said, in good times as well as in challenging ones. Fresh Del Monte is a long-term investment and we will continue to conduct our business with a long-term perspective.

I can assure you that our business is sound and our management is fully engaged and sharply focused on growth and profitability. I am confident that the market will recognize our strengths. Our brands and our business are ideally suited to weather these difficult times.

So as we advance into the final quarter of 2008, we are excited about our future prospects. At this point, I would like Richard to give you some financial details. Richard?

Thanks, Mohammad. Good morning, everyone. As Mohammad said, we are proud of our performance, especially in these times of extreme uncertainty.

For the third quarter of 2008, Fresh Del Monte delivered earnings per share of $0.46 per diluted share, compared with $0.51 in the prior-year period. Net sales of $833 million, 10% higher than last year. In addition, as compared with the prior-year period, gross profit increased $11 million or 17% to $79 million. Operating income rose $12 million or 46% to $38 million. Net income decreased 2% to $29 million from $30 million.

Now let's turn to our segment performance. Here in the third quarter, we continued to see strong performance in our banana segment, including a 20% increase in net sales to $333 million. Worldwide pricing increased 14% or $1.64 per box to $13.17. Volumes rose 5%, primarily from the Caribana acquisition. Gross profit increased to $24 million compared with $7 million a year ago, due to increased pricing in North America, strong pricing in the Middle East, higher pricing in favorable foreign currency in Asia, and strong overall demand.

These results were offset to some extent by a 9% increase in unit cost. We continued to experience periods where we did not have enough volume to meet all of our customers' demand, primarily due to lower industry volumes from Central America and the negative impact of weather-related incidents on our farms in Brazil and Guatemala in the second quarter.

In our Other Fresh Produce business segment, net sales increased 4% to $355 million, primarily the result of higher sales of Gold pineapples, fresh-cut fruit, and melons. Volume was 6% lower, and pricing rose 11%, offset by an 11% increase in unit costs. Gross profit decreased 2% to $45 million primarily due to significant cost increases, partially offset by higher selling prices.

In our Gold pineapple category, net sales increased 13% to $123 million. Volume rose 9% primarily due to the Caribana acquisition. Pricing was up 4% primarily in Europe. Unit cost rose 12%. In 2009, we will have the benefit of a full year of Gold pineapple production from the Caribana acquisition.

In our melon category, net sales increased 6% to $33 million. Pricing rose 7%, with volume and cost in line with last year at this time. We further strengthened our presence in this category when we made the melon acquisitions in the third quarter in Guatemala, which will add approximately 4.5 million boxes of Del Monte cantaloupes and honeydews.

As mentioned earlier, some melon growers have been having problems meeting their financial obligations, and we have capitalized on this to increase our position in the offshore melon season, expand the percentage of production we own, and further strengthen our core business.

In our fresh-cut category, net sales rose 10% to $84 million, the result of increased pricing in North America. Volume grew 4% and pricing was up 5%, while unit cost increased 9%. We continue to make improvements in our fresh-cut product line, which includes the consolidation of facilities, stabilization of the workforce, and additional SKU rationalization.

We should mention, though, that during these uncertain economic times we continue to see some weakening in demand for fresh-cut products, as some customers are shifting to whole fresh fruit.

In our non-tropical category, net sales were in line with last year at this time. Volume decreased 7%. Pricing increased 7%, mainly the result of increased pricing in our grape and apple product line, while unit cost declined 4%.

In our tomato category net sales decreased 7% to $32 million. Volume was 17% lower, and pricing increased to 13% with an 11% increase in unit cost. These results were driven by decreased demand, a result of the salmonella outbreak in the US originally linked to tomatoes.

In our Prepared Food segment, net sales decreased 4% to $102 million, driven by lower net sales in our pineapple and beverage product lines, partially offset by growth in our Middle East poultry and processed meat business. Pricing increased 13%, with a 13% increase in unit costs. Gross profit decreased 5% to $13 million. Operating income rose $2 million as we shifted to distributors.

For Other Products and Services, net sales increased 39% to $43 million for the quarter, driven by higher sales in our Argentina-based grain business. However, the increase in sales was offset by higher costs of other products and services.

I would like to take a moment to share with you some of the dramatic increases we continued to experience in input cost during the quarter. Compared with just one year ago, fruit cost for all products -- which includes our own production, procurement from growers, packaging costs, labor costs, and the effects of foreign exchange --increased 11%. These costs represented 69% of our total cost of sales for the quarter.

Ocean freight costs, which include bunker fuel, third-party charters, and fleet operating costs, increased 25%. Ocean freight costs represented 15% of our total cost of sales for the quarter. As an example, bunker fuel increased $15 million or 66% compared with the same period last year.

The foreign currency impact of the gross profit level was a benefit of $5 million for the quarter compared with a $6 million benefit in the third quarter of 2007. Foreign currency impact at the sales level was a $7 million benefit for the quarter compared with a $10 million benefit in the third quarter of 2007.

SG&A decreased slightly to $41.3 million from $41.7 million.

Other income net this quarter was a loss of $2 million primarily related to foreign exchange losses. In the third quarter of 2007, we had other income of $7 million, which included gains on the sale of a vessel; gains from the sale of an underutilized facility; and foreign exchange gains.

Interest expense net decreased 36% to $4 million as a result of lower interest rates, partially offset by the average higher debt levels. At the end of the quarter, our total debt was $447 million, a $208 million increase from December 2007, due to the Caribana acquisition.

Tax expense for the quarter was $3 million or 8% of pretax income. We expect our capital expenditures for the year to be about $110 million.

This concludes our financial review. Operator, can you open up the line for questions?

(Operator Instructions) Vincent Andrews, Morgan Stanley.

Good morning, everybody. You did give some detail about Caribana from a volume perspective, how it contributed to the quarter. But I'm wondering if you want to elaborate anymore in terms of operating profit or EPS. Is that possible?

No. Right now, we are not giving any of that. We have the volumes and we are still looking at that. There were synergies, and it was accretive this quarter, but we are not breaking that out yet.

Okay. Then, as we look forward and we think about foreign exchange is obviously going to be a headwind for you, but it looks like lower input costs will be a tailwind, particularly bunker fuel, if the status quo persists.

How should we think about one offsetting the other there? Do you have any sense of if current rates of exchange and current bunker fuel prices stayed the same, whether you would be positively or negatively impacted by that?

If bunker fuel stayed the same?

Yes, and the US dollar exchange rate stayed the same. Is that a headwind or a tailwind for you? I guess the question is are you a net beneficiary of the costs coming down even though the currency, the dollar is strengthening?

We should be a net beneficiary of the cost coming down. I mean keep in mind some of the fuel is a pass-through, so it won't directly go to the bottom line. But fuel impacts almost everything we do. The power at the plants, the farms, the trucks, so if it continues to go down, it should be a net benefit.

Okay. Then do you have any insight on the fourth-quarter melon crop? Because we're always shifting back to a quarter where you actually produced the fruit.

Yes, we are producing in Arizona right now, and it looks very good, and then Guatemala should start producing in November.

There is no -- is there any -- is it soon enough to have any view into the quality of the Guatemalan crop?

No, but there is no indication of any problems right now.

And Arizona looks good. Okay, I will pass it along then.

Diane Geissler, Merrill Lynch.

Good morning. I just -- Mohammad, on your comments about the stability of fruit in terms of recessionary times, can you talk a little bit about -- I would agree with that on bananas. But just on the Gold pineapple, which I think has a premium price and has a big holiday business. Could you talk a little bit about the kind of economic backdrop that you see and what you are hearing from retailers, in terms of how we should look about, look toward the holiday season?

We anticipate an active holiday season as a matter of fact, Diane. I can tell you that during October in particular, the market has slowed down in terms of volumes. The reason for that is October usually -- September and October are usually very slow months of the year. The slowest months of the year probably.

But all in all, I believe that we -- I look very positively to the Gold pineapple picture in general going forward, and that is for several reasons. I don't believe that consumption is going to be drastically affected by the economic situation, number one.

Number two, I believe that our competitive situation is getting stronger every day. Of course, everybody knows that we are a very strong player in this field, as well as what we notice right now in the market is that small growers and other distributors and exporters, importers, distributors, are really feeling the credit squeeze or shortage available in the market.

As a matter of fact, we have information that in Costa Rica for instance, almost the credit has been shut up for all farmers. Banks are not extending any more credit to anybody in the country, especially in the agriculture field.

So this is, by itself, is a very strong indication of where the market is going. I believe that whatever economic conditions are happening right now, it is actually working in our favor in the long term.

Okay. Just to your point on the Guatemalan melon operations, are those the types of opportunities that you will be looking at? Would it be primarily picking up acreage that is currently under production to add to your current acreage?

Yes. We already, as I said, we already picked two growers, two plantations or two different producers, exporters. If there is another opportunity that will come, will be feasible, and adds value to us of course we will not hesitate.

However, just commenting on that, we have noticed also that other growers in melon are phasing out. Even large producers, large growers in Guatemala for instance and Costa Rica -- I don't want to mention names here -- but that have been in partnership with a major importer in Europe have closed down Gold pineapple plantations in Guatemala and Costa Rica. And they are transforming some of them into bananas and others into palm oil trees, which is African palm trees.

This is an indication of where this industry is going. I mean, large, well-established growers in these countries are getting out -- let alone the small grower; I don't know what they will do.

But that is what is happening, not only because of the financial conditions, but because of the market conditions, because of the agricultural practices that they lack, technology that they lack. So many valuable variables.

I mean if you look at our cost and third-party cost, that is also another advantage that we have. So we are very, very encouraged about these developments.

Okay. Just on those opportunities, what -- how far are you willing to push your own balance sheet in terms of taking advantage of these opportunities that you might see? What would you -- where would be the point of no return either in terms of total leverage, or --

We are very prudent.

-- debt to EBITDA, or whatever.

Always, all my life, very prudent in that respect. I always said it, that I don't like to take too much debt.

We will monitor things. If it's a very, very attractive and extremely valuable asset that might be really accretive to us, then we might take that step. Otherwise, we will be very prudent in our investments.

Yes, but no benchmark that we should be thinking, we want to keep our leverage below 40% or something like that?

(multiple speakers) Not at this stage.

Not at this stage? Okay, thank you.

Jonathan Feeney, Wachovia.

Good morning. Thank you. I wanted to dig in a little bit on the fruit costs, Richard, up 11%, 69% of COGS. Is that primarily fertilizer? What is driving that?

And where do we stand? It seems like the cost of just about everything has come down, I guess except bananas in the past month. Where would we stand right now with those costs? Are they coming your way incrementally?

Well, in the past month, yes; but quarter-to-quarter they are still up there in those numbers.

It is not -- fertilizer is one of them, obviously, but not the biggest by any means. Purchases from independent growers is something that has increased significantly. I mean, they had minimum price increases in Ecuador at the end of last year -- I'm sorry, Costa Rica at the end of last year; Ecuador in the spring; and Costa Rica again a few weeks ago. Now there's rumors about Colombia.

So a lot of these growers are consolidating and lobbying their governments for higher pricing. That I would say is the biggest piece of all of the increases. And those are not headed downward, unlike some of the others.

Right. Would you -- in light of -- in hindsight now it looks like a really great deal to have taken down more capacity when you did. Are you on the lookout right now, Richard, considering that reality, to buy more assets?

Well, like Mohammad just mentioned, yes, if we find something primarily in the core business that makes sense and obviously it's accretive to the shareholders, we would look at it.

Thank you, Richard. Mohammad, you mentioned the effect of the macro environment on pineapples. I guess when you think about both pineapples and fresh-cut products, how exposed are your North American businesses to a slowdown in consumer? Have you seen a demonstrable slowdown in the past few weeks?

Yes, we have seen a slowdown, especially on the fresh-cut. As I said, September and October are not usually the best months of the year.

Secondly, I think that -- and both months came in a very bad period. The financial turmoil has been for the last couple of months as well.

So I don't think that we should take this as a good comparison going forward. However, I believe there will be definitely -- I mean, nobody can deny that there could be some effect or implication as far as consumption is concerned.

But looking at our business, Jonathan, I don't see that we are going to be -- really we are taking more volumes. I mean, we are making more inroads into the market.

We are seeing supermarkets that have not been buying from us for the last several years now coming back and saying we would like to. The reason for that is that they want stability in their chain of supply. They want somebody that can give them consistent volume and consistent quality.

And they realize now that this is becoming a very critical period, where we know that small growers, medium-size exporters, are having difficulties in meeting these requirements. I know that as we go forward there will be definitely some changes in the market structure.

Back in 2001, late '01, '02, did you see fresh-cut down double-digit? What magnitude of decreases are we talking about?

I don't have the figures in front of me, but I believe that we have been expanding steadily and growing our business in fresh-cut steadily. I believe that as we go down the road in the future, this business will continue to grow and expand.

I believe that with the present financial conditions, with the tight credit supply, I am sure that many of the players that doesn't have the financial strength and stability, I don't know how they can continue and be able to be competitive in such markets.

So what you are saying is the share gain opportunity could offset what are potentially some pretty steep category declines.

I'm sorry, I didn't get that.

I guess I am trying to figure out how sensitive, how much this fresh-cut business has slowed down. If it declined 10% or more.

I think you are getting at the share gain opportunity can offset that; but I'm just trying to understand how macro sensitive these pineapple and fresh-cut products in North America are right now and have been in the past.

As far as the pineapple itself, we haven't seen really a huge, drastic change.

Okay.

As far as the fresh-cut, yes, we have seen slowdown in certain areas of the country. Not all over the country.

But I believe this is short term. I believe this goes along with the financial situation, and I believe that is going to change as we go forward.

Okay. Just finally, I noticed in the footnotes about closing down underutilized distribution centers going through other income.

What exactly are you closing down? Are those North American facilities you are closing down?

No, these are in the UK.

The UK? Okay, perfect. Thank you very much.

Heather Jones, BB&T Capital Markets.

Good morning. Congratulations on your quarter and also thank you for the increased disclosure. It was very, helpful.

Understand that there was a lot of flooding in Honduras and Guatemala over the past week or so. Was wondering if you all have seen any of your production affected.

Yes, we had 70 hectares actually affected, which is, believe me, negligible. But we understand the competition has had some -- we don't know how substantial -- but there has been, some of their farms have been flooded in Guatemala and Honduras.

But you said just 70 hectares for you all?

Yes.

Okay. Going to bunker fuel, I understand there is a lag between oil prices and bunker fuel prices. But they should follow, and the latest data we've seen for Rotterdam was pretty low.

Do you all do -- I know you don't do any hedging on that or haven't had any hedging on that. But do you buy forward at all? Do you buy two or three weeks of your needs forward? Or is it bought on only on an as-needed basis?

Only on the spot.

Okay. Given the decline in bunker fuel, do you plan to change your strategy as far as hedging?

I don't think so, no.

Okay. Then, going back to the pineapple question and fresh-cut, we understood that there has been a pretty significant deceleration in demand over the past few weeks. And was wondering, given your greater control of the market now, post the Caribana acquisition, do you have any intention of controlling volumes as you can to support pricing? Or do you plan to basically market as much as you produce?

Now, we will market as much as we produce. Definitely there has been -- let me explain, Heather. Has been in the last six weeks, I would say, there has been an overproduction in Costa Rica and probably in other parts, as far as the pineapple is concerned.

And this, we knew about it beforehand. There is a lot of fruit going to Europe in the last few weeks, and the European market is suffering significantly in the last few weeks.

However, in our situation, we take the market as we go, you know. Definitely we have superior pricing to all our competitors in these markets.

Now, as far as the US is concerned, most of our business is on contract. We do a lot on ads during the year, and our volumes are more or less steady in the market.

In the Far East, we are enjoying a very good market in the Middle East as well.

So really what I can tell you is that right now the market that is being severely affected -- be it pineapples, be it bananas, and melons -- is the European market.

As far as the US market, it is more or less a stable market. The Middle East, Far East are enjoying good markets. That is the situation as we are today.

Okay. Going back, going to the EU, how much of that in general -- bananas, melons, pineapples, whatever -- how much of that is in general a function of supply? And how much have you seen a disruption in demand over the past month or so, given the events of the past month?

I think as far as bananas is concerned I believe it is a matter of supply.

Okay.

As far as pineapples and melons, I think it is a matter of consumer resistance to spend more money these days.

It is a combination. With the pineapple I would say it is an oversupply as well as a consumer attitude. The melons, it applies the same thing as well.

But you are mainly just seeing this in the EU? Because it sounds like your other markets are okay.

Yes. Yes, we are enjoying a very good market and a reasonably good market for melons right now. The pineapple is more stable. Bananas, as you know, it is a stable market as well, so.

You're talking about in the US?

I am talking about the US, yes.

Now as far as Asia, this whole banana diet and seeing unreal pricing there, has that continued? How much do you benefit from the improvement in pricing in Japan?

Well, I mean, as every JPY100 goes up, that is a net benefit to us, of course. We are talking about prices in the region of about JPY1,700 right now per box in Japan, which is a good price with a good exchange rate.

So I believe that hopefully the same diet will take place in the States and Europe as well. I mean, it is a good diet, it seems.

Would take care of a lot of our healthcare problems, too. I just have a few more questions.

In the UK, you have closed a number of facilities. Understand you've reduced your penetration with one of the big retailers there. I just was wondering if you could talk about -- is it more just a rationalization of your business to focus on what is most profitable? Or are you going to permanently reduce your exposure to UK? Just wonder if you could talk about that.

It is very true what you just said. It was a decision based on rationalization, and as we said in several previous conference calls, that we will do business only when we make money. We are not ready to do business to lose money just to please a customer. And that decision was based on this criterion.

However, during the last few weeks, few months, we are noticing that some of the big customers are coming back now, talking to us, realizing that they cannot go on.

They changed, of course, suppliers; they are not happy with the suppliers they have right now. They are talking to us again, and they want to restart the business.

Don't be surprised by next time we speak, there might be one or two of these distribution centers are back in business. So we will do whatever is right only for our business.

So when these customers are coming back and trying to do business with you again, are you doing business at better prices than what you were in the past?

Oh, for sure.

Okay.

For sure.

Then my final two questions, one is on the yen. Given that strength, wondering if you have locked in some of your exposure for '09.

We did lock some of our exposure in 2009. You know, you cannot -- we don't have a crystal ball that we can look at. But definitely, we don't know what is going to happen next month or two months from now.

But we usually take, like I said, prudent decision in terms of hedging our currency as well. We did hedge for Europe as well in some part. So I believe we are in good shape.

Okay. Then my final question, you mentioned Middle East, the pricing environment is good. So with this whole credit issue, you all haven't had any issue with demand there? Intermediaries not being able to fund imports? Or is demand holding up?

No, demand is holding up, because we are dealing with very stable items, bananas, pineapples, things like that, apples, you know, or citrus. These items are very stable items. They don't usually -- are affected by economic booms or busts. People keep buying these items.

Secondly, I think we have to take in consideration that ultimately these markets affect -- I mean their currencies are really linked to development. So we don't have the exchange fluctuations or risk of exchange fluctuations in these markets. And that is why when we sell we know exactly how many dollars we are getting back.

Okay, all right. Well, thank you very much.

(Operator Instructions) Bill Chappell, SunTrust.

Good morning. I guess, following up on the fuel surcharges, just trying to understand how quickly those go away as bunker fuel comes down. I mean, will we see an impact in the fourth quarter, or would they really start to roll back as you move into next year?

I think the surcharge that we are talking about is already -- a lot of these contracts have been renewed and under renewal. So all these surcharges actually were because of additional costs. Well, not only surcharge because of fuel; it was surcharge because -- like Richard was saying -- we had to pay additional price increases to the growers because of government minimum price and all this.

So all these surcharges are built in the price as we go forward.

I understand that, I guess I am just trying -- Richard had said that a lot of the bunker fuel increases, decreases are a direct passthrough. So I'm just trying to understand, as we go to next year and kind of lap force majeure charges, would you actually see sales decline just as you lap the fuel surcharges as well?

There will be some of that. There are fuel surcharges; there are diesel fuel surcharges; and there are also bunker fuel surcharges that are reset every three months. So fuel started coming down, but the biggest drop is in the first few weeks of October here. So in three months, you should see some of that coming back.

Is that pretty similar to the passthrough in terms of -- are you seeing the benefit within three months of lower fuel costs?

You should, yes.

Okay. Then in terms of just looking at the melon acquisitions in the quarter, on the cash flow statement it looks like there was kind of an incremental maybe $10 million to $15 million of use of funds. Does that sound right, ballpark?

That is right. There was some holdback on those acquisitions, so there will be a little bit more to be paid.

Okay, but that is roughly the right ballpark?

Yes.

Then, in terms the competitive landscape, have you seen any real changes from the major players in terms of banana pricing and the outlook there?

No, we haven't seen any changes. As a matter of fact, nobody can afford anymore to lose money. We are very, very adamant about our position in terms of maintaining a profitable business. That is hopefully our competition as well.

I believe everybody now in this economic conditions, nobody can afford to lose money.

Okay. Then just final on the Caribana acquisition, is there any way you can quantify? Do we see the full impact of the sales benefit this quarter or a majority? I'm just trying to understand how much incremental sales will come on once their existing contracts are completed in December.

The acquisition -- we had the full acquisition this quarter. However, we are still selling to a lot of their customers in bananas and even some pineapple up through December. So the sales will increase because we will be selling under our business model starting in January with the value added and the fuel and the distribution and everything else.

We are still selling quite a bit of volume to their former customers under their former contracts, selling them just straight from the farm.

Just to make sure I understand, by the time we get to first quarter of next year you will see a pretty big -- or an incremental impact to both top line and gross profit as you bring this all in-house?

You will see an improvement, yes.

Okay. Then, I assume somewhere just netted in this quarter was intracompany sales from what they sold to you.

Correct. There is a bit of a benefit there from what they were making on the volume they were selling to us.

Great. Thanks so much.

There are no more questions in the queue at this time. I would like to turn the call back over to Mr. Abu-Ghazaleh for any additional or closing remarks.

I would like to thank everybody for joining us on this conference call. I hope to speak to you on our next conference call and hopefully with always good news. Thank you very much for being with us today. (inaudible)

That does conclude today's conference. We appreciate your participation and you may now disconnect.