Fresh Del Monte Produce Inc (FDP) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fresh Del Monte Third Quarter 2009 Conference Call. (OPERATOR INSTRUCTIONS) As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Christine Cannella, for the opening remarks.

Thank you, Christy. Good morning, everyone, and welcome to Fresh Del Monte's Third Quarter 2009 Conference Call. I'm 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 Businesswire, 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 conclusion of this call.

Our press release includes reconciliations of any non-GAAP financial measures we mention in our presentations today to their corresponding GAAP measures. The press release may be found on our website, which, again, is 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 2009.

Please let 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 10-K(a) for the year ended December 26, 2008.

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 the call over to Mohammad Abu-Ghazaleh. Mohammad?

Thank you, Christine, and good morning, everyone. We are especially pleased with the strength of our third quarter performance. We attribute this performance in what is historically one of our weakest quarters first and foremost to the strength of our vertically integrated business model that combines operational flexibility with a disciplined approach to the way we manage our business. These solid results reflect our team's ability to carefully manage our operations and take appropriate action to remain competitive despite normal seasonality pressures, a continued weak economic environment, consumer price sensitivity, and higher food procurement costs.

In terms of highlights for the quarter, our performance was driven by strong growth in our banana business segment. The results were characterized by higher worldwide banana selling prices as demand for bananas outpaced global supply.

We remain firmly focused on further strengthening our banana business as we expand our global distribution network and increase our production and (inaudible) volume. We believe that expansion will provide us with an even stronger competitive position in the developing market in the long term. In the near term, we expect global demand to continue to increase, as bananas represent tremendous health and market value for consumers.

In our other fresh produce business segment, we experienced challenges that resulted in a decline in our third quarter sales performance. The results were due to lower volumes and changes in consumer spending patterns. By carefully managing our production costs and streamlining our operations, we were able to maintain our competitive position and generate strong profit margins in this business segment.

These actions and improvements can be seen in the strong results delivered by our North America Fresh Cut operations in the quarter, where we remain focused on driving operational improvements at our facilities. During the quarter, we benefited from an increase in sales of our Fresh Cut products sold through mass merchandisers, clubs, and convenience stores as consumers sought volume pricing and convenience for healthy snacks and in-home dining.

We firmly believe there are significant opportunities for continued long-term growth in this value-added product line through new channel development. As a result, we are implementing strategies that will increase profitability and sustain our leadership advantage in this product line.

As we predicted, our gold pineapple results in the quarter were adversely affected by a significant decline in industry volume sourced from Costa Rica and continued soft global economic conditions. We attribute the tight supply of pineapple to the previously announced cooler weather in Costa Rica that resulted in fruit maturing ahead of schedule in the second quarter of 2009. While we see supply conditions coming back to normal levels, we cannot control economic conditions that continue to pressure consumer price sensitivity for this product line in the near term.

We believe pineapple consumption will continue to grow and expect that when the economy recovers, we should begin to see gold pineapple pricing improve. Accordingly, we are investing in and further expanding our gold pineapple production to meet consumer need in the long term.

We certainly have every reason to be optimistic about our gold pineapple competitive advantage. In September of this year, the International Taste and Quality Institute awarded Fresh Del Monte Produce the 2009 Superior Taste Award for Fresh Cut Del Monte Gold extra-sweet pineapple. This award is a testament to the superior quality consumers have come to expect from Fresh Del Monte produce.

Now I would like to turn to our prepared food business. You may recall that in the second quarter of 2009, this business segment delivered significant margin improvements. In the third quarter this trend continued. While we are very satisfied with our bottom line results in this business, our third quarter sales were lower, driven by a decline in demand in our UK markets.

We are aggressively pursuing a number of strategies to increase our performance and we will take whatever steps are necessary to deliver better top-line performance. I'm confident that we can increase sales and efficiency in this business segment and further our expansion into new markets.

I am pleased to report that we are on track to open the first of two distribution centers in Saudi Arabia in the next few weeks. This is an exciting development for us. As I mentioned in previous quarterly conference calls, our state-of-the-art distribution centers will be the first of their kind in Saudi Arabia. The opening of the second distribution center is scheduled for January 2010.

I am very proud of what we have achieved in the Middle East region in a short period of time. We have clearly broken new ground as one of the first multinational branded fresh produce companies to establish a direct sale and distribution center network in this market. This region has tremendous opportunity for both our fresh and value-added product lines. We expect to see demand increase in the Middle East for our extensive portfolio of Del Monte-branded products as we further our presence in this developing market.

Looking forward, we are very optimistic about the long-term prospects for Fresh Del Monte. Our objective is to increase our core product volume to further leverage our vertically integrated business model.

Our focus is to meet this challenge in three ways. First, by investing in and expanding our own production capabilities. Second, by continuing to look at potential acquisitions that offer significant synergies, increased scale, and expand our growth potential in key markets. And third, by increasing the number of independent growers from whom we source our core products.

Before I turn today's call over to Richard, I would like to be [straight]. While we are very encouraged by the positive comments in the media that the economic landscape is improving, we anticipate 2010 will continue to be another challenging year for the global economy.

In any event, no matter what economic scenario we find ourselves in, our top priority is the same as it has always been -- to deliver profitable growth over the long term for our shareholders.

Richard will now discuss our third quarter financials in more detail. Richard?

Thanks, Mohammad, and good morning. For the third quarter of 2009, excluding asset impairment and other charges net, Fresh Del Monte reported EPS of $0.61 per diluted share compared with $0.46 in the prior-year period.

Net sales were $766 million compared with $833 million in the third quarter of 2008. In addition, excluding asset impairment and other charges net, gross profit was $69 million compared with $79 million in the prior-year period.

Operating income was $26 million, compared with $38 million in the prior-year period, and net income was $39 million, compared to $29 million in the prior-year period.

For the quarter, we incurred asset impairment and other charges net of $10 million, primarily related to write-offs resulting from the Company's previously announced decision to cease planting gold pineapple in Brazil.

Now let's turn to our segment performance. In our banana business segment, net sales increased 5% to $351 million, compared with $333 million in the third quarter of 2008, primarily due to higher sales in the Middle East, Europe, and Asia Pacific regions due to increased demand, partially offset by unfavorable exchange rates in Europe and Asia.

Worldwide pricing increased 4%, or $0.59 per box, to $13.75. Volume was in line with last year. Unit cost was 8% higher, primarily driven by an 8% increase in fruit procurement costs, partially offset by lower fruit costs in our own farms.

Gross profit was $14 million, versus $24 million a year ago, primarily due to the significantly higher costs associated with the procurement of fruit in Central and South America.

In our other Fresh Produce business segment for the third quarter, net sales decreased 12% to $311 million, compared with $354 million in the third quarter of 2008. The decrease was attributable to lower pineapple, melon, and tomato sales. For the quarter, gross profit decreased 3% to $44 million, compared with $45 million in the prior-year period.

In our gold pineapple product line, net sales decreased by 15% to $104 million. Volume was 8% lower. The decline was primarily due to anticipated reductions in pineapple supply sourced from Costa Rica as fruit matured ahead of schedule.

Unit pricing was 8% lower, primarily due to the challenging global economy, and unit costs were in line with the prior-year period.

In our melon product line, net sales decreased 34% to $22 million; volume was 39% lower than the prior year; and unit pricing increased 8% and unit costs were 8% higher. The decline in net sales and volume was primarily the result of the decision we made in the quarter to decrease purchases from third party growers in California.

In our Fresh Cut product line, net sales decreased 2% to $82 million, primarily in Europe. Volume was 4% lower. Unit pricing increased 2%, partially offset by the unfavorable exchange rate in the UK, but unit costs were 8% lower, driven by lower distribution costs, improved operational efficiencies, and favorable exchange.

In our non-tropical product line, net sales decreased 4% to $47 million, volume was 15% higher, unit pricing decreased 16%, but unit costs were 21% lower.

In our tomato product line, net sales decreased 15% to $27 million, volume was 10% lower, pricing decreased 6%, with unit costs 6% lower.

In our Prepared Foods segment, net sales decreased $17 million to $86 million, compared with $102 million in the third quarter of 2008. The decline in sales was principally due to lower sales in our canned pineapple and beverage product lines, the result of the current economic conditions in the UK, along with unfavorable exchange rates. Unit pricing increased 3% and unit costs were lower compared to the prior-year period, driven by favorable exchange rates in our producing countries and lower ocean freight costs. Gross profit increased 4% to $14 million.

In our Other Products and Services business segment, net sales for the quarter decreased 57% to $19 million, compared with $43 million in the prior-year period, due to lower sales in our Argentine grain business. Gross profit was a loss, in line with the prior-year period, due to an 11% decrease in gross profit in our Argentine grain business, offset by lower expenses in our third-party shipping operations.

Now a few comments on costs. Fertilizer costs decreased 38% over the prior-year period. Fertilizer represents approximately 1% of our total cost of sales.

Containerboard costs declined 31% compared to the third quarter of 2008, and represent 2% of our total cost of sales.

Banana fruit costs, which includes our own production and what we source from independent growers, increased 8%, and this represents 29% of our total cost of sales.

Bunker fuel costs declined 39% and represent 4% of our total cost of sales. And total ocean freight costs, which include bunker fuel, was 2% lower during the quarter, and this represents 15% of our total cost of sales.

Now, for foreign currency. The foreign currency impact at the sales level for the third quarter compared to the prior year was unfavorable by $17 million, but the foreign currency impact at the gross profit level in the third quarter of 2009 was unfavorable by $1 million compared to the prior year.

SG&A expense during the quarter increased to $43 million compared with $41 million last year. The increase was primarily due to higher employee benefit expenses, including stock option expense, and increased marketing expenses in Europe.

Interest expense net decreased by approximately $1 million in the quarter. At the end of the quarter, our debt was $314 million, and we currently have about $199 million available under our credit facilities for working capital needs and other general corporate purposes.

Other income, net, was $3 million compared with other expense net of $2 million in the prior-year period. The 2009 third quarter included $500,000 in foreign currency translation gains versus a $4 million foreign currency translation loss in 2008. Both periods included an approximate $2 million gain on the sale of assets.

Tax expense for the quarter was a benefit of $12.8 million. Included in this amount were two adjustments to valuation allowance that netted to a benefit of $8.3 million. The larger of these two adjustments related to a reversal of the valuation allowance for North America. The release of valuation allowance is due to the fact that our North America operations have become more profitable over the last few years as we no longer have the Hawaiian pineapple operations, which incurred significant losses in the last few years of operation. And additionally, our Fresh Cut performance has improved.

As a result of reversing this valuation allowance, and improved profitability, we are now projecting a higher tax rate for North America. And as a result, going forward we are projecting a 10% Company-wide effective tax rate.

We expect our capital expenditures for the year to be approximately $100 million.

This concludes our financial review. Operator, can you open the line for question and answer?

Thank you. (OPERATOR INSTRUCTIONS) Heather Jones, BB&T.

Good morning.

Good morning, Heather.

I have a couple of questions. One, on the banana cost. In your comments, you noted that they were up 8% on a unit basis. And you talked about your banana -- the actual fruit cost being up 8%, but all these other input costs were down. And the year-on-year increase was worse in Q3 than it was in Q2, and I'm just -- I'm trying to get a sense of what's going on there on the cost side and what you expect in Q4 with regards to those costs.

Banana costs, as far as procured costs -- I did mention in the quarter costs of our farms declined, but the cost of procurement continues to increase and we don't expect that to come down any time soon. Our own farms, again, have improved as we continue to recover from the floods at the beginning of the year, but the procurement costs continue to be high in pretty much all the countries we buy from, especially Colombia, Ecuador, and Costa Rica.

Because if you talk about it, it says an 8% increase in unit costs. Well, if banana fruit costs were up 8%, and then containerboard was down -- I mean, what else went up that the total unit costs for bananas were up 8%?

Actually, Heather, it's the yields more than anything else. We had very bad yields in the last couple of months. The last three months, the yields in our own farms were really unfavorable, and that has pushed the costs upward.

But when you talk about the costs are down on your own farms, do you mean costs like the fertilizer, etc., but when you bring in the factor of yields, etc., that caused the per-box cost to go up on your own farms?

In most cases, yes.

Okay. So I understand that the cost of procured fruit is going to go up, but on your own farms, when do you expect that situation to normalize?

We are seeing right now much better improvement in yields as we go forward, Heather. Subject, of course, to weather being nice and favorable to us. But if the weather continues the way it is, I think that we will still go back to normal levels and we would see a much better cost structure.

Okay. So is it a fair comment that -- and I know this is a big if in the banana business, but assuming weather -- you don't have the issues that you had in late '08, early '09 -- would you expect that to be a significant cost savings going into 2010 as far as the improved yields on your own farms?

That would be definitely a good -- I don't want to say significant, but there would be a good saving in costs in that respect.

Okay. And it sounded like you purposely wanted to single out this comment on 2010, about how it's going to be a challenging year even though everyone is talking about recovery. Is that just with respect to your prepared foods business, or do you -- where you sit now, do you think 2010 earnings would be better than 2009?

We will always strive to be better, Heather; you know that. I mean, I cannot promise but we will definitely look for it to be a better year than 2009. But when I mentioned the economic situation, in the macro picture I don't believe that we will see a better economy in 2010, significantly, than in 2009. And that, of course, impacts our -- be it even on the whole side or on the prepared or fresh cut or whatever.

And I believe that also for our gold pineapple, we can see that the pattern of buying is not what it used to be two or three or four, five years back. People are cutting down on their purchases, they are prioritizing their priorities of what they put in the basket. So I don't think that gold will be a priority except on certain occasions. So that's why we see less revenues and less sales and pressure in general.

Now, I know that so many people are also very concerned about Wal-Mart, for instance, reducing their prices on bananas recently. This is -- actually it's beneficial in one way, that it is driving more sales of bananas in the supermarket. But on the other side, there hasn't been any pressure on us to reduce our prices because we cannot, as our costs are very high and our margins will not allow us to make any kind of reductions on our prices. So this is an area where I think many people have been concerned about.

Well, that was actually my next question because based upon our conversations with some people in the industry, that's what we understood is that Wal-Mart wasn't going to the importers and asking for concessions but that this was something that they were going to do in conjunction with sharper pricing on some other items, maybe not permanently but that it sounds as if -- again, based on the conversations we've had -- that Wal-Mart is essentially going to be eating these temporary discounts. And it sounds, based upon your commentary, that that's correct?

That is correct, yes. And we may see other, as well, supermarkets, other chains, maybe doing the same. This, in my opinion, will drive more sales into the supermarket -- with lower prices, definitely people will be encouraged to buy more. Or people that do not buy will buy. So we see a positive side to this.

My final question is it sounds as if the supply-demand situation for bananas is still pretty tight worldwide. So does that make you comfortable going into 2010 banana contracting season?

Yes, I believe that for 2010, if the weather remains as we see it now -- I mean, there haven't been any hurricanes or adverse weather conditions -- we would probably see more supplies available during the next winter season than the previous two years. But with the demand as well in the markets, with the oil prices rebounding now in the producing countries, that will give maybe additional incentive for countries like Russia and other countries to import more bananas. So I believe there will be more or less supply and demand.

Of course, we have to take into consideration the summer months and the low period, where we see more supplies than demand, and we have to take this into consideration. That's why we are working on opening new markets and finding home for our fruit.

Okay. All right, well thank you very much.

Eric Larson, Soleil Securities.

Good morning, everyone.

Good morning, Eric.

Mohammad, one of the things that intrigues me is your desire to find some acquisitions to build volume across your major fruit categories -- bananas and pineapples, etc. Because when you get into tight periods like you are right now with bananas, effectively what you're doing is transferring your pricing -- or, effectively transferring your margin to your third-party growers. And you have less control on that. What would be an optimal -- obviously, you don't want to own 100% of your fruit production, but what would be an optimal mix of sort of company-owned versus third party-sourced fruit?

I would say 35, 40% at the max on production and the rest should be from third parties. Because to grow your own fruit is very capital-intensive, No. 1. Secondly, I don't think there is enough available land to grow any more bananas in these countries. I mean, the choice is limited. And thirdly, I think that it would be better to source even though maybe, as you're right by saying that your margins would be minimized. But at the same time, you have to think about our fixed costs being lowered as well. I mean, it works both ways -- using the same infrastructure and using the same channels.

Yes, sure. In periods of excess food supplies, the sword has got a double edge on it. It can cut the other way when you have maybe too much supply in the global market.

That's true.

Talking about your new -- you've talked about adding some, I believe, pineapple production, banana production, obviously, in the Philippines, and reducing -- you talked about your Brazil farms, that you were going to discontinue those operations going forward. Net-net on the pineapple side, are you adding capacity in pineapples?

Yes, we are adding in Costa Rica and the Philippines. We are adding, yes, additional acreage and additional volume.

Okay, good. Thank you; I'll maybe queue back after somebody else gets a chance to ask questions here.

Vincent Andrews, Morgan Stanley.

Thank you. Good morning, everyone.

Good morning.

Can we just retrace the Wal-Mart issue? I guess the thing I just want to make sure I understand is that they are covering the delta between what they're paying you and what they're discounting the bananas for themselves today. But is that a function of the fact that you have an existing contract with them? And so therefore is there a risk that when that contract rolls off that they would want to renegotiate that contract?

First of all, yes, we do have an existing contract. Secondly, I don't think that Wal-Mart -- this is an internal policy that they are adopting for their own -- we do not have access to their inner thinking, and I think that what they are doing they believe should be in the best interests of Wal-Mart. So I think they are going into a promotional period where they would like to offer bananas at a cheaper price to the consumer.

So it's not like a pattern, in my opinion; it's not like a trend. And maybe some other supermarkets will follow suit for a period of time. But when fruit will be scarce and short and tight in a month or so, I don't think that there will be enough volumes to justify this kind of promotion. That's my own opinion; that's my personal opinion.

And then also, retailer margins on bananas are quite high, aren't they? I mean, aren't they gross margins in the 60% range? So they have plenty of room to discount the banana price; is that fair?

It's the retailer's decision, not our decision. We care about what our cost and our price is, and then the retailers can put whatever price they want.

Okay. Then just on the tax rate, now that this event has taken place, the valuation allowance, and you're talking about the corporate rate being 10%, are you talking 10% should be the rate that we think it's going to be the way that we used to talk about 8%? Or do you actually mean you're going to pay 10% in taxes on a go-forward basis?

On a go-forward basis, you should model 10% effective tax rate as opposed to the 6% or whatever you were modeling before. Now, I think it's important to note -- because the valuation allowance has been removed -- I don't want to get too much into accounting for income taxes, but because the valuation allowance has been removed, that's what's going to cause additional tax expense. That is not necessarily cash-driven, at least throughout all of 2010. But yes, you should model, on your model, 10% effective tax rate.

Is the tax rate going to be less volatile now?

It really should not be less volatile, other than a quarter like this where we had significant adjustments. But it'll continue to be volatile because of all the different countries we're in, and jurisdictions. But over time, it should level out to be about 10% (multiple speakers) or --

There's no real change beyond just the fact that your base rate in the US is going to (inaudible) valuation allowance. Everything else is (inaudible).

Correct.

Okay. And then lastly, you guys initiated a share repurchase program, I forget when, but in recent months, and I notice you didn't buy any stock back in the quarter. What's the thinking on that program?

It's still there. It still exists. When management sees that there is need to get to buying, we will definitely do that.

What would the need be? I mean, don't you consider your stock cheap here?

We definitely are cheap here, but we don't want to compete with the market.

I'm sorry, I don't understand. Compete with the market -- what would that mean?

I mean, we're not here to speculate on our shares. I think what we will do is buy our shares when we see an opportunity that will be beneficial to the Company.

Okay, thank you very much; I'll pass it along.

Diane Geissler, CLSA.

Thank you; good morning.

Good morning, Diane.

Can we just talk about your expansion into the Middle East? I know you've targeted $500 million by 2012; I see, just based on your numbers today, you're already well over halfway there. When you talk about volume expansion, geographical expansion, is that margin-accretive just based on existing production flowing into markets that will be higher margin, or is it contingent upon some kind of volume expansion on your farms or acquisitions that you'll have to make in order to fill that demand?

No, you can count on the two variables -- both expansion and additional volume.

My understanding of that strategy was, the more markets you have available to you, the more flexibility you have in terms of taking your internally generated production or fruit that you're buying from third parties and funneling into markets that have higher margins, and that's -- you can do that week to week, month to month, based on market conditions. But do you need to expand your farms to reach that $500 million level?

I'm not saying that we will expand our farms. We could source more fruit from third parties, and that probably would be our strategy going forward.

Okay. So the $500 million going into the Middle East doesn't necessarily mean that you'll lose sales in other geographies.

No, no, no. What we said before -- we'll be there as is.

Okay. And then I guess, on the bananas, maybe I'm misreading this. But your gross profits on your bananas have been pretty good year to date -- is that not true? Based on your release, it looks like it's over 9%. Just historically speaking, isn't that a kind of above-average gross margin?

We are not complaining.

You're not complaining.

No, we are not complaining. I think that the margins are good and I hope they will remain as good in the future. And hopefully we can improve on them.

Okay. So even with some of the yield issues you've cited earlier and some of the costs issues, and the procurement cost issues, you're still generating a 9% gross margin. So as we look into 2010, some of those things will ease and some of them won't. Obviously, the third party -- the government mandate price for a box of bananas isn't going to change; it's not going to go down. But should we assume, then, as your yields improve because of the weather and etc., that gross margin can get above 10%?

If every variable stays the same -- yes, you are right. But I mean, in this business it's like a balloon; you squeeze it from here, it gets from there. I mean, considering today if everything remains as is, yes, we will have definitely a better picture. But there could be additional supplies or there could be a shorter winter season, or there could be so many other variables that we cannot control that could change this. But if winter stays as we have seen last year and the years before, then maybe we'll have a long winter with a very long demand.

And as you see now -- I mean, this year we didn't have any hurricanes or any storms or any floods so far. So that gives you an idea that not every year is the same. We do have different weather patterns and this could change from one part of the world to the next. And we take this into consideration.

Okay. And then, on the pineapple and the margins there, can you -- is there something in -- I mean, I know just going back for however long I've followed your company, there was always the concern about increased production and that's going to destroy the margin -- that's something that's been around for a while.

And then, you kind of layer in what's going on with the economy. Is there a way to look at sort of 2010 and just maybe dissect the economy piece out of what's going on with the gross margin versus the competitive landscape piece? Because the economy seems -- once the economy rebounds, it seems like that should be fairly easy for you to recapture. But the increased competitive landscape that you face on the gold pineapple -- obviously, that's a longer-term issue. Is there a way that you can talk about that and what that means for your margin structure long term on gold pineapple?

I think that we have reached a period where we would say it's stable. I don't believe there is any more competitive pressure; I believe as we go forward in the future two, three, four years from now, I think that there will be more demand than supply. That's my own analysis.

As we were speaking before, or people were worried about oversupply and that the margins would disappear on the pineapple, this hasn't -- definitely the margins have declined; definitely the gross margins have been lower. But there has been, still, healthy good returns on our gold pineapple. Not as good, not as fantastic, as we used to have a few years ago, but today I don't believe there will be more competitive pressure in the market because I don't believe there's no more -- first of all, there is no more farming; I mean, new production on the way.

Secondly, environment concerns in Costa Rica has been very, very severe -- critical -- in the last year or two years, and there has been a lot of regulations by the government regarding new pineapple farms or even existing pineapple farms. And when I say that -- by requiring a lot of new investments to mitigate any soil abuse. Or the product that has been sprayed, there has been also some concern about that.

Putting this aside, I believe that as the economy improves in the future, the pineapple consumption goes back to normal, I think the whole picture will change. So from our side, I think that we're not very concerned on the one side.

On the other hand, we do have a very special product and that has been, as I said a few minutes ago, we won that international taste award, which is really something very, very significant. This is not a small event; these are the top chefs in the world that gather together over the year to taste and try all kinds of products, and Del Monte Gold was chosen as the best-tasting product in the world.

Maybe I should have mentioned this in the conference call, but a few months ago, I was in the Four Seasons Hotel in Paris, and this is the most prestigious hotel in France; in Paris. I was eating in the restaurant there and I opened the menu to look at the dessert -- what I would like to have as dessert. And I saw the Del Monte Gold pineapple carpaccio on the Four Season menu. And that might tell you what Del Monte Gold is about.

And you ordered it, right?

I ordered it, yes. And I thanked the chef for what he did.

Okay. Just one final question on the M&A pipeline. Has it picked up? Are you looking at more properties today than you were, say, this time last year? Or are you a little frustrated that there doesn't seem to be a lot available? Because obviously, your cash flow is pretty solid and your debt position is as well. So I'd expect that you would be interested at this point.

We're not -- as a matter of fact, we only look at if there is a good opportunity; if there's something that fits well with our business we will look at it. Otherwise, we don't. At this time, we don't see anything; we don't have anything.

Okay, terrific. Thank you.

Thank you.

Jonathan Feeney, Janney Montgomery Scott.

Good morning; thank you.

Good morning, Jonathan.

I'm sorry; recently one of your competitors has become a public company again. I guess I'm wondering if you have seen or anticipate any changes in the competitive marketplace around pricing and rationality related to that transaction?

No, we haven't seen anything yet, and I don't believe there is going to be any change to their -- I believe the practice will be the same vis a vis -- it's just the structure, the legal structure, of the company. But I believe that the business model will continue.

Do you -- I guess following on that, thinking about the -- Wal-Mart aside, thinking about the competitive pricing environment in the US -- I guess I go back and forth. I mean, it seems that there's an era of new behavior among the companies, with you a little bit -- being a little bit more profit as opposed to volume focused.

But at the same time, this era is happening when we've had really three good years, as you sort of alluded to, of tight banana supply. You mentioned, a minute ago, that we hadn't had a hurricane yet, we hadn't had floods yet. Do you think that if we had an increased supply to the US next year, behavior would be any different than it has been in the past as far as volume versus price?

I don't believe so because most of the business in the US is based on contracts; I would say 85% or more, even. All the food that comes in the US comes on a contract basis and the rest goes into the wholesale and the local markets. So if there is additional fruit, definitely it might put pressure on the wholesale market, but not on the contract price market. I mean, when the prices were last year at $20, for argument's sake, the spot market price was $6, $7, whatever less, you had to deliver. I mean, if the price is less or more, it's just a matter of -- but there are other markets around the world that need the fruit.

But I guess that's the heart of the question. Because even historically the business has been done on a contract basis, too, and it seems like a period of excess supply -- or high supply which is temporary -- leads to contract pricing that is a little bit more medium-term, as in lower; and it affects the overall tenor. I guess what I'm saying is, asking is, would you say the competitive environment has changed for the better in a meaningful way, or is all this good pricing just a function of supply?

I think that nobody -- I speak for myself, that we are not, as a Company we are not planning to go and sell fruit below our costs. That's not going to happen. We're not in a business to lose money. And I don't believe that anybody (multiple speakers)

But you haven't been in the past, either. I guess I'm just saying the overall competitive environment.

I think the overall competitive environment is very prudent and I believe that logic says that you are in business to make money, and I believe that everybody is in that direction.

Okay, thank you very much.

Scott Mushkin, Jefferies & Company.

Hey, guys. Beat this dead horse a little bit but hopefully bring it full circle as well. Just so I understand your expectations for 2010 -- where we stand now, at least, on bananas in North America would be costs down, stable pricing as you renegotiate those contracts. Is that a good summary?

Sorry, I couldn't catch the last --

So costs down in the bananas as we get to 2010 as we cycle through some of these issues, but pricing stable. Is that kind of where you think things are from your view today right now?

No, what we are saying is that we anticipate, we hope, that yields can be improved so our costs could improve. But that doesn't mean -- it has nothing to do with our contracts. The contracts are ongoing business; it's not like day to day.

No, I understand. But as you renegotiate these contracts -- I'm just trying to understand -- at we get into 2010 --

No, we will do what is best for the Company. We cannot discuss this on a conference call, what we plan and what we don't plan.

Okay, so your plan right now is not for stable pricing, is not, or just no comment?

No comment.

No comment on pricing. And then as far as costs, you do think costs will come down a little bit?

Costs, hopefully, will be down a little bit -- our third party, of course, cost is fixed, but on our part, which is our own production.

Right. And then, just so I understand the cost issue a little bit better, was it the fact that you had to go buy more bananas from other growers or your costs yourselves were up on a per-case basis, or was it a combination of both?

For this quarter, Scott, I think I mentioned our cost was lower but the third party costs were higher.

And the yields that were -- because you weren't yielding enough, was that causing you to go buy more from third parties, Richard?

Sure. And next year -- you're asking about next year. Next year, assuming the picture we see, our costs should come down as we recover from the floods, but the third-party costs will continue to go up. So as far as pricing, I mean, with costs continuing to stay high and with fuel going up, we've got to increase prices.

Okay, that's great. I appreciate that. And then, on the SG&A front, you guys -- I think this is the first quarter in 10 quarters you actually saw SG&A dollar growth. Any color on that -- what drove that? Is it unusual or is this something we should anticipate?

It was up -- one of the big reasons it went up was because we had some stock option expenses, and that may or may not be continuing. But if we follow our business model and if we achieve our targets of increasing volume, then we should see that cost as a percentage of sales go down from what it was this quarter.

So you think it's a little bit of an anomaly?

A little bit.

And the scope of the stock options year over year? Can you give us color on that?

I want to say about $0.5 million or so.

Okay, so it was just part of it. And how about Saudi Arabia? Is that playing a part in it as well?

That will, obviously. It's not open yet but there will be some increases. But again, as a percentage of sales, if we meet our targets it should come down from where it is today.

Okay. And then I actually had one final question; I know this call is going pretty long, probably for you guys, too. On the tax -- cash. You alluded to this and it's actually important to our modeling, Richard. Cash taxes -- are you anticipating -- so the valuation allowance, I guess, came back on the books; is that what basically happened here?

The deferred tax asset came back on the books.

The deferred tax asset came back on the books but it shouldn't -- it's not changing your cash tax.

Not in 2010, it should not. For the most part, you're just using deferred tax assets, or net operating losses, in 2010. So as you use those net operating losses, you have tax expense but you're not necessarily paying tax.

You're not paying cash tax because it's offsetting it. And refresh me a little bit on how many NOLs -- how long you think this lasts?

Like I said, at least through 2010; all of 2010. That's our current projections.

Okay. And that's good; I appreciate all the color you guys have given on this issue of what's going on in retail. I mean, those guys are being pretty aggressive with bananas so it was great to hear your commentary, so thank you.

Bill Chappell, SunTrust.

Thanks; I'll try to keep it brief. On the melon season, as we go to the offshore business, do you feel like we're set up right where the market's more rational, where supply's kind of in check as we go into the season?

I believe we have taken all the actions and the steps that will hopefully give us a better season than last year. I believe that from a weather point of view, I think the weather is better, the way that we look at the fruit will be better, the volumes will be more rational. So I think -- I hope that there will be a better season for the offshore (inaudible).

Okay. And then second, in terms of both undeveloped land that you're looking to develop and adding new kind of third-party contracts, any gauge on what type of increase you can get in volume over the next year? I mean, from either or both of those issues?

No, we cannot comment on that at this stage.

Can you tell me just how much undeveloped land you still have left that you own?

We do have few, not much. But the increase will be from third party mainly.

Okay; thank you.

This concludes today's question-and-answer session. At this time, I would like to turn the call back over to Mohammad Abu-Ghazaleh for any additional comments.

I'd like to thank everybody for being with us on this conference call and hope to talk to you on the next conference call with better news, I hope. Thank you very much and have a good day.

That concludes today's conference. Thank you for your participation.