Fresh Del Monte Produce Inc (FDP) 2010 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Fresh Del Monte first-quarter 2010 conference call. At this time, all participants are in a listen-only mode. 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 now like to introduce your host for today's conference call, Christine Cannella, for opening remarks.

Thank you. Good morning, everyone and welcome to Fresh Del Monte's first-quarter 2010 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 first 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 distribution. This conference call is being webcast on our website and it will available for replay approximately two hours after conclusion of this call.

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

This morning, Mohammad will review our operating performance during the quarter, along with recent developments and future outlook. Richard will then review our financial performance for the first quarter of 2010.

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 10-K for the year ended January 1, 2010.

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 and thank you for joining us for today's earnings call. The first quarter of 2010 was a good quarter and a solid start for the year for our Company. We delivered higher results on both the bottom -- the top and the bottom line compared with the first quarter of 2009. Our other fresh produce and prepared food businesses drove the quarter's performance with higher sales and profit growth.

We are pleased of our excellent performance despite a number of operating challenges and a continued weak economy. During the quarter, we achieved higher sales in our banana business segment, propelled by higher sales volume and steady demand in North America and in the Middle East. However, banana profitability was negatively impacted by significantly lower banana pricing in European markets. Additionally, our banana sourcing areas in the Philippines were impacted during the quarter by a drought, which resulted in lower volume for our Asian markets.

Our competitive position in Gold pineapples remained strong during the quarter with higher sales in all regions. Recently, the USDA published a report forecasting global per capita consumption of fresh pineapple to continue to increase.

Fresh Del Monte remains well-positioned as a global leader to capitalize on this growth trend. Our fresh-cut productline turned in another excellent quarter with higher sales volume. Our North American business remains strong as consumer demand for Del Monte-branded fresh-cut products continues to grow even in a difficult economy.

Our melon productline results improved significantly during the quarter compared to the prior year period with pricing gains coupled with lower industrywide volume. We also began introducing new varieties to our growing areas, further diversifying our global melon business.

We also experienced higher sales and pricing in our deciduous productline due to an excellent Chilean growing season. We achieved higher pricing and premium quality fruit the entire season. In spite of the earthquake, our operations continued normally with a very short interruption.

We are starting to see a turnaround in our prepared food business segment. While not yet where I would like it to be, the sales and margin performance during the first quarter demonstrates the progress we have made in this highly competitive business. I am looking forward at our prepared food marketing campaigns that we plan to launch later in the year, which will support a variety of new healthful products being introduced in the second half of 2010.

We continued our global expansion initiative in emerging markets during the quarter with the opening of a distribution center in Jeddah, Saudi Arabia. Jeddah is our 45th and largest global distribution center.

In summary, I am very encouraged by what we have accomplished in the first quarter of 2010 given the challenges we face from a weak global economy. As a result of our diversification strategy, we were able to minimize our risk exposure to any one product or region and delivered a very solid start to the year. We look to continue to increase our global customer base and expand our reach into emerging markets going forward. With that, I will turn the call over to Richard to review our first-quarter results in more detail. Richard?

Thanks, Mohammad. Good morning, everyone. For the first quarter of 2010, excluding asset impairment and other charges net, Fresh Del Monte delivered earnings per share of $0.61 per diluted share compared with $0.56 in the prior year period. Net sales rose 7% to $943 million compared with $880 million last year at this time.

In addition, excluding asset impairment and other charges net, gross profit was $99 million compared with $84 million in the first quarter of 2009. Operating income was $57 million compared with $47 million in the prior year first quarter. And net income was $38 million compared with $35 million last year. The first-quarter results include charges totaling $2 million related to the earthquake in Chile. The charge contains $1 million of other charges above the gross profit line and another $1 million of asset impairment and other charges net.

Now let's turn to our segment performance for the quarter. During the first quarter in our banana business, net sales rose 11% to $403 million. Volume was 16% higher than last year at this time. Worldwide pricing decreased 4% to $0.57 per box to $13.97 per box. This decrease was due to lower selling prices in Europe.

Unit costs increased 4%, primarily due to higher ocean freight costs and gross profit decreased to $18 million compared with $44 million a year ago. Subsequent to quarter-end, on April 19, our Guatemala banana production area suffered severe high winds known in the industry as a blowdown. At this time, we are not able to determine the full effect the blowdown will have on our results; although we are estimating a loss of approximately 1.4 million boxes, plus the impact loss of volume will have on the cost of the remaining fruit.

In our other fresh produce business segment for the first quarter, net sales increased 5% to $440 million compared with $419 million in the prior year period and gross profit increased $37 million to $65 million.

In our Gold pineapple category, net sales were up 17% to $124 million. Volume rose 13%. Unit pricing was 3% higher, primarily in Europe and unit costs were 5% lower due to the higher volume.

In our melon category, net sales decreased 3% to $77 million. We reduced volume by 22%. Unit pricing increased 24% and unit costs were 7% higher.

In our fresh-cut category, net sales increased by 12% to $75 million as demand remained strong in North America. Volume increased 4%. Unit pricing was 7% higher and unit costs were 4% higher.

In our non-tropical category, net sales rose 3% to $103 million. Volume decreased 11%. Unit pricing increased 17% due to a very strong Chilean season both before and after the earthquake and unit costs were 3% higher.

In our tomato category, net sales increased 16% to $35 million. Volume decreased 8%. Unit pricing was 27% higher and unit costs increased 27% due to industrywide volume shortages.

In our prepared foods segment, net sales increased 8% to $83 million, primarily the result of increased sales in our industrial juice concentrate and in our canned non-tropical fruit productlines. Gross profit increased 16% to $13 million, principally due to increased sales volume and higher selling prices in our industrial juice concentrate productline.

In our other products and services segment, net sales for the quarter decreased 19% to $18 million. Gross profit was slightly higher than the prior year period.

Now for some comments on costs. Banana fruit costs, which includes our own production and procurement from growers, increased 1% and represented 28% of our total cost of sales for the quarter. Containerboard costs decreased 14% compared to the first quarter of 2009 and represented 2% of our total cost of sales. Bunker fuel costs increased 63% and represented 4% of our total cost of sales. Ocean freight costs during the quarter, which includes bunker fuel, third-party charters and fleet operating costs, increased 4%. Ocean freight represents 14% of our total cost of sales for the quarter.

The foreign currency impact at the sales level for the first quarter was favorable by $17 million compared to the prior year. The foreign currency impact at the gross profit level was an unfavorable $3 million compared with the first quarter of 2009.

SG&A increased 14% to $42 million from $37 million last year. The increase was primarily attributable to higher selling and marketing costs in our prepared food business segment in Europe, along with our Middle East expansion.

Other income net was a loss of $9 million compared with a loss of $6 million in the prior year period and in both periods was primarily comprised of foreign exchange losses. Interest expense net increased by approximately $700,000 due to the higher interest rates under our credit facility. At the end of the first quarter of 2010, our total debt was $309 million.

For income taxes, we continue to project a 15% companywide effective tax rate for 2010. Capital expenditures for the year are expected to be approximately $100 million. And that concludes our financial review. With that, I will turn over the call to the operator to begin the question-and-answer portion of the call.

(Operator Instructions). Heather Jones, BB&T Capital Markets.

Hi, good morning this is Brett Hundley standing in for Heather. How are you?

Very well, thank you.

I guess I would just like to start on the banana fruit costs. Unit costs up 4% and thanks for the color on the wide array of costs there, but it looks like fuel would be maybe, I don't know, half of the increase. And so I am just wondering if we could put more of a qualitative discussion onto the remaining cost increases. Did the Philippines play into that? Just want to talk more about why costs were up again outside of fuel and then what you expect going forward.

As I said earlier, banana fruit costs only, not the total cost of sales for bananas, but banana fruit costs only was up 1% and (technical difficulty) pretty much comprised. As expected, the grower procurement costs were higher this year. That was expected. Our own production is up a little bit, not quite as much as the growers, but it is up as well. One of the reasons is the exchange rates in the producing countries.

Okay. And I mean what is your outlook on fruit costs and sales specifically?

We don't give outlook on fruit costs.

Okay. And then can you give me what kind of a hit tomatoes were during the quarter on the profit line?

What kind of a hit tomatoes -- as we said, the pricing and the cost was up 27% each and on margin, it is even and sales were up 16%.

And can you talk maybe a little bit about your expectations for the tomato business considering current trends?

No, I'm sorry. We don't give guidance on (inaudible).

Okay. How about on pineapples? Sales solid there benefiting from strong volumes, volumes up 13%. I was wondering if you could talk a little bit about what you are seeing in this segment. I am assuming a recovery from [Kerabona] impacted floods last year. But with the strong volumes, I am wondering if something structurally has changed. Do you expect similar type growth as your comps get more difficult this year or should the year-over-year increases maybe not be as pronounced going forward?

I mean sales are up. We have got more volume this year and as expected, we are getting good demand from the customers. I would not model the same margin that you have this -- typically the first and second quarters are higher margin, so I wouldn't necessarily consider these margins all year, but we do expect sales to continue to grow.

Okay, that's helpful. And just one more if I may. It looks like the share repurchase during the quarter would have implied a greater drop in the share count than what took place. I am just wondering if that was done to just cover any dilutive effects from stock options and the like or if there was something else there?

Nothing to do with the dilutive effect of stock options. We are just opportunistically buying when we believe the shares are undervalued in accordance with the plan approved by the Board of Directors.

Okay, great. Well, thank you for your time.

Scott Mushkin, Jefferies & Co.

Hey, guys. Thanks for taking my questions. Had a couple here. First of all, I wanted to see if you guys had any updates on innovations. I saw tomatoes turned in some big growth. I also know you had some other things you were doing innovation wise and I wanted to see if we had any update on that or if you could offer an update there?

What kind of innovation, Scott?

Well, just like some of the fruits. I know you guys were doing some stuff in melons to hopefully drive profitability of the melons over time, similar to, maybe not to the same extend with the Gold pineapple. But just wondering if you have anything that you think is commercially viable that may be coming to market in the next year or so?

Yes, we do have some -- a couple of varieties that we have been testing in the market for the last two, three months and we see good prospects for these. And these will be introduced in the next [offshore] season hopefully by the end of this year. So we do look forward -- we don't want to be in the mainstream melon, let's say, commodity item. We would like to be with certain exclusive varieties that can make a difference in the market.

So you feel like you have made significant progress on that front?

We believe we have reached a certain variety that will be exclusive to Fresh Del Monte and that it will make a difference to us.

Thank you. I appreciate that. Then going to melon trends, they improved. I was wondering if we can get any more insight into how the melon business is trending compared to last year, which I know was very difficult. So any thoughts on that would be great as well.

The melon business, we cannot be so proud. I mean even if we have improved so much from last year, we still believe that this business is still struggling. The melon business in general in the market is not doing well. And usually it is overproduction on one side and the quality of these melons are not the optimum that I would say the market or the consumer would like to have.

So that is why we took a different approach to the business and we have reduced our volumes, of course, as you see from last year. And as I said just a minute ago, we are changing our model into this business. So hopefully by the end of this year, we will see a different story.

That's great. (inaudible) a little bit, I know that we haven't touched on this in a while, but I do think, and maybe I am wrong in remembering this, but there were some ships that were kind of coming out of commission. And I think you are going to replace then or maybe go out to the leasing market. I maybe not have an update on the information, but I was wondering if you could give us any insight since I think you said -- Richard said shipping was 14% of costs, kind of where we are on vessels and capital program and whatnot.

We have been putting some vessels to scrap and we are doing right now a couple of vessels that we've got to scrap in the next couple of months. So we are phasing out all the fleet and either replacing them by charter, leased vessels from the outside or by utilizing our fleet in a more efficient way.

Do we expect expenses to head up in that area or do we think that, as we go to scrap and we get to go to charter or be more efficient, that our expenses should hold in?

It should at least hold, Scott. You can see the results when I said bunker fuel was up 63% and ocean freight, which includes bunker fuel, was up only 4%. So you could see there the decrease in the operating costs.

Great. I guess that -- I have one more, maybe I'll get back in the queue. I've just got to say, guys, really nice work. It shows your model really works in a tough climate with what happened in Europe. So congratulations on a really, really solid quarter.

Thank you very much.

Bill Chappell, SunTrust.

Good morning. I was wondering if you'd just give us first a little more color on what is going on in the Philippines and the drought and when you expect volumes to recover and how that might play out.

The drought is still there, the production is still not at the level that -- normal level that we usually have in this country as we speak. Hopefully, by the end of the second quarter, we can see some maybe improvement if rains come back and we see a better, a more normal production picture.

But anyway, the markets in Asia were not, during the last couple of months, I mean the beginning of the year, were not that robust. The markets were weak and it is only recently that we saw improvement in the market. Japan actually used to be a much stronger market year-over-year. Korea now is doing better than Japan, but this is a period where we peak in pricing and we don't see that in Japan in the time being.

So it is not only a shortage of fruit; the market was weak as well. So it is like a catch-22. You don't have too much -- if we have more fruit, it would have -- it would not have gone maybe to the Asian markets. It probably would have gone to other markets like the Middle East and other markets, but not definitely to Japan or to Korea at that time.

So just to make sure I understand, right now, it sounds like the lower demand in Asia is kind of offsetting the lower supply you are not seeing -- I guess there was a thought that the lower supply in Asia would create higher prices elsewhere to offset that. That is not happening?

That is not true.

The second question just on a couple one-off issues, so the blowdown happened in the past month and that is just the understanding of the 1.4 million boxes thus far? And then kind of a real one-off, would there be any impact with the current oil spill in the Gulf in terms of getting product to market? And I think you have a New Orleans facility, any worries or concerns there?

No, no. Of course, it will hit us as far as costs are concern in Guatemala with the loss of so much fruit, but there is enough fruit around to fulfill whatever requirements that we need in the markets.

And in terms of the Gulf, as they talk about possibly slowing shipping lanes, is there any --?

The Gulf where? I mean the Gulf in Gulf of Mexico here?

Yes, I'm sorry. Gulf of Mexico.

We don't see any -- doesn't -- Gulf of Mexico is a very big place, so ships can diver and go around. It's not a big [location].

Jonathan Feeney, Janney Montgomery Scott.

Hi, I'm sorry. Good morning, guys. I guess my first question would be when you look at this pineapple business, it was spectacular performance. I mean is this the economy coming back here? Is this like hotels, restaurants and specifically which regions drove that kind of increasing demand?

I guess people are realizing now that the only pineapple that you can eat is Del Monte, so people are going back to Del Monte. That is probably the bottom line. We are, of course, having more customers that are switching from other brands to Del Monte. And also, there should be some type of increased consumption, but I believe that Del Monte is gaining traction in the market due to the quality and delivery -- consistency, quality, ability to deliver volume (inaudible) and that is the kind of strength that Fresh Del Monte has.

So it sounds to me like the market itself hasn't really accelerated; it is just that Del Monte is winning some share back?

I believe so, yes.

Okay, and that is pretty even across the territories? It is not like -- I am trying to figure what is it like a 30% or 40% increase in a place -- a growth market like the Middle East that drove it or was it just pretty much double-digit volume growth across the board?

No, no. The list hasn't yet -- we haven't seen yet the growth in the Middle East. The Middle East is still a small volume compared to long-term projections. But it is North America and Europe actually are the driving forces here.

Okay, thank you. On the banana business, particularly in Europe, one of your competitors lost some significant volume in that market. Well, if I just do the math on what you did in the different regions, it seems like you had some very nice volume going into Europe, particularly considering sales were up and we know what pricing did. Was that part of a strategy on your part, just sort of gain share in Europe or what drove that decision?

No, no, no. We don't have a strategy to -- we place our fruit wherever we think is the right market and the right price. And we monitor that as we go. We don't have Europe just -- I mean continental Europe. We do have other markets that are being regularly supplied now by Del Monte and with the new regions in emerging markets, that is giving us also a lot of flexibility. So it is an overall strategy, which I would not like to discuss on a conference call.

Okay, that's fair. Just last question then. How do the mechanics work of a significantly positive effect in foreign exchange on the top line with a significantly negative effect on the bottom line? Was there a money-losing region where the currency got stronger?

There was. On the top line, we do have some hedging in place and that had an impact, Jonathan. On the cost side, we had increases both in Chile and in Costa Rica in the producing areas, which offset the top (multiple speakers).

Oh, I see. Okay. So in a nutshell, producing currency strengthened in certain spots that raised your costs and there is a mix-and-match of currency offsets at the top line, but not -- hedging offsets at the top line, but not enough to offset those costs?

Correct.

Okay, thank you very much. Appreciate it. Nice quarter.

Eric Larson, Soleil Securities.

Good morning, everyone. Again, it was a good, solid quarter given the fact that there are still some pretty difficult operating conditions. A quick question on the prepared foods side. I think this is really kind of more solid evidence that you have maybe turned the corner on the prepared foods side. Pretty strong sales growth and some profit improvement. Is it a function of what you folks have done with the business or are you also seeing the combination of some improving consumer acceptance, maybe a stronger economy in the UK in particular?

No, no, it is actually our focus on the business and how our people have (inaudible) and put it in the right direction and we learn from our mistakes and now the business is back on track. The UK economy is weak, Europe is very weak as a matter of fact. It is a sick continent unfortunately in every aspect. So it is nothing to do with the economy; it is actually more focused on certain new markets, emerging markets, just focusing on the items that can make money and rationalizing our business in a better way.

Okay. Just give me a sense, a business sense of if Europe remains as weak as it does, which Europe does not look good and you have got a lot of fruit over there that you are not making a lot of money on, could that fruit end up more in North America and start hurting the North American markets a little bit more? Give me an idea -- share with me how you are thinking about the supply/demand function by region on bananas going forward? I guess I worry that there is a lot of fruit out there that could start moving out of Europe and into other regions and impacting those regions as well.

Well, as far as we are concerned, most of the North American business is on a contract basis, so most of our volume is contracted throughout the year. And if we bring -- additionally, it would be minimal because we have the wholesale market with the open market, which can take maybe 50,000 more or 50,000 players. It was (inaudible) season and now we are in a good season up to the end of May, maybe early June. And of course, the summer fruits will start kicking in and it will look to be a different picture.

But as far as North America, as far as we are concerned, our volumes are more consistent, are more -- probably during the summer, will be a little bit reduced due to the demand. And I believe that same applies to all the other players in the market.

As far as Europe is concerned, this is the big problem. It's an open market, too many people are playing there. Container ships have made a big difference into the picture. Small players can come in, growers/producers can ship on confinement or even to small wholesalers. So in my opinion, Europe will be the problem and I don't think there is a shortage of supply into Europe. There is oversupply and I think that was the main factor why Europe is suffering because of the oversupply situation.

The economy is weak for sure; there is no question about it. But on top of that, the oversupply was a determining factor for the full results that we are suffering there. We are talking about EUR4 or EUR5 less in terms of price year-over-year. Right now, probably we are talking about EUR5 less than what we were selling at the same time last year. So that gives you a picture of what is going on there. And I don't see that it is going to improve. On the contrary, I believe it is going to get worse as we go forward. I don't see how it can improve really in the near future.

Okay. Just to dive a little further into the European excess capacity issue, with the different types of container ships that allows smaller players to come in, what gets that capacity out of the way? Is it -- how do you start getting rid of that excess capacity? Obviously, profitability and losses by some of these smaller players, they can't afford to continue on. Are most of these players well-healed or are they players at the margin?

Well, it depends really. A small producer doesn't have the cost of a big multinational like us. We do have a lot of overhead that we have to carry. A producer that is [costing] his own production, his own (inaudible) an operator or player. We cannot make comparisons here. But there is more fruit than what is needed actually in the market. That is the problem.

Ecuador is producing heavily, South America is producing far more than last year levels and unless -- we cannot guarantee weather. A couple of months, two or three or four months, we have a hurricane or a flood or whatever. That is the only way that production can go down. But other than that, I don't see how production will go down.

Okay, okay. So you think we have got an excess banana supply situation for a bit of time here?

I believe so, yes.

Okay, then just a final question. You guys still continue to generate good cash and you obviously are funding your capital expenditures and then reducing your debt. Are those still the two primary uses for your cash near term? Could you see at some point reinstating -- obviously it has to be approved by your Board -- but reinstating a modest dividend? How would you view use of cash?

Just like you said -- paying down debt, allocation of capital expenditure, new investments and in the case like Richard said a few minutes ago to the question that we might repurchase stock as we go along. And our Board (inaudible) they want to reinstate a small dividend, modest dividend in the future, that would be on the table as well. But nothing of that sort at this moment.

Okay, good. Thank you. I will follow up off-line with other things. Thanks, guys.

Diane Geissler, CLSA.

Good morning. I just wanted to ask, in terms of the delta here, for me, it wasn't so much on the gross profit line; it was more on the SG&A expense, which was a bit higher than I had been modeling. I think in your comments, you mentioned it was higher selling and marketing expenses. Could you give us a little bit more detail on what is going on with the SG&A line? And then I guess to the extent that it was higher this quarter on a year-over-year basis, what we should look for in the rest of the year? Is that a run rate we should use or if you could help us out, I would appreciate it.

Yes, Diane. On the -- as we said, the reason it was higher, the two main reasons it was higher -- one was the marketing program with the prepared food business in Europe that we are kicking off and that will go on throughout the rest of the year. And then obviously, there is a little bit more SG&A because of the openings in Saudi Arabia and the Middle East expansion.

As far as for the full year, last year 2009, our SG&A was about 4.7% of sales and we are projecting the same number this year -- 4.7% of sales.

Thank you very much for that. And then I guess just to key off of Eric's question regarding cash flow. I know acquisitions is always something that you are looking for. In this type of environment where it seems like, particularly on the banana side, the producers are struggling. Is your expectation that there might be something available this year? Can you just talk a little bit about the acquisition environment right now?

We don't see anything at this moment. We don't anticipate anything of this type of acquisition in the near future. We are not planning at this time to acquire banana companies or banana plantations.

I guess really anything broadly on the acquisition front?

No, nothing at this time.

Okay. And then just to follow up on the prepared foods, I know when you acquire that back in the early part of the decade, part of the appeal was sort of higher gross margin than corporate average. Can you give us -- obviously struggle, you have got competitive issues, private label, etc., But can you give us an idea about what you target as sort of the optimum, gross profit level in that business? Is it mid-teens? Is it below that? Low double digits? Is it higher than mid-teens? Kind of what should we be thinking once you have got the business turned around and it is operating the way you think it should?

It should be in the teens range and this is not -- we took over a very troubled company and it was in a very bad shape and it took us time to really work it out and find the best model to work with. Our focus will be not just on the Gold markets, which is Europe and the UK in particular and Western Europe, but on the emerging markets, which are doing very well. We are making inroads in the Middle East. We are making very nice inroads in Africa and that is where actually we are going to focus in the coming years. We are planning to leverage the brand on several pillars that we believe will be very promising to all our businesses in our company. And that is where we are going to concentrate on these markets to introduce their brand and (inaudible) in production and sales.

Okay, so if 2009, you had a gross margin in that business of 15.5%, we should be looking for something 100 basis points higher, 200 basis points higher? I mean what is the goal?

We cannot, at this time, really give any indication or guidance on that subject. We will do our business as we see it best for our shareholders.

Okay, but based on your commentary, it sounds like that is not an acceptable level of gross margin for that business. I thought it was actually pretty good gross margin.

Diane, we will always seek to improve our profitability, be it on canned or non-canned or any other item where we have this. This is our main target and our mission.

Okay, I will leave it there. Thank you.

Ed Roesch, Cantor Fitzgerald.

Hello. My first question is on other fresh produce. It was a pretty remarkable strong quarter and it seemed like the general trend was pricing on a weighted average basis being up about 12% and your costs only up about 3% to 3.5%. Now I am just trying to understand -- is this just something that just happened to coincide where this quarter benefited from costs only being up a little bit, pricing a lot stronger? Would you attribute it more to consumer demand recovering or how sustainable are these type of trends?

This is a one-time trend. This is this year. In the food business, we cannot make guidance for the year. Probably the main reason for that loss, the Chilean season. The Chilean season is a very, very -- I mean this year was -- reminds me of like 15, 20 years ago. This used to be the pricing that we had 15 years ago in Chili and this year in particular turned out to be a very good year. First because there was shortage in supplies in Chile at the beginning of the season and then they had the earthquake as well that helped to alleviate some of the volumes from the market.

So all in all, when the Chilean season started, the California season was over and there wasn't stocks in the market. So it is one of these seasons that -- I can tell you today that it will be very difficult to achieve the same pricing for next season for the Chilean fruit because I know from experience that this was an excellent and exceptional season. So it is -- I guess the producers in Chile, everybody was lucky that we had several factors that worked in our favor, which resulted in these excellent sales during the season.

It is excellent results. And then moving to Europe, we heard from one of your competitors that maybe some of the customers are frontrunning lower tariff rates and that that might account for some of the price pressure that is being seen in the market now. Are you seeing any of that factor into lower prices there?

No, not that often. No, the price in Europe -- we follow actually [ALDI] price. I don't know if you know what is ALDI price. This is the chain that they decide what is the price for the market. So if they price bananas this week at EUR13, everybody is going to be selling at this price. It is nothing to do with the tariffs, nothing to do with the -- it is a matter of supply and demand, that's all.

Okay. And can you just remind us -- have there been any demands from retailers ahead of the lower tariffs at all that you have seen, maybe not related to Q1 pricing, but just in total?

Not to our knowledge, no, we haven't. We haven't seen anything like that. I think when the tariff is reduced physically and we see that we will take less, then we will see how the market will react. Either the market will demand that we reduce our prices accordingly with the tariff reduction or they will accept our price even though we have a less (inaudible). It's difficult to say how the market will react, but I don't think that it will make a difference really.

Okay, thanks. And the last question on bananas, you had the very large volume increase, 16%. Did you pick up some new growers was the first question and then secondly, was the Mid East an outsized portion of that growth? Thank you very much.

Yes to both of your questions. Yes, we picked up growers and second question, yes, we increased our volumes into the Middle East.

Was the Mid East a large portion of that? Could that have accounted for 8% of the growth in banana volume?

No, no, no. It just started in the Middle East actually only a couple of months ago, so it is not even a full quarter; it is like half a quarter. We are just gearing up into this market.

Vincent Andrews, Morgan Stanley.

Thanks and good morning, everyone. Most of my questions have been answered, so just a quick one on cash flow generation in the quarter. Maybe -- there just seemed to be some working capital adjustments. Is there anything in particular going on there?

No, receivables and inventories are up for various reasons. The sales growth and the volume growth is part of it, but nothing unusual other than that.

Okay. And my last question was -- oh, on the other expense line, went from $6 million to $9 million. Can you just remind us what is in there and give us a sense of how to, if you can, think about that line on a go-forward basis?

What it is is foreign currency translation and that is very difficult to forecast or to model for any of us because it just depends on your assets and liabilities and foreign currency, those balances plus how the currencies behave. So it is very, very difficult to forecast.

Okay, too many moving parts within there. Okay, I will leave it there and follow up offline. Thanks a lot.

That concludes the question-and-answer session today. At this time, I will turn the conference back over to Mr. Mohammad Abu-Ghazaleh for additional or closing remarks.

Thank you very much. I would like to thank everybody for joining us on this conference call and hope to speak with you on our next second-quarter call hopefully and wish you a good day. Thank you, everybody.

That does conclude today's conference. We thank you for your participation.