Fresh Del Monte Produce Inc (FDP) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Fresh Del Monte second quarter 2010 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 opening remarks

Thank you, Jill. Good morning everyone. Welcome to Fresh Del Monte's second 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 second quarter. Fresh Del Monte issued a press release this morning by a business flyer email 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 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 mentioned today to the corresponding GAAP measures. The press release may be found 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 second quarter of 2010.

Please let me remind you that much of the information 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 intend to fall within Safe Harbor provisions and 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 10K for the year ended January 1, 2010. This call is a property of fresh Del Monte produce, retransmission or re-broadcasts of this call in any form without a written consent is strictly prohibited. With that, I'd like to turn the call over to Mohammad Abu-Ghazaleh

Thank you, Christine and good morning everyone. Thank you for joining us today's earning call.

The second quarter was a tough period for Fresh Del Monte. We faced a number of short-hand challenges during the quarter, including tropical storm Agatha and the blowdown at our Guatemala banana farm. Weak banana pricing in Europe and ongoing (inaudible) in the global economy which continued to negatively impact consumer spending. During the quarter, storms flooded our banana operations in Guatemala and hampered logistics for a period of time throughout the region. While, our banana operations in Guatemala were affected by heavy rains and wind, we worked diligently to address commitments to our customers with replacement (inaudible) from our growers in Guatemala and our own production in Costa Rica. Though the severe weather damage, our banana production in Guatemala we view this as temporary. And we are already in the process of replanting. We also continued to face intense competitive pricing pressure in our banana business in Europe. We acted by directing volume from key markets in this region.

I believe Europe will remain highly competitive in the near term. However, history has proven that irrational pricing, behavior, and the fresh produce industry is not sustainable long-term. In addition to severe storms and regional pricing competition, we continue to be challenged by the weakness of the global economy. While we saw sometimes improve in North America, Europe, and Asia remain hindered. As a result, our earnings in these regions were negatively impacted as consumer spending remained low.

From my perspective, conditions in Europe will take some time to recover. While I see improvements in other global markets, I believe recovery will be significantly slower than we had hoped to see. Obviously, during the quarter, we responded aggressively to sustain our sales momentum, and I'm very proud of how our team reacted to these unexpected challenges. One of the key drivers of our success over the years has been our ability to focus on long-term goals while controlling costs. We have worked to create a strategy that allows us the flexibility to continue to grow while addressing tough market conditions and operating challenges when they occur.

During the quarter, we took action on a number of strategies and also implemented measures that would serve the (inaudible), our business and cut costs for long-term growth. First, we entered into an agreement to sell our South African fruit canning business. With plans to consolidate our canned fruit production. We will be taking two, currently under-utilized facilities the One in south Africa and other in Greece. And consolidating them into one operation in Greece, which with a relatively minimum investment, will create a more efficient, well utilized, lower-cost facility. Second, the decision was made during the quarters to stop planting melons in Brazil. We will supply Europe, in the off-shore seasons, with melons from other sources. Besides this, swift actions, such as these, allow us to shift the sources to profitable products and growth areas of our business.

Despite the challenges during the quarter, we continue to generate strong cash flow, which enabled us to significantly reduce our debt levels and repurchase shares, thereby increasing shareholder value. I believe it is important to remind everyone that Fresh Del Monte is not a company that focuses only on the shelter. We have made a lot of decisions and investments over the years aimed at differentiating our company and further enhancing our performance over the long-term. Our second quarter was no different. We continued this strategy during the quarter with product and packaging innovation and by market of new melon varieties Additionally, during the quarter we further increased the penetration of our brand awareness in emerging markets. Highlighted by our new operations in Saudi Arabia, which are doing well and proceeding as planned.

In summary, Fresh Del Monte is a solid company, our top line is growing. We have the strength of a knowledgeable management team, a cost-effective vertically integrated infrastructure, a portfolio of healthful, value-added product and a strong balance sheet and (inaudible). At this point, I would like to turn to Richard to provide you with an update on our second quarter financials. Richard?

Thanks, Mohammad. Good morning. For the second quarter of 2010, excluding asset impairment and other charges net, Fresh Del Monte delivered earnings per share of $0.85 per diluted share, compared to $1.11 in the prior year period. And net sales increased $22 million to $1 billion compared with $978 million in the second quarter of 2009. In addition, excluding asset impairment and other charges net, gross profit was $92 million compared with $108 million in the second quarter of 2009. Operating income was $52 million compared with $68 million in the prior year second quarter. Net income was $53 million compared with $70 million last year.

The second quarter results include $9 million of charges above the gross profit line related to inventory writeoffs as a result of damage in our Guatemala banana operations and our decision to stop planting melons in Brazil. We also incurred another $23 million of asset impairment in other charges net, related to exiting our prepared foods canning operations in South Africa and another $6 million related to Guatemala. The writeoff in South Africa is due to accumulated foreign exchange losses on this investment.

Now let's turn to our segment performance for the quarter. In our banana business segment net sales increased $39 million to $452 million compared with $413 million in 2009, driven by higher sales in our North America and Middle East regions. Volume was 14% higher than last year. World-wide pricing decreased 4% or $0.65 per box to $14.49. Price increases in our North America banana business were not enough to offset an oversupply of bananas and lower than expected demand and selling prices in western and eastern Europe. Gross profit, excluding asset impairment and other charges related to the storms in Guatemala , decreased $14 million to $33 million compared with $47 million a year ago. The decrease in gross profit was partially offset by higher selling prices in North America and the higher global volume. Worldwide unit costs were in line with the prior year period, although costs in North America were higher primarily due to the storms in Guatemala, which I will discuss in a moment.

In our other fresh produce business segment for the second quarter, net sales increased $2 million. Gross profit for the quarter, excluding other charges, increased $4 million to $49 million. The increase was primarily the result of higher grape selling prices, partially offset by lower gold pineapple prices and higher fruit and fuel costs.

In our gold pineapple category, net sales increased 12% to $143 million. Early flowering resulted in a 20% increase in pineapple volume. Unit pricing was 7% lower, a direct result of the higher supply, and unit cost increased 3%, excluding other charges.

In our melon category, net sales decreased 23% to $55 million. Volume decreased 25% due to the continued scaling back of our melon program. Unit pricing was 2% higher, and unit costs were 4% higher excluding other charges. As a result of our melon operation closure in Brazil, we wrote off $5 million of inventory and incurred $1 million in other charges. In 2009 we sourced approximately two million boxes for our European markets.

If our fresh cut category, net sales were in line with the prior year period. Volume decreased 4%. Unit pricing increased 5%. Unit costs were 5% higher.

In our non-tropical category, net sales decreased 3% to $94 million. Volume decreased 1%. Unit pricing declined 2%. And unit costs were 12% lower.

In our tomato category, net sales decreased 10% to $31 million. Volume decreased 13% due to extended cold weather on crop delays early-earlier in the year. Pricing increased 3%, however, unit costs were 5% higher.

In our prepared foods segment, net sales increased $4 million to $90 million during the quarter. The increase was primarily due to higher sales in our poultry and prepared meat businesses in Jordan, and our canned pineapple and beverage product lines, partially offset by lower sales in our canned deciduous product line and weak economic conditions in Europe, mainly in the UK and Spain. Gross profit was $11 million compared with $17 million in the prior year period. The $6 million decrease is primarily the result of higher production costs, the result of planned volume reductions in the current economic weakness in Europe. In our other products and services business segment, net sales for the quarter decreased $34 million to $10 million and gross profit decreased by approximately $800,000.

Now moving on to costs. Banana fruit costs were higher this quarter, as were bunker fuel and containerboard prices, compared to the prior year period. For example, banana fruit costs which include our own production and procurement from growers, increased 3% worldwide and represented 29% of our total sales for the quarter. However, heavy rains associated with tropical storm Agatha, in early June and a blowdown that occurred in late April in our Guatemala banana production areas, resulted in a loss of approximately four million boxes. We are projecting that the loss in volume on our Guatemala banana farms alone, will negatively impact our profits by approximately $9 million in the second-half of 2010, as compared with our previous projections. Carton costs increased 4% and represented 6% of our total cost of sales. Bunker fuel costs increased 47% versus the prior year and represented 4% of our total costs of sales. Ocean freight costs which include third-party charters, bunker fuel, and fleet operating costs were in line with the prior year period. The result of greater efficiencies in our shipping operations, offset by the higher bunker fuel costs. Ocean freight costs represent 14% of our total cost of sales.

The foreign currency impact at the sales level for the second quarter compared to the prior year was favorable by $5 million. The foreign currency impact at the gross profit level in the second quarter of 2010 was unfavorable by $2 million compared to the prior year. SG&A expense during the quarter was $43 million compared with $42 million in the second quarter of 2009. The increase versus last year was primarily the result of our expansion in the Middle East. Other income net was a loss of $600,000 compared with income of $3 million in the prior year period, primarily due to foreign exchange. For the quarter, interest expense net was in line with the prior year period at approximately $3 million. At the end of the quarter, our net was $216 million as we paid down $93 million during the quarter. Also during the quarter, we spent approximately $33 million to repurchase an additional 1.6 million shares, as part of our share repurchase program. On income taxes during the second quarter of 2010, our tax provision included a $7 million benefit related to a change in estimate. We're now projecting a 17% full year effective tax rate in 2010. Capital expenditures for the year are approximately - expected to be approximately $100 million. This concludes our financial review. Operator we can turn over to Q-and-A portion of the

(Operator Instructions) Our first question comes from Bill Chappell with SunTrust

Good morning

Good morning, Bill

I guess first just trying to understand a little more color on the competitive environment in Europe. What that means for where you think banana prices will be for the second half. Also on the pineapple side with the early flowering, this happened last year as well. Just trying to understand what that does? Does that dramatically change the pricing and size for the second half as well?

As far as bananas are concerned, Europe, what we feel right now is the prices are year-over-year for the same period. We're below last year's prices. Of course, we have to take into consideration, as well, the weakness of the Euro compared to last year. So, definitely there is now a poor market. You know, usually we, for the last several weeks, the price has been going down weekly. We don't know if this is going to continue, as well this week and the following weeks or not. So far, it's a very weak market in Europe in terms of consumption and pricing.

As far as pineapple are concerned, we have a quite a large oversupply situation in the last, I would say, 6 or 7 weeks, to the end of the quarter. Now we are seeing a more stable and short supply. Prices have rebounded significantly from where they were two weeks ago. We believe that going forward, the prices will be much stronger than what we saw during the second quarter

Okay. And then just a couple clarification questions. Did you say the full-year tax rate would be 17%. That seems like it would be much higher in the September December quarter. Then also, was there a reason why you didn't exclude the gain on the sale investments in your reported DPS number?

As far as the gain on sale investments, we have never really excluded that. We used to have it included in our other line, in our other income line. A couple quarters ago, we broke that out separately, but we have never excluded that from our- our reported DPS. As far as the taxes, that will cause a higher rate. There's a few things going on in taxes from what we had previously forecasted earlier in the year. One, is that obviously our tax structure is somewhat complex and it really depends on which jurisdiction your making the money on. So, that mix has changed somewhat throughout the year.

The other thing is some of these unusual items, such as the sale in South Africa and the related loss there and the storms in Guatemala, you don't get a tax deduction for a lot of those. So, while your income before tax is going down, your tax line is not. So for those and some other reasons, we're now projecting for the full year 17%. Now the future, we should come back to a more normal level, after this year. But right now for us, a normal level is probably around 15% ever since we reversed the valuation allowances in North America

Just double check, that is kind of implying a 35% to 40% rate for the second half?

Could be.

Okay, thanks so much.

Our second question today comes from Scott Mushkin with Jefferies.

Hey guys, thanks for taking my questions. Just to reiterate what you said there on the tax issue issue. You think 15% is the right number as we modeled this out over the years? We're not jumping to a new rate. Pretty important for cash flow analysis and just wanted to make sure I'm clear on that

That's right, Scott

Okay. Thanks for the clarification Second issue, I know we just talked about pineapples and then I think, what I guess I'm looking for is color with the early flowering. Do we believe as we move through the rest of the year there's going to be some kind of a shortage of pineapples? Or is it going to just go back into balance? How do you envision the rest of the year playing out? I might have missed it, but I want to make sure I got it.

I think for the short-term, we'll see a shortage. However, I think volumes will come to stabilize in the next 5 to 6 weeks. However, we will not see the over-production that we saw during the last couple months

So do you believe earnings on pineapples as we get into the third and fourth quarter, should begin to normalize? Or will you guys be at somewhat of a disadvantage? Or is this early flowering something that happened throughout?

I think that it will normalize for us. Hopefully, we'll see a better pricing going forward

Perfect. Melons. I was wondering if you could get into the long-term plans there and where we see the melon business going forward? How we should be thinking of it as investors as one of your key verticals, but clearly your taking volumes down. Just your thoughts and where over the next one to three years you're going to drive that business?

We definitely are not exiting the melon business, for sure. What we're doing is rationalizing this business in response to the market conditions. We see Europe as being a very weak market in the last 18 months. It has really impacted our results as you can see from the last two or three quarters. That's why we took the decision to discontinue as becoming a very expensive product to produce with the exchange rate. And the country has become a big hindrance. As well as the cost, and Brazil has been increasing steadily without any devaluation or deappreciation on the currency. On the contrary, they were (inaudible). That's one side.

The other side, we have new varieties, which will be exclusive to Del Monte, starting the offshore season, next offshore season, which hopefully will be starting by end of October and early November. These will make a difference for us as well as rationalizing our volumes into the markets. Our focus really is on stability. We're not going to produce just for the sake of production. We're going to produce for what the market needs and our customer needs and especially that we will have certain varieties and certain types of melons that will be exclusive and that I think will make a big difference

That's a huge difference. We have talked about this before on the development of melons and what you're trying to do there. Do you guys think that what you're doing in melons is going to be anywhere near what happened to pineapples? I mean, is it that significant as we see the introduction of that product?

I always pray at night before I sleep, this will be the case, but you never know.

Do you want to talk about the sweetness and color differences? Give us any-

These will be special melons that we have, actually exclusivity on. We have been testing them during the last 6 months. The response from our buyers and retailers has been very, very positive, with that. A big difference in pricing, actually, in the normal traditional varieties and this exclusive variety. We do hope that this will be with the new packaging, with a new, completely new look. That will hopefully be making a difference

Sorry to keep harping on this but it's obviously a fairly significant development. But when you look at this in volumes next year on the offshore season, do we have any feel how much volume will be dedicated to the new varieties versus volume to the traditional varieties?

It will be sufficient for the market, but I don't like to speculate on that right now

All right. I guess maybe I'll follow up offline on this because it's obviously a clearly an important development. My final question would be cash flow. You paid down some debt and bought back some shares. They way you guys are generating cash flow, I guess we're going to get rid of the debt. Just thoughts on how we're going to use the strong cash flow eventhough the quarter, obviously had some challenges. The cash flow dynamics of the company look quite strong so maybe some color around that? Then I'll yield. Thank you

I think we're always open to acquisitions. There's nothing in the works, but we're always looking for opportunities there. You're right. We'll continue to pay off debt, what's left of it. We have a stock buyback program out there. It will be opportunistic when it comes to buying back shares. Any of those three things is open

Okay. We'll go next to Heather Jones with BB&T Capital Market.

Good morning. Wanted to talk about bananas. Before I go there though, a wanted just a quick followup on the melons. I think you said volumes were down 25%. Clearly, you exited Brazil. But it seems like you cut your volumes from other sources too. I was just wanting to confirm that?

That is true

Then this new variety you're working on. You talked about a significant price delta, relative to the regular variety at retail. Is there a difference in the cost profile? Or would the higher price be a pure pass through to margin?

It's a higher price. The seeds for this variety is much more expensive than the traditional seed. The difference in price, coupled with that, and a lot more opportunity for growth

It will be enhancing to margins?

Yes

Okay. As far as your banana volumes in the second half, up double digit in the first half, but per your comments about a $4 million hit from Guatemala, are you anticipating purchasing some of that on the spot market or replacing the other markets or just overall buyout is going to be lower or not going to see the kind of gains on the back half that you saw in the first half?

I think with the volumes we have now, I believe we do have enough volumes at least for the next several months to profit our requirements for the markets. We don't need to go outside to buy more fruit. As a matter of fact, we have more than enough at this time to go on. But you can never tell. We are in August. Anything can happen in the next two to three month that can change the picture. But as we speak, I don't think we need to go outside and buy fruit.

But, I mean should we still expect double-digit year on year volume increases on the back half?

It would be a little less, Heather. Because, like you say, on the 4 million boxes, the storm was memorial day weekend. So, they only impacted a small piece of the quarter, just in June. The biggest impact will be on the back half of the year

Okay. Then wondering on your cost side for bananas. You mentioned, I was wondering how much you said a containerboard as a percentage of your COGS?

I think it's 1%

How much was that up a year?

Carton costs in total. We're now quoting carton costs, as opposed to just containerboard, because we buy whole boxes from producers, as well.

Okay

Carton costs were up 4% in the quarter representing 6% of our total costs of sales

If we looked at containerboard separately, that's only 1% of your COGS?

No. I'm sorry, I misquoted that, it's 6%

Okay. So I'm wondering. I assume some of those costs are up, simply by virtue of having 14% in volume. If you look at unit costs for bananas, they are flat , year on year following, I don't know how many quarters of pretty substantial year on year increases. This comes despite unfavorable year on year comparisons for bunker fuel. So, my question is are you seeing improved yields in your own production? Or what's driving the fact you were able to keep unit banana costs flat despite the head

There's a lot of moving parts within that total costs. As I mentioned earlier, the bunker fuel was pretty much offset by the efficiencies in shipping. We are seeing some better yields, but a big factor in there too is on the Asia product, some of that is related to the price. So because the price is weak there, the cost becomes weak. Some of that is profit share with growers. That's skewing the worldwide costs. If you look at the Central America side and especially because of, obviously, Guatemala, cost is higher

So if I'm looking at back half and let's just set aside Asia, because we will see what happens when the price front. Your cost will be up year on year on a unit basis?

Yes

Even without Guatemala? Even if Agatha hadn't happened, your costs would be up?

Probably somewhat even without Agatha because of foreign exchange in Costa Rica, which is weaker this year, or stronger, I should say, this year. And then the carton continues to go up.

Okay. Going to, first before we move on, the four million boxes. Is that on an annual basis?

Yes. We should be 100% back up to our own production by about March of next year. March or April of next year. It's all going to be replanted. So, that's between now and then.

Okay. So between August and March, you will have lost four million boxes.

Right.

Finally, moving on to Europe, I understand that local price is down year on year, but last year was record prices. It seems like relative to the last conference call, volumes into Europe have tightened pretty substantially. And also your being affected by the Russian heat. Just wondering as you look out say a month or two in comparisons becoming easier, what are your expectations for pricing at that point?

I think from now until, I would say , until middle of September, end of September, I don't think that we're going to see any significant improvement in pricing in Europe. I think it will take some time for that market to recover. As you just mentioned, Russia are selling bananas around $8 a box, which doesn't even cover their FOB costs. So, this is really and a lot of that is spilling around in the markets. I don't see the heat wave, as well as you mentioned, in Europe is also affecting the consumption of bananas. And the weak economies in that part of the world is really hampering consumption. All in all, that's why I don't see that Europe is going to really improve before the end of September. Hopefully, that we can see a turnaround in

But you would expect an improvement all things equal in Q4?

I do believe, we should see an improvement, otherwise it will be a bad situation if we don't see an improvement in pricing in the fourth quarter.

Okay. Thank you for answering my questions

We'll take our next question from Jonathon Feeney with Janney Montgomery Scott.

Good morning. Thank you very much. Just a followup question, Richard. You talk about your priorities, I was surprised to hear you first mention in your opened acquisitions as part of easy cash flow. Maybe that was

That was in no specific order.

Okay, at the returns you're making and the cost of debt right now, it would seem to me to be the best possible use of capital to buy back stock. I guess I was taking it as a signal that you substantially increased the rate at which you're doing that. Let me ask you this way. Over the course of the quarter, was there a point at which you reached a level where you were comfortable with that retirement and then turned to share a purchase and so we should expect more of that over the course of the year? Or what drove the timing, I guess, of accelerating that purchase?

We do time this according to our needs. We monitor the repurchase in relation to other varieties that we have. We don't have, we do have a repurchase program in place, but we don't implemented the kind of continuance. We do decide as we go along. There's nothing saying I will buy so much every day or every week or every month. It's a decision that we take in relation with our other priorities

But I guess just talking ballpark here, Richard, what's the marginal funding cost here?

Very low. About 3% right now

Okay. I guess the answer is just going to be opportunistic. That doesn't signal anything but excellerating sharer purchase?

Correct

Okay. Just turning to bananas for a second. We talked a lot the past couple quarters about how tough the trends are in Europe, yet it seems that towards the end of the quarter, you saw that counter-seasonal move on supply. Can you just, what makes you, it seems there's some others in the industry, you know couple other publicly traded companies, that seem a little more sanguine about the pricing prospects in Europe. Can you be more specific as to recently what makes you convinced that Europe is going to remain a tough pricing environment for bananas?

The supply abundance. Supplies are all over the place. There's no problem in getting volumes from Ecuador or any other source as we speak. And the consumption in Europe is not as strong and vibrant as it used to be in the old days. Eventhough, with the reduction of the Paris, you know, it didn't help in increasing the consumption

Okay. Thank you. And just finally, I know it's been an ongoing and steady thing in your position in the company Mohammad, is enormous. It looks like there's been some selling by members of your family recently. In the context over the long-term, it seems like there's been a reduction in ownership. While that's fair because your ownership is enormous, can you tell us anything about the future of your ownership plans and if there's another reduction in the works?

No, no. I cannot, you know it's family, and we cannot influence one member from selling some of his shares. It's his personal decision. But as a family, we're not anticipating to reduce our involvement in the Company. I personally don't have that intention

Great. Okay. Thank you very much

Our next question comes from Eric Larson with Soleil Securities. You might check your mute button

Good morning, everybody. How are you? Just a quick followup again on the European sort of banana situation. Obviously, we have the reduction in tariffs, Mohammad. And my notion has been in a very competitive market, such as the fresh fruit business, that it tends to always get bit away. Obviously, that could be part of what the pricing issue is here along with supplies. One of the things that I did hear though is that the global banana supplies were starting to tighten up. You're saying there's adequate supply. Are you starting to see us shift towards maybe some banana tightening going forward? And what might that tariff pricing issue have on the European markets?

As we speak, have more supplies than demand. I mean, in terms of supply and demand, I'm not talking about Europe, but, in general

Okay

For unforseen reasons, you know, hurricane or flood or whatever, if we stay with the same weather conditions, if we stay with the same variables, I would see more supply than demand towards the end of the year. Usually when winter comes in, and cold is there, definitely supplies will tighten as we see every year. Everybody will be looking for volume in different places. As we speak, the industry, in general, has more supply than demand. We do have enough supplies to cover our market and more. I don't think this is going to change for the next three to four months, five months, until the winter comes in. Unless we have a hurricane or a flood or a storm or something that changes our supply significantly

Okay. And Mohammad, give us a quick update again. The very big bright spot if your business is the Middle East. You saw a significant ramp-up in sales volumes in the second quarter. Not just in year over year numbers, but how it's been building sequencely. Can you give us - - this is obviously going to help you with your volumes, finding new markets for that. Can you talk a little bit about the Middle East again and what your expectations might be going forward given the strong second quarter?

As I mentioned earlier in different conference calls, I believe that we will deliver what we have said in the beginning. The revenues that we projected for the next few years. We are going ahead of our original plan. We see huge potential there. We're going to fresh-cut fruits very soon in Saudi Arabia and fresh-cut vegetables as well, which will be new in this market. We have several things that are in the pipeline that we're not sure of in 2010, but hopefully 2011 and forward. So, we have a lot of things going on there. It's expanding. We are just in the official stages of our penetration, especially in Saudi Arabia. Dubai and [UIE] we have been there for several years. And still we are expanding in this market. But for Saudi Arabia, which is the largest market in the Middle East, we are just at the beginning . We've been there for almost five months, or not a really very long period in terms of developing the business. But we are very pleased with what's going on right

It looks very strong. Just one other final question. It relates partially to a potential use of future cash. You have always been pretty opportunistic in buying a ship or two here and there. You've been scrapping a bunch in recent periods. And given sort of the softness in the whole freight market right now, might give you opportunities to add a ship or two on an owned basis to your fleet. How are you viewing owning versus leasing or continuing to farm out freight rates?

Well, we are rationalizing our fleet, right now. We have scrapped several ships during the last seven or eight months. They have come to quite an old age, which has created more cost into operation. So we have already scrapped eight ships of our fleet, seven ships of our fleet, sorry. We are rationalizing our business in shipping by being opportunistic. Right now, to lease is much cheaper than buying. That's our orientation right now. We do have enough ships and we do have enough capacity. I don't think we are going into the market for investing into new ships.

Okay. Thank you.

Our next question comes from Diane Geissler with CLSA.

Good morning

Good morning I just wanted to ask on the Brazilian operations. Are you completely out of melons now in Brazil and what do you plan to do with the facilities there? Are you planting something else?

No. We are seizing operations there. We will be disposing of the assets there that we don't need. We are in bananas there. We are expending gradually into bananas in Brazil. However, as far as melons are concerned, we have completely ceased operations there. And we will be selling our, or disposing of all the assets, being land or equipment or whatever we have there. And we are in that process right now.

Okay. Then on the tropical storm Agatha and the blowdown. I'm assuming you have insurance? Business interruption?

We do have some insurance of course,. We don't have information on the fruit. If we lose the fruit, we lose the fruit. But we have insurance on assets and infrastructure. Probably on some business interruption. We are in that process. It takes time. It's not overnight. Hopefully, we will get it covered for some of our losses into that country.

Okay. Then can you just talk a little bit about your expectations for the closure of the facility in South Africa and the consolidation into Greece what you'd expect that would benefit, how it would benefit your gross margins? Because your margins were down pretty significantly in the quarter in the year over year basis. And I think you sited production, I can't remember exactly how you worded it in the press release, but you did site production costs. Can you talk a little about what's going on there and what's your goal in terms of a margin in that business?

There's a few things that we're doing strategically there, Diane. One, as you mentioned, is combining two, what were under-utlizled facilities, into one, which should now be highly-utilized, efficient facility. That obviously in the next year and forward should make us quite a bit lower in costs. The other thing we're doing which has affected this quarter's profit and also the next couple of quarters is that we have scaled back some of the production in that same product line on deciduous canned products. So we are incurring some fixed costs, that would otherwise would have been capitalized into inventory that would have been sold next year. We're expensing that now. That's also causing the decline in profitability there. Both of those things, we think, position us well going into next year and beyond. As far as a stated margin that we'll give out, but we think there will be some there

Okay, so the decision to curtail some production on the deciduous product, is that just a market - - more competitive than originally thought?

There's an oversupply in that market. We want to bring that over supply down to more normal levels

What falls into the deciduous? Is that peaches and pears?

Exactly, canned peaches, canned pears, fruit cocktail, that type of product.

Then my final question is have you repurchased shares since the close of the quarter?

Since the close of the quarter? No

Since July 2nd?

No

Okay. Thank you

We'll go next to Vince Andrews with Morgan Stanley.

I think all my questions have been answered. I will pass it on. Thanks

We have a followup from Heather Jones with BBT Global Markets.

Thank you for taking my followup. One question. Looking at the North American banana market. Wondering if you can give us an update on, given the hit to Guatemala volumes, a rush estimate to the portion of fruit on spot and wondering if you can give us your initial thoughts for 2011 contracting given that, Guatemala goes into North America, at least the North American market seems tighter going into 2011 than it did in 2010. Just wondering if you can give us a sense of your expectationings for the contracting season.

As far as our supplies into North America, it's normal and regular, as even during or after the storm. We did not short North America at all. We gave North America the exactly same volumes that they needed. Don't forget that we have growers that have actually compensated for our loss, in some part our loss in some areas. We do have contracted volume from Ecuador taken on a weekly basis into the west coast. Other than that, we haven't seen any really significant changes into our supply chain. However, I would not be able to answer your question as far as our next year plans for supplies and contracting. This is something we cannot disclose on this call

All right. I appreciate it. Thanks

We have no more questions at this time. I would like to turn the call back to Mohammad Abu-Ghazaleh

Thank you very much. I would like to thank everyone on the call. I appreciate your attendance and patience with us. I hope to speak to you on our next conference call. Thank you and have a good day.

This concludes today's call. We thank you for your participation.