Fresh Del Monte Produce Inc (FDP) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Fresh Del Monte Fourth Quarter 2010 conference call. At this time all participants are in listen only mode . At the conclusion of the 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 turn the conference over to your host, Ms. Christina -- Ms. Christine Cannella. Please go

Thank you Jessica. Good morning everyone and welcome to fresh Del Monte's Fourth 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 fourth quarter.

Fresh Del Monte issued a press release this morning via Business Wire, email and FirstCall. 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 be available for replay, approximately two hours after conclusion of this call.

Our press release contains reconciliations of any non-GAAP financial measures we mention 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 our future outlook. Richard will then review our financial performance for the fourth quarter 2010.

Please let me remind you that much of the information that we will discuss this morning, including answers we give in response to your questions, may include forward-looking statements regarding our beliefs and current expectations with respect to various matters. These forward-looking statements are intended to fall within the Safe Harbor provision of the securities law.

Our actual results to 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 the property 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 the call over to Mohammad.

Thank you Christine. Good Morning everyone. I am especially glad to have 2010 behind us. We faced persistent challenges throughout the first three quarters of 2010, and the fourth quarter was largely the same.

In fact, during the fourth quarter, we continued to face challenges in our business from higher cost of the production and procurement. Unfavorable exchange rates in producing countries and poorer market conditions in Europe and Asia. Our biggest challenge during the quarter was higher than normal food costs.

These increased production costs were attributable to lower production volume, the result of flooding in our Guatemala farms earlier in the year. Banana costs were also impacted by unfavorable exchange rates in several producing countries. And, inclement weather in production areas around the world.

During the quarter, as part of our previously announced changes in our melon strategy, we continue to decrease our production volume of traditional cantaloupe to be more in line with market demand. I am pleased to report that in January of 2011, we introduced our new, premier MAG melons in limited quantities in select test markets with early results indicating strong consumer preference for this exclusive new variety. We expect to role out this new product to additional markets in the coming quarters as quantities become available.

I was encouraged by the changes we made in our prepared food business during the quarter. We completed planned inventory reductions and saw increased demand for branded Del Monte can products in certain markets.

We have improve this business for the long-term and have several new product rollouts scheduled. We believe the Outlook for the prepared business is promising and look to see the changes we have made begin to show benefits this year.

As we move forward, I am very optimistic. In the fourth quarter of 2010, we sold underperforming operations in South Africa and Argentina. We ceased production in unprofitable banana plantations in the Philippines. We continue to rationalize our melon and prepared food businesses.

We approved our fourth and logistics cost structure. And we also further expanded our platform in the Middle East. We believe these strategic changes will enhance our global business platform and we are encouraged that we are beginning to see results.

We continue to seek and capitalize on opportunities to expand our customer base. Increase our presence as a major fresh produce supplier through non-conventional delivery channels, as well as broadening our product offerings and sales to food service companies.

We see the growth trend for healthier eating remaining strong for consumers. As restaurants, food sell outlets and convenience stores seek ways to offer healthier choices to all age groups. And recently, fresh produce has captured the attention of several influential people, including the nation's First Lady, who are all addressing healthier choices, especially in the area of adding more fruit and vegetables to all diets. Including a focus on school meal programs.

All these factors we believe position us well for the future. At this time, I will turn the call over to Richard to give you some financial highlights.

Thanks Mohammed, and good morning. For the fourth quarter of 2010, excluding asset impairment and other charges net, Fresh Del Monte reported earnings per diluted share of $0.07, compared with earnings per diluted share of $0.36 in the prior year.

Net sales were $817 million, compared with $872 million in the fourth quarter of 2009. In addition, excluding asset impairment and other charges net, gross profit was $40 million compared with gross profit of $65 million in the prior year.

Operating income was $400,000, compared with $29 million in the prior year period. And net income was $4 million, compared to $23 million in the prior year. For the quarter, asset impairment and other charges were $14 million, primarily due to the write-off of certain isolated banana plantations in the Philippines that were affected by disease.

Now, let's turn to our segment performance. In our banana business segment, net sales increased $10 million to $395 million compared with $386 million in the fourth quarter of 2009. Volume was 4% higher than last year, primarily in the Middle East, Asia and North America, partially offset by lower volume in Europe. Worldwide pricing decreased 2% on a $0.21 per box to $12.77.

We experienced significantly stronger selling prices in Europe as the quarter progressed, and for the time being, pricing remain strong in Europe.However, the increase in selling price in Europe in the fourth quarter was not enough to offset lower selling prices in the Middle East and Asia.

Gross profit was a loss of $11 million compared with gross profit of $4 million a year ago. The decrease was primarily due to increased preproduction and procurement cost,, primarily the result of the negative impact of flooding in our banana plantations in Guatemala earlier in the year. Lower selling prices and unfavorable exchange rates in producing countries. Total worldwide banana fruit cost increase 5% and total banana unit cost was 2% higher.

In our other fresh produce business segments for the fourth quarter, net sales decreased 16% to $316 million , compared with $375 million in the fourth quarter of 2009. And, growth profit decreased 15% to $43 million, compared with $50 million in the prior year.

In our Gold Pineapple categories, net sales decreased 12% to $121 million, compared with $138 million in the prior year. Primarily the result of decreased volume due to heavy rains in Costa Rica and cold weather in Europe which affected demand.

Volume decreased 16%, unit pricing was 5% higher and unit costs increased 4% due to the lower volume and unfavorable exchange rates.

In our Melon category net sales decreased 58% to $29 million, compared with $69 million in the fourth quarter of 2009. Volume decreased 57% as we continue our focus on lowering overall production and shifting to producing a higher percentage of specialty melon varieties. Unit pricing and unit costs are in line with the prior year.

In our Fresh Cut category, net sales decreased 3% to $74 million, compared with $77 million in the prior year. Primarily due to colder than normal weather and both Europe and North America. Volume was 6% lower, unit pricing increased 2%, and unit costs for 7% higher.

In our Non-Tropical category, net sales increased 21% to $43 million, compared with $35 million in the fourth quarter of 2009. Volume increased 19%, unit pricing increased 2%, and unit costs was 3% higher.

In our Tomato category, net sales decreased 17% to $25 million, compared with $29 million in the prior year. Volume was in line with the prior year, pricing decreased 15% and unit cost was 16% lower.

In our Prepared Food segment, net sales increased $4 million to $94 million during the quarter. The increase was primarily the result of higher sales in our premium, branded beverage and canned pineapple product lines. Gross profit decreased 19% to $8 million, primarily due to increased production and procurement costs.

In our other products and services business segment, net sales for the quarter decreased $10 million to $12 million, primarily the result of lower sales in our Argentine grain business as we are phasing out of this business. Gross profit decreased $4 million.

Now, moving on the cost. Banana fruit costs, which includes our own production and procurement from growers, increased 5% worldwide, and represented 33% of our total cost of sales for the fourth quarter. Carton costs increased 25%, and represented 3% of our total cost of sales.

Bunker fuel increased 3% versus the prior year, and represented 4% of our total cost of sales. And ocean freight costs during the quarter, including bunker fuel, third-party charters, and fleet operating costs was 4% higher, and represented 14% of our total cost of sales.

The foreign currency impact at the sales level, for the fourth quarter compared to the prior year, with unfavorable by $1 million -- I'm sorry was favorable by $1 million. And that the gross profit level, but impact with unfavorable by $3 million compared to the prior year.

SG&A expense during the quarter was $41 million, compared with $43 million in the fourth quarter 2009. During the quarter, we benefited from a $1 million gain on the sale of property, plant and equipment compared with a $7 million gain in the prior year quarter. Other expense, net for the quarter, was $1 million, primarily due to foreign exchange losses, compared with other expense net of $4 million in the fourth quarter at 2009.

For the fourth quarter, interest expense, net was $2 million and at the end of the quarter, our debt was $296 million. We spent approximately $29 million in the fourth quarter to repurchase an additional 1.3 million shares as part of our share repurchase program.

Now, on income taxes. The income tax benefit was $5 million during the quarter, primarily related to reversals of uncertain tax positions, and changes in valuation allowances in certain jurisdictions. This compares to an income tax expense of $1 million in prior year period.

This concludes our financial review we can now turn it over to the operator for

Thank you. The question-and-answer session will be conducted electronically.

(Operator Instructions).

And, we will pause for just a moment. Andm our first question will come from Scott Mushkin from Jefferies and Company.

Hi, guys. Thanks for taking my questions. The first one I want to ask is more strategic. And, if I can take a step back and look at the strategy over the last couple years, it was really to make a big push vertically integrating, we bought a big company, we bought land, and other places, and really become a big melon, banana and pineapple, and I think there was some hope that tomatoes would maybe be a fourth vertical.

But, step back, and kind of look at the strategy is seems, and maybe I'm wrong here, but you know, but melons are having a hard time, tomatoes don't look like they will be the fourth vertical and bananas are kind of touch-and-go. So, I'm just wondering as you look forward, how do you think strategically you are going to move the company and how do you get some of these verticals to perform better?

Good morning, Scott. I think probably your kind of analysis doesn't meet with our strategy. Really, I really don't believe that bananas, melons and tomatoes and other products that we are handling are touch-and-go, or they are not our core products which we believe will be important today and in the future.

The -- I mean every five years, in my opinion this business, you definitely have an up year, which has happened to be 2010. And, there were many, many -- and you can tell from the beginning of the year, last year, I had the feeling that was not going to be a good year. The reason for that is the economic situation worldwide, pricing was really weak, tremendously weak in Europe and Asia throughout the year.

I mean, we didn't have even a break during the springtime where usually we have very high prices in Japan or in Europe. Last year was a very special year that we didn't see that. And, as we speak even now, the Asian market, the only market that hasn't recovered yet, especially Japan, is Japan. On the banana side, or even on pineapple. So, as far as bananas is concerned, I believe that the future is there and will remain a very important item for us going forward.

As far as melons, yes you are right. We have rationalized -- we still believe that we will be a dominant and important player in this category and I believe that it will be, going forward, a profitable item. However, maybe not as valuable as it used to be a few years back.

Now, talking about tomatoes, I just like to highlight that maybe we didn't mention it in our conference call, earlier. But, we have started, since about a couple of years ago, started sourcing tomatoes offshore. And, I'm saying here, mainly from Guatemala and I'm talking also about peppers. We will be importing peppers and tomatoes continuously.

Beginning this year, we have increased our volumes significantly. As well as we have started our own production and Guatemala which actually this will be the first week that we would see our first production from these farms. And, I'm talking here, the high, the highest type of technology and production which is in green houses, fully under climate control, the whole thing. And, this is going to give us a very important inroads in the future in this category because for us, during the winter is a very important period where we have all these difficulties in securing enough supplies, and consistent quality.

So, as you can see, we have a freeze in Florida, we have a freeze in Mexico and prices shot from, let's say $12.00, $13.00 to almost $30.00, $40.00 for box of tomatoes which was [Inaudible]. These are some of the actions we are taking in these strategically for the future. I am very confident about our strategy and I'm very confident about our future. And, I have no problem in assuring you that we will continue with our -- the same kind of momentum that we have for the last 15 or 16 years.

Absolutely great color, I appreciate it. And, if I could ask to more here, one on follow-ups actually on bananas and the importance of the Mid East and what is going on there. I don't think you touched on your program remarks and was wondering if maybe you could. And, then, I have a follow-up on melons too

Well, the Middle East, you know we have several markets that we have present. One of them is Iran where we have regular supplies in this market for so many years. The second market are in the Emirates. We have the Gulf states and we have the market where we just have actually sometime last year in one place and recently we are expanding our production there.

As a matter of fact, just a couple of weeks ago we just started our production, fresh cut salad production facility in Riyadh, in Saudi Arabia. And we supplied actually the McDonald's chain in this market and trying gear up to fulfill all their requirements across the Saudi market as well as the Gulf market.

We will be -- in July, we will be starting our Fresh Cut operation as well [Inaudible]. And, we have other projects which will be added value, and different products that will start hopefully during this year, and Saudi Arabia and will give a very big impact for our revenue and income in the future.

But, as of yet, you really don't have any big businesses in the places that are going through some struggles, is that correct?

No. We don't have any operations in Tunisia or Libya for instance. These are markets that sometimes we sell to them on spot basis, but these are not in any way material to our business. We don't usually have them as regular markets.

Perfect. You know I'm going to hold off on my last question and maybe someone will ask it. I'll get back in the queue they don't. Thanks.

Our next question will come from Eric Larson from Soleil Securities.

Yes, good morning everyone.

Good morning Eric.

Mohammad, you mentioned that last year, early in the year, you had a kind of a bad feeling that -- last is that the year was going to have -- be pretty difficult. You don't give guidance, and I'm not actually asking for that, but how do you how you feel, in general, about 2011?

Given some of the recovery of pricing in Europe, I'm assuming that and I'm curious on your pricing in North America with your contract pricing that got completed in the fourth quarter. And, then, give us a little more flavor on how Asia looks on the pricing side going forward? It hasn't recovered yet, but how do you look -- how does it look going forward?

First, to start and I mentioned in my script when I spoke a few minutes ago, I said I'm very optimistic for 2011. I am very positive about how it started and I believe this will be a trend. Of course, notwithstanding, weather or other events that are beyond our control. But, in general, I'm very optimistic for the year. As far as the far East, Japan in particular. As we speak now, prices are in the range of JPY1,000 a box which is a breakeven -- about breakeven for bananas. Pineapple should be doing a lot better than what it is doing now. But, it's okay, but it's not as it used to be a year, I mean two or three years ago.

We hope that the market should turn around by sometime this month, I mean by March. You know, this is the time where Japan usually improves, in a very significant way. We just have to wait and see and that is going to happen anyway. What we are doing right now is rationalizing our volumes where the market is better, really. We are not going to -- and that's what we've been doing for several months, is that which market is paying better that's where the food goes.So, we are not in a straitjacket where we have to say -- we have a volume that goes into this markets but we are not going to overflow, or put access in this market just because we have the market share. Our strategy is -- and I've been always saying the same thing, that we've always go where the price is, where the money is.

Okay. Good. Just to follow up on that, Mohammad. In your press release you talked about the Middle East pricing in the fourth quarter being a bit weaker along with Asia. And, that the strength in Europe didn't -- couldn't compensate for the weakness in those two markets.

The Middle East, historically, has been a market where you have pretty dominant shares and you've been able to actually get better relative net pricing in the Middle East. What -- is there a change there? What's -- why was the Middle East pricing weak in the quarter? Is there some other new market entrants that are giving you some competition there?

No, as a matter of fact, in the Philippines, during the fourth quarter was with a huge volume -- excessive volumes of production during that period. And, the Japanese and the growing market were in shambles.

So, everybody was dumping more fruit in markets like in the Gulf and in Saudi Arabia. And, that's really what has happened, that the prices went under so much pressure because of the volumes that were diverted from the Asian market into the Middle East. That has already stopped now and the prices have recovered and we see no more markets back again. That was the reason for the fourth quarter pricing in the Middle East. Nothing else.

Okay. And, just one other final question, Mohammad, could you just frame your -- what you're looking for, for fruit cost 2011 versus 2010? Obviously, your compare is pretty easy, but how does fruit cost look this current year, year-over-year?

Yes. As you say, Eric, we don't give that. We've made a lot of changes as Mohammed mentioned with rationalizing, and we're doing a lot behind the scenes. But, we don't have those numbers.

Okay. No, I was just trying to get a relative feel for that. But, that's fine. I'll catch you off line. Thank you.

And, we'll now go to Heather Jones from BB&T Capital Markets.

Good morning.

Morning, Heather.

Real quick, just a follow-up question on Asia. You said Japan hasn't come back. Are you -- is that statement well [Inaudible] to the strength we are seeing in Europe or is Japan pricing, or is Japan pricing still down year-over-year?

No, I'm talking about relative to Europe, as well as year-on-year. Today, actually just for your information, today the price started moving up by about JPY50, which goes from JPY1,000 to JPY1,050. But, that's a good indication that the market is probably started to, you know -- there is shortage in the Philippines right now because of the winter weather and usually the production goes down so unless volumes going into Japan, at least from our side, and I believe our competition as well.

Because we have very strong markets in Iran and in the Middle East so these markets are paying much better prices than what we are getting in Japan. But, and that, in my opinion, will reflect positively as we go in the next few weeks. But, hopefully, we will see better pricing, or much significant improvement in the pricing in Japan.

Okay. On your Q3 call, you had spoken about rationalizing, actually you talked about taking out some banana production. And, I believe I asked if you meant just shipping some volumes out of Europe into other markets, that you said no, our volumes will actually be down year-on-year.

Subsequently, one of your peers announced a pretty significant reduction in their volumes going into 2011, as well. I was wondering if you could update us on what you are doing with your banana production. I understand how you're shifting the market to make more sense from a profitability standpoint but, should we still expect fresh Del Monte's banana volumes to be down per your comments on your Q3 call?

As I said earlier, Heather, we will be -- we are looking and we identified which farms -- we have some farms that have been producing for 30 or 40 years. And, these farms, for instance, are not yielding enough production, or enough, let's say, boxes to justify even to get to a breakeven point.

This, we have taken the decision, some of them have been production during the sometime last year, and we are taking some actions as well to cease production in these farms sometime in the near future. So, definitely we are going to rationalize and look at our different plantations and make sure that all the plantations that will produce and start being able to make money with same production.

Okay. And, going back to your comment about shifting volumes to the market that make sense. Based upon the data we've seen, it seems like your volumes in your banana volumes in the US are stronger than they were in 2011. So, is it a fair assumption for us to assume -- for us to think that Fresh Del Monte's volumes into Europe will be down in 2011 relative to 2010? And, some of that shift has gone into the US?

Not necessarily. We are backing new, new different packing. I cannot discuss it on the conference call, but we are using more bananas into our mix and we have new packaging and new ideas. So, this is also helping in moving more volumes to a new customer base let's say.

Okay. And, my final question is, going back to the Libya, Tunisia market. I understand that they're not core markets for you, but we understand that some ships have been unable to load there, potentially sitting in the harbor, in the port I should say. Do you have any concern about temporary disruption for the Middle East in the European markets, or do you -- or what are your expectations as to how quickly those ships can begin offloading in those ports again?

Actually, the ships that have not been able to unload in Libya for instance, especially Libya, Tunisia is back to normal now so, Libya in the last couple of weeks, whatever ships that were able -- some of the ships were able to discharge, let's say half of them. Because they were discharging in Tripoli and in Benghazi. Some ships they've been able to unload some of the volume in Tripoli and then they could not go to Benghazi. And, now Benghazi is okay, so they can go to Benghazi.

But, definitely there was an interruption during the last couple of weeks. A few ships had to go to the Mediterranean, other parts of the Mediterranean in Turkey and the Black Sea. And, this has actually, like spillover on European markets. So, we saw a little bit of erosion in the pricing in the last couple of weeks in Europe, not significant just very small erosion. And that was because of the spillover of the fruit that was coming to this market and had to be diverted to the other markets either in the Black Sea or in the Mediterranean.

However, I think this is temporary, I believe that within weeks these markets will come back to normalcy and, in my opinion, if things work out the way they should work out, these markets will become more important to us than it used to be in the past.

Okay. Thank you very much for the color.

I will now go to Jonathan Feeney from Janney Montgomery Scott.

Good morning. Thanks very much.

Thank you, Jonathan. Good morning.

Good morning. I wanted to follow up a little bit, specifically on your banana capacity reductions. I understand your answer to Heather's question on your internal production.

But, as I understand, particularly with the recent moves in the Costa Rican currency, that you've been aggressive and sort of rational and I think some of the growers you have in that country, and as well as others potentially, are you all the way through? Like rationalizing your banana capacity? Production capacity or other still more grower contracts that you wish you did sign that you're kind of working through?

No, I think we are through, almost through there, and I believe that we have come to the right formula. You know, really, Jonathan, the point is you need more fruit during the high season, which is this time of the year. Then, comes July through November, and you don't need that much fruit.So, if you over contract during -- because you need that fruit at the high season and then what you do with it in the low season? And, that has been, you know, a very kind of catch twenty-two.

However, we are preferred to have less fruit during the high season and not to have excess fruit during the low season. Because during the low season, the pricing is really soft . I'm not talking the US because the US is contract pricing, you know but definitely the volume comes down. I mean you cannot sell the same volume in the summer like you sell in the winter.

But, it's Europe, it's the other markets that really makes the difference. When you have to much volume you have to dump it somewhere.You have to send it some where and usually at that a very big loss in selling prices. So, that part of the strategy that we have

Thank you. And, just one other question. I think we've seen over the past year, you've been more aggressive than I can remember about buying back stock. And, you still have ample capacity in your balance sheet were you to want to continue do that. How should we think about that for next year? Are you going to continue to buy back stock at this rate, or is it just going to be a function of how much cash flow? How do you think about that?

Yes, we will decide when we see an opportunity to start with. And, secondly, we have the strongest balance sheet in the industry. We do have some very strong cash flow. Extremely strong cash flow, honestly. So, we don't have a problem as for buying stock we can buy as much as we want.

Okay. Good position to be in. Thank you very much.

Our next question will come from Diane Geissler from Credit Agricole Securities.

Good morning.

Good morning, Diane.

So, let me just -- not to harp on bananas, but when I look at the fourth quarter, and sort of what I'm hearing from you in regard to your Latin American operations. I sort of look at it and say, well you had all of the negatives of kind of short supply. In other words, higher fruit cost and maybe kind of not enough volume where you needed to be. But, none of the benefits of that kind of disruption in terms of pricing.

So, can you just talk about what you're seeing in pricing in particular in North America and Europe? I know you said Europe strengthened and it's remained, you know, higher on year-over-year basis. What kind of percentage increase are you seeing and is that rolling into some of your renegotiation in the contracts with the North American retailers? I know you do that on an ongoing basis, but if you could just talk about pricing a little bit and your expectations here in the first and second quarter given some of the issues you had in your Latin American operations?

Pricing is, supply and demand determines the price there. As far as the US we do have our contracts mainly during the end of the year, beginning of the year. And, almost all these contracts have been signed and done. As far as --

Higher price levels?

I'm sorry?

At higher price levels?

Well, the price is the price, what is the price today in the market. It's a different price and comparative to our increased cost in the last 12 months. Let's put it that way.

So, it's up on a year-over-year basis?

Yes, I assume so .

Okay.

But, as far as Europe, actually that was,-- The [Inaudible] of the European market this year was a nice surprise. I mean we were not expecting that the prices in Europe would develop in such a nice way and this is something that is -- that shows the markets are coming back, it's more promising. The volumes are more rationalized and hopefully this trend will continue in the future.

And, that's what you've seen quarter to date since the beginning of year?

Yes.

A more rational environment in Europe?

Yes, yes, that's what we've seen now.

Okay, great. Thank you. And, then on the prepared foods. Richard, I know last year you did some plant closures and you took the year off and some of your stone fruit production. I'm just trying to look this year, 2011 versus 2010. Could you give us some idea about what some of those disruptions cost you on a gross profit basis? The expensing of the fixed costs as opposed to capitalizing it into your inventory, and what we should be thinking about in terms of gross profit levels and prepared foods for this year?

I think as far as the cost of not deferring that production, I think it was $6 million to $9 million. We have disclosed that before. But, it also had a lot of other benefits such as significant inventory reductions, and so on, which is going to help the cash flow, and is already helping the cash flow quite a bit. That is just the deciduous canned production. Because that was a specific combination of the South African, Greece plants. We expect that to have a positive impact in 2011, and even more so in 2012.

Okay, so it $6 million to $9 million just on the foregone fixed plants expensing versus capitalization, and then I guess, putting both of your production into one plant, what do you expect that to do for you on the gross margin basis?

We're not disclosing that. We're still looking at that, frankly.

Can you talk about, in terms of the plant that is remaining, what the utilization rate you expect to be versus its prior utilization rate?

No. That's difficult to look at because of the seasonality and so on. But, significantly higher, obviously, combining two plants into one.

Would you say it was running at the 50% rate before, or lower than 50% rate? Again, now, that you're only running at certain times of the year, but you must have some way of looking at the internally and quantify that.

We're always only running at certain times of the year because those are seasonal products. But, yes, I would say directionally, what you're saying is maybe 50% before and significantly higher now is accurate.

Okay. And, then, what should we be thinking about for the tax rate? Because, you guys, every quarter is a reversal or a deferment. It's just, I know you're always saying it's mid-teens is kind of a level but --

What we are modeling, and I -- is 18% for this year. Now, as you -- as we've all learned it's impossible --

It's never paid 18%.

Right. It's impossible to forecast and it always depends on what jurisdiction is more profitable than not, and then where the money is being made. But, we are hopefully, conservatively, estimating 18%, is what we are modeling for 2011.

Okay. And is that the change based on just primarily your business mix then? 2011 versus 2010 in prior years?

That's looking -- correct. That's looking at our projections, by jurisdiction, and apply to those tax rates.

Okay. All right. Great. Thank you.

You're welcome.

(Operator Instructions).

And we will now go to Bill Chappell from SunTrust.

Hello, this is Mike Swartz filling in for Bill.

Hi, Mike.

I just wanted to dig into the melon business a little more. It was a lot weaker than we had expected and I guess we had anticipated a little bit of sequential improvement there. I just -- I just wanted more color on where you stand on the rationalization of the cantaloupe business and when we should start to see that kind of taper off?

To start with, you know the melon business is a very difficult business in terms of production or agriculture. And, we are always faced with weather, factors that can affect the melon production. If we have the rain, it can create viruses and create so many other issues on the farms. And, that's really one of the major challenges that we face in the melon category, is the quality and the production and the yield. And, not only the volumes. So, what we are doing, actually, is trying to rationalize not only the volumes, but rationalize the varieties that we have to grow. We have to rationalize the period where we grow them and where we stop them. And, so, there are so many factors.

And, what we are trying to reach is a formula where we have the right volume, with the right variety, with the right timing of the year and that's, altogether, will make this business more viable more profitable. This is an item that we have as a major player in the market. We have our customers that need this fruit during, throughout the year we supply our customers throughout the year.

Once they finish the offshore season we start the local production which is in Arizona, and then we go to California and other areas in the US. And, for our fresh cut operation as well, this is a very important item that needs to be supplied on a consistent and continuous basis. So, in general, we hope and we are striving to come to a position where this business will become a consistent, profitable business.

Okay. Thanks for the color. And, then one last question, on input costs. I think in your prepared remarks you had outlined that corrugated or container prices were up about 25% in the quarter. And, I think they've accelerated since the end of the quarter. So, how do you look at those going through the year? And not only corrugate, but bunker fuel as well. Are you comfortable that you can offset those costs increased to pricing or how should we look at that?

We don't think corrugated will continue to go up at those rates. We think that has leveled off somewhat. As far as bunker fuel, it's difficult to predict as you read every day. We are confident that at least some of the bunker fuel, with surcharges we have quite a bit of it that we can pass on. Because those our contractual surcharges and as far as everything else, yes, North America obviously, and the rest we just continue to try to pass on where we can.

Okay. Great. Thanks.

And, we'll now go to Heather Jones with BB&T Capital Markets.

Can you hear me?

Yes. Yes Heather.

Hello?

Hello, can you hear me?

We can hear you.

I'm sorry about that. I'm having problems with my head set.Was just wondering if you could give us some color on how long you expect supplies out of Latin America to stay tight? You know given what we've seen Columbia, Costa Rica, et cetera. We've heard different estimates, early Q2, late Q2. Just wondering what your intelligence shows?

I mean, it's very difficult to say, Heather.You know the market has been strong in North America. So, what ever volume that has been produced, has been consumed in the markets in Europe as well.

However, you have to take into consideration, at least from our perspective, during that, the last -- the beginning of year we have seen good climate conditions which have promoted better production and more consistent production. We didn't have any catastrophes like we did last year.

So, so far we have had good yields . And, if we have good yields during some part of the year, I believe that the yields can probably go down later in the year. So, I hope that this trend can continue for the first half of the year where we need the fruit. And, hopefully, the farms start getting less production during the summer. It definitely during the summer we will have more volumes than what we need during the first half of year. But, so far, we will see consistent, good production in Latin America and Central

So your commentary is related to [Inaudible] specifically because the production --

Yes, I'm talking about our sales, I'm not talking about -- I'm not privy to my competition or to the other players in the market.

Okay, so you're just talking about your farms?

Yes.

Okay. And, I was wondering, I know you don't want to give a specific number and I can understand that, but the cut that you are making in your production, these farms that you talked about aren't even break even because of their yield issues. As you close on those, are they a significant number? Like, is it a number of that we will notice in the quarterly or is it tiny volume numbers?

You will not notice it in the first of half of the year. Probably notice it in the second half of the year.

So, it's enough of -- it's a meaningful enough number that we will notice it?

It will be a number that will probably improve the bottom line rather than so much as the volume itself.

Right. And, then, finally, you've rationalized your melon business, which is good, and you're now rationalizing your banana business. I wonder if you could talk about pineapples, which is arguably, your most important color of your business. If you could talk about the profitability metrics there? Do they still meet your standards, do you need to do any rationalization in that business?

No. The only rationalization we do in the pineapple is only on the cost side. As far as the pineapple, the Del Monte Gold, we are the leaders, not only in North America, but worldwide. And, that position will be held and we continue to hold that position in terms of volume and pricing and we are not planning to do any reduction in volumes at all. As a matter of fact we are expanding. And, only, the only areas where we focus on is our cost structure.

Okay. All right. Thank you very much.

And, there are no further questions. I will turn the conference back over to you, Mr. Abu-Ghazaleh for any additional or closing remarks.

Yes, I would like to thank everybody for attending this call and I believe that, hopefully, next call will be a more positive news. Thank you very much and talk to you soon.

This concludes today's presentation. Thank you for your participation.