Lifecore Biomedical Inc (LFCR) 2007 Q4 法說會逐字稿

Good day ladies and gentlemen and thank you for standing by.

Welcome to the Landec Corporation fourth quarter and fiscal year 2007 earnings release conference call.

(Operator instructions)

I will now turn the conference over to your host, Mr.

Gary Steele, President and CEO of Landec Corporation.

Mr.

Steele, please begin.

Good morning and welcome to Landec's fourth quarter and fiscal year end 2007 earnings conference call.

Greg Skinner, our Chief Financial Officer, is with me today.

(Operator instructions)

During today's call we may make forward-looking statements that involve certain risks and uncertainties that could cause actual results to differ materially.

These risks are outlined in yesterday's news release, as well as in our filings with the Securities and Exchange Commission, including the company's form 10-K for fiscal year 2006.

As reported in yesterday's press release, Landec achieved record earnings for the year and finished the year with a strong fourth quarter.

Our revenues for the year were $210.5 million and our net income was $29.2 million, or $1.07 per diluted share.

These results reflect both the sale of our Fielder's Choice Direct seed business to Monsanto on December 1, 2006, and our new Intellicoat licensing agreement with Monsanto.

Our net income goal for the fiscal year 2007 was to increase net income 65% to 75%, excluding the income from the sale of Fielder's Choice Direct, net of expenses and taxes, and excluding the Landec Ag loses prior to the sale of Fielder's Choice Direct.

On this basis the net income would be $14.8 million, representing a 70% increase from our net income of $8.7 million in fiscal year 2006, meeting our net income growth goal.

This adjusted net income of $14.8 million, impacted for taxes, results in an adjusted diluted earnings per share of $0.44.

We also met our revenue growth goal for fiscal year 2007.

That goal was to grow overall revenues by 10% to 15%, excluding Landec Ag's, Fielder's Choice Direct, and Apio's commission trading business.

And on that basis our fiscal year 2007 revenues increased 14%, so we met that goal as well.

In addition to the sale of Fielder's Choice Direct and the Intellicoat licensing agreement with Monsanto, fiscal year 2007 was noteworthy due to the strong growth in Apio's value-added specialty packaging food business.

In spite of two time periods when severe adverse weather in California and Arizona lead to prolonged shortages of produce critical for Apio's operations, fiscal year 2007 revenues from the value-added specialty packaged vegetable business grew 14%, with both the retail trade business and the 12 oz products growing 18% year over year.

In the strong results in the fourth quarter for Apio's value-added food business, as a result of an ample supply of good quality produce, allowed us to achieve a 22% increase in gross profits in the fourth quarter, resulting in a gross margin for that business of 17%, compared to 15% in the year ago fourth quarter, and compared to 13% in the third quarter of fiscal year 2007.

Regarding Apio's trading business, as stated in prior calls we decided to significantly reduce the part of the trading business which is marginally profitable, that is, the domestic commodity buy/sell trading business.

When this plan reduction in domestic buy/sell trading business is combined with shortages affecting the export part of our trading business, there was a decrease in total trading business revenues in fiscal 2007 of $8.3 million, or a 14% decrease compared to fiscal year 2006.

We also significantly improved our balance sheet ending the year with over $62 million in cash and no long term debt.

Let me turn it over to Greg Skinner for details of our results.

Thank you, Gary.

Good morning, everyone.

As outlined in yesterday's news release, Landec reported total revenues for the fourth quarter of fiscal year 2007 of $51.2 million, versus revenues of $71.3 million for the same period a year ago.

The decrease in total revenues during the fourth quarter was primarily due to a 95%, or $24.4 million decrease in revenues for Landec Ag as a result of the sale of Fielder's Choice Direct to Monsanto on December 1, 2006.

These decreases in revenues were partially offset by a 12%, or $4.4 million increase in revenues from Apio's value-added vegetable produce business.

For the fourth quarter fiscal year 2007 the company reported net income of $4.4 million, or $0.16 per share, compared to net income at $6.7 million or $0.24 per share for the same period last year.

This decrease in net income during the fourth quarter fiscal year 2007 compared to the same period last year is primarily due to a decrease of $3.8 million in operating income at Landec Ag as a result of the sale of Fielder's Choice Direct.

The decrease in Landec Ag's operating income was partially offset by a $1.7 million increase in operating income from Apio.

For fiscal year 2007, Landec had total revenues of $210.5 million, compared to $232 million for the same period last year.

This decrease in revenues for fiscal year 2007 was due to several reasons.

First, a $31.3 million decrease in revenues at Landec Ag due to the absence of revenues from Fielder's Choice Direct during the second half of fiscal year 2007 as a result of the sale of Fielder's Choice Direct; second, an $8.3 million decrease in Apio's commission trading business; and third, a $1.6 million decrease in revenues in our technology licensing business, primarily due to the decrease in licensing revenues from our licensing agreement with the Aesthetic Sciences.

These decreases in revenues were partially offset by the revenue growth in Apio's value-added vegetable produce business which increased 14% to $154.7 million, from $136.1 million last year; and by a 153%, or $1 million increase in revenues from Apio Tech, which is primarily due to increased revenues on our banana program with Chiquita.

For fiscal year 2007 the company reported net income of $29.2 million, or $1.07 per diluted share, versus net income of $8.7 million, or $0.32 per diluted share for the same period last year.

The increase in net income during fiscal year 2007 compared to last year was primarily due to, first, $20.2 million of income, net of expenses and taxes, from the sale of Fielder's Choice Direct; second, a $1 million increase in gross profits from Apio Tech; third, a decrease in selling, general, and administrative expenses at Apio of $906,000; fourth, a $1.7 million increase in non-operating income due to an increase in net interest income, and reduced debt interest and minority interest expenses; and fifth, a $1.5 million settlement of insurance claims related to a fire that occurred at Landec's former Dock Resins facility in 2000, which was recognized as a reduction in corporate, selling, general, and administrative expenses.

Net income was decreased by, first, a $3.3 million reduction of operating income at Landec Ag due to the sale of Fielder's Choice Direct; second, a $1.3 million decrease in gross profits in our technology licensing business primarily due to the decrease in licensing fees from Aesthetic Sciences; and third, company stock option expenses of $615,000.

Turning to the balance sheet, as a result of the sale of Fielder's Choice Direct to Monsanto the assets and liabilities of Fielder's Choice Direct have been reclassified on the balance sheet as of the end of fiscal year 2006 to "assets held for sale."

During fiscal year 2007 our cash balance increased by $47.4 million to $62.6 million.

The increase is based on fiscal year 2006 cash, excluding Landec Ag's cash balance at the end of that year.

This increase in cash in fiscal year 2007 was due to several reasons.

First, $49.4 million of net proceeds from the sale of Fielder's Choice Direct; second, $9.3 million of borrowings by Landec Ag which were assumed by Monsanto; third, $2.6 million in licensing fees paid by Monsanto; and fourth, the sale's $2.6 million of common stock as a result of employees exercising options.

These increases in our cash balance were partially offset by, first, the repurchase of Landec Ag's subsidiary stock and options not owned by Landec for $7.4 million; second, capital expenditures of $6.8 million, primarily to expand Apio's value-added facility; and third, the payoff of $2 million of long term debt, thus completing the payoff of all of our long term debt.

That concludes my formal presentation.

I'll turn the call back to Gary.

Thanks, Greg.

With the sale of Fielder's Choice Direct last December, Landec is now focused on two core businesses, our Apio food technology business and our non-food technology licensing business.

A key driver of future revenue growth in our Apio business is the continued growth of our value-added specialty packaged fresh cut produce products to retail grocery stores, club stores, and food service outlets.

This business is growing at rates above market category growth and we are taking market share using our proprietary BreatheWay packaging technology that extends shelf life of perishable produce.

During the fourth quarter we launched several new products and began to see the efficiency and volume benefits of our 60% capacity expansion that we completed last fall in our processing plant.

As consumers make better choices about their health and eating habits and continue to look for healthy, fresh prepared food products, we see this category continuing to grow.

We are benefiting from our focus on growing markets and the converging trends to healthy and convenient fresh foods and snacks.

Turning to our food trading business, we have two distinct businesses.

First is our domestic commodity buy/sell business which exists primarily to support an important customer; and second, our export trading business.

Our domestic commodity buy/sell business is marginally profitable and non-strategic, and therefore we decided to reduce this business from revenues of nearly $8 million in fiscal year 2006 to roughly $3 million in fiscal year 2007.

We expect to maintain that $3 million level for the next several years.

In contrast to the domestic commodity buy/sell business, the export trading portion of our trading business is predictably profitable and it may be strategic as we expand the use of our BreatheWay packaging technology into international markets.

We plan to grow this business but at a slower rate than our value-added business.

Perhaps our biggest growth opportunity is with our Apio Tech business, which focuses on the sale of our BreatheWay packaging membranes to partners such as Chiquita.

Chiquita is using our technology to extend the shelf life of bananas by seven days, and is currently supplying over 10,000 North American outlets, including convenience stores, coffee shops, quick-serve restaurants, and drug stores with the Chiquita to-go product, and Chiquita has said it plans to continue to aggressively expand distribution this year.

Chiquita customers now include chains such as Core-Mark, McLane, [Cuberland], and Sysco.

In addition, Chiquita is now selling its Chiquita to-go products, using our technology, in three European countries.

Chiquita is conducting retail grocery store trials in the U.S., which include testing price points, merchandising approaches in locations and stores, package designs and labeling, banana logistics handling, and of course consumers' response to the idea of pre-packaged bananas using Landec's technology.

Retail trials are underway and will probably continue through this calendar year.

A priority for us to extend our early success with bananas to other produce targets and we do expect to announce several of these targets and several partnerships during the first half of fiscal year 2008.

We are pleased to see that under a variety of conditions and for a variety of fruit targets, our BreatheWay technology does significantly extend shelf life.

Turning to our non-food technology licensing business, we are busy with our partnerships with Monsanto and their products, as well as our internally funded corporate R&D efforts focused on new break-through polymer chemistry.

We are expanding our R&D staff and filing more patents.

It is too soon to comment on the Monsanto seed coating program, except that it is extremely helpful to have a corporate partner that has worldwide reach to markets, field trial capability both in North and South America, and extensive biology and formulation expertise which we will combine with our material science know-how.

Regarding Air Products, we exceeded our collaborative joint plan for the first year, but we have much work ahead.

While much of our early work has been centered on skincare products for the personal care market, such as what we're doing with L'Oreal, we've expanded our product development focus to include hair care products for personal care, as well as catalyst products for industrial markets.

Fiscal year 2007 was an especially good year for Landec with noteworthy progress in each of our businesses as further validation of the advantages that our unique and proprietary polymers bring to an expanding set of applications and customers.

We are working to stay ahead in our markets in applications through innovation, uniqueness, and new products.

The sale of Fielder's Choice Direct to Monsanto provides Landec with considerable cash for growth and allows management to focus on innovation for new products and applications in our two core businesses, the food technology and food licensing businesses; and to more rapidly introduce new applications for our Intelimer polymer technology, as well as to further expand applications of the technology.

We started our new fiscal year 2008 on May 28.

Our internal goals are to grow overall company revenues by 10% to 15% in fiscal year 2008, compared to fiscal year 2007.

Excluding the non-recurring events from 2007 which we've already referred to, which resulted in a one-time cumulative earnings of $18.8 million, pre-tax net income is projected to grow 45% to 55% and after tax net income is projected to grow 30% to 40% in this new fiscal year.

To do this we will need to continue growing at above category growth in our value-added food business; ramp up Chiquita banana package sales; and add new customers and new partnerships; and make sure that the current partnerships we have with Monsanto, their products, Aesthetic Sciences, and Nitta Corporation continue to progress well.

It is our plan to achieve all of these goals.

We are now ready for your questions.

Thank you.

(Operator instructions) Our first question or comment comes from the line of Tony Brenner with Roth Capital Partners.

Your line is open, sir.

Thank you.

Good morning, Tony.

Good morning.

Couple of questions.

Gary, you mentioned several new products that were introduced in the fourth quarter, without saying what those were.

Can you talk about them?

Yes.

We had a snack line that is primarily oriented to the on-the-go people who would like something nutritious that's got either a dip, or it's got something that goes with the healthy produce.

And price point of those would be $2 or less.

We also introduced a line of products which was kind of a first for us, to the deli departments of grocery stores.

The deli departments are managed quite differently from the produce department and so there were a line of products for the deli market as well.

So those are examples, Tony, of things that were launched in recent times.

You mentioned that Chiquita is using the BreatheWay packaging in three European countries.

Is that on a test basis?

What countries are they and what channels of distribution would those be in?

They haven't announced the countries.

And Tony, as you know, we let them -- they're the partner that's doing the marketing; we let them lead on those announcements.

They -- while they're -- well, I'll tell you, I think they're really kind of a hybrid of testing, but they're selling the product commercially.

It's -- the price points are well established over there, so I would say it's -- while they're calling it "testing," it really is commercial.

And the three countries have not been mentioned yet.

Those are in mainstream food stores or --?

They would be in -- as in the U.S., they would be in what you'd call the alternative markets, and that would be the convenience stores, similar to what we've done initially here in the U.S.

It's not grocery stores yet.

Okay.

I understand.

Several -- you said you would introduce or announce several new partnerships in the first half of the year.

Yes.

All packaging related?

They're in our food space, let me just say that.

They're on the food side.

Okay.

And last --

And, yes, obviously you know the driver of our food business is our proprietary packaging technology.

I missed part of what you said regarding your products.

You indicated that products in the hair care area now, as well as catalyst --

No, let me tell you what I said.

We beat our plan in the first year, our internal plan that we had with Air Products, plenty of work left, and that we -- our focus for commercial sales so far has been skincare, such as what we do with L'Oreal.

But we're beginning to turn our product development focus to additional areas which include hair care for the personal care market, and we're beginning to turn our product development efforts to products in what we call the catalyst arena; those would be more industrial applications such as apoxy resin systems, etc.

So the hair care and the catalyst is still product development, not commercial.

So they've got exclusive rights to use this technology in four areas.

Is it reasonable then to think that it's going to be quite a while before there are products in non-woven disposables, household cleaners, the whole array of their --

It would be reasonable to -- first of all, I don't know whether we'll ever have products in non-woven.

Household, industrial cleaners, it would be reasonable to assume it will be quite some time.

But we are already selling some catalyst products and so we will piggyback off of that and just expand it, so you could expect that to come more quickly.

And obviously we're already expanding our personal care business.

Last question.

Sorry to take -- do you have an estimated tax rate for this year?

For FY08?

Yes, approximately 30% effective rate.

Thank you very much.

Thank you, Tony.

Thank you, Mr.

Brenner.

Our next question or comment comes from the line of Salomon Kamalodine with B.

Riley & Co.

Your line is open.

Good morning, gentlemen.

Good morning.

Are you including any upfront licensing payments from these new licensing wins you expect to announce in the first half as part of the guidance?

There are certainly some numbers in the guidance concerning (inaudible) that we don't currently have, so I guess the answer to the question would be yes, but that are on a small scale.

Yes, it's not huge, but the answer is yes, Salomon.

Okay.

Since we're two months into the quarter now, do you feel like you're in a position to maybe give us an update on how business is trending at Apio value-added so far in the quarter?

Strong.

Okay.

Are you expecting a flatish sequential comp, or how is it going to compare to this quarter based on current trends?

It should be comparable from what we've seen so far.

You know, we've still got a month and a half to go.

And so far supplies are good, weather is good, Salomon.

That can dictate a lot, but so far the customer demand is solid and shipments are good.

Okay.

Couple more questions.

Are you getting any indication from Chiquita as far as their intent to focus the quick-serve vertical a little more aggressively?

Let's just say that the answer is "don't know." But if you look at the numbers of convenience stores and drug stores and coffee shops, and then you compare that to quick-serve, the quick-serve area, if that materializes, is pretty significant in terms of volumes.

It would -- it could blow through anything we've seen so far, so obviously that would be of interest to Chiquita.

They've made no announcements that I know of regarding specifics of that, but there are some key players that are interested in this product line and technology.

We'll let them tell you where they are in the whole cycle of qualifying, etc., but that represents a sizable opportunity for Chiquita and Landec.

Okay, thanks.

Thank you.

Thank you, sir.

Our next question or comment comes from the line of Shawn Boyd with Westcliff Capital Management.

Your line is open, sir.

Good morning, Shawn.

Good morning.

How you doing, gentlemen?

Good.

Good.

Just a couple quick questions.

On the current status of BreatheWay with the Chiquita deal with the retail stores, as I understood it there was a kind of phase one trial which was 50 to 60 stores early in the spring; second trial was going to be advanced regional trials, several hundred stores; third piece of this would be a nationwide rollout, maybe early '08.

Can you give us a little bit more color on where we are at this point and whether or not the -- where the timeline is on each of these?

Shawn, I'd probably -- from our perspective I'd probably insert a third phase in there before your third phase, which is you start -- this is not rocket science.

You start with small numbers of sites; you expand it to larger number sites.

Then you would probably have a regional rollout before you go nationally.

We're talking about the possibility of a paradigm shift here in the way bananas are packaged and sold and how we can extend shelf life and reduce the perishability and all that kind of stuff, so we're -- Chiquita is being very thoughtful and methodical about this and we totally agree with this approach.

And they're testing price points.

They're testing how many bananas should be in the package.

Should the package be in a flexible film or a tray?

What should be the labeling on the package?

How do you promote and make people aware of the technology?

Because you can't just look at the membrane and it would be obvious to you.

Should it be displayed in the center of the banana -- commodity produce section?

Should it be separate?

Should you have kiosks in the cereal area?

So there are a myriad of what I call marketing mix issues that are being evaluated, and they're learning a lot and I know they're making some modifications to their approach.

And so I see that whole process continuing through this calendar year so that when they launch -- they don't get lots of second chances with retailers.

You've got to get it right from the get-go.

And so when they want to go regionally and then move nationally, they've got all of those variables understood, have the right mix of products that are available.

Right now they been testing just one product concept.

And so that's what they're doing and we applaud them for doing it this way and we're supporting that effort.

But at the end of the day they're the driver of this and they will determine the timing and we'll look to them for the announcements.

Okay.

So from your standpoint, where we are today, it still looks like that testing is moving along as it should and you're still looking at a national rollout by early '08 -- calendar '08?

I would probably -- I would guess that they'd go to a regional rollout, but if you're -- to get all your ducks lined up you could probably go quickly from a regional rollout to a national rollout fairly quickly.

And that's what they're trying to do is get it all lined up before they really get going here.

And so then the other question is, in terms of your guidance and putting a growth rate on the value-added business and trying to kind of back into a few numbers, it looks like you're looking for kind of low single digit revenues from both the Chiquita deal and the Air Products deal in fiscal '08.

Is that fair?

Low single digit revenues, yes.

Okay.

The other question I had is on the gross margin for '08.

Would you mind giving us just roughly what your assumption is for your fiscal '08 guidance?

For gross margin percentage?

Yes.

Well, you know, it varies by what type or what business segment you're talking about.

In value-added we're saying that it's going to be -- our goal is to be flat with '07.

We've got some cost increases that we're going to need to offset with some efficiency.

'07 was 15%, approximately rounded.

In the commission business, that's a 5% margin business.

And then obviously on the technology side you're talking high margins.

Over 50%.

Okay.

Let me step back for now.

Thank you.

Okay.

Thank you.

Thank you, Mr.

Boyd.

Our next question or comment comes from the line of William Gibson with Nollenberger Capital Partners.

Your line is open, sir.

Good morning, Bill.

Good morning.

Say Gary, I think I heard you throw out a number but I missed it, in the number of alternative locations Chiquita's in now?

They publicly said that they're in over 10,000 sites.

Okay, so 10,000 plus.

And a second related question; have you talked to either the other banana companies about areas where Chiquita does not have an exclusive?

In other words, I'm sure they're watching Chiquita to go, and wondering, should they get involved?

I'm not going to comment, Bill.

Thank you.

Thank you.

Thank you, Mr.

Gibson.

Our next question or comment comes from the line of Jeff Osher with JMP Asset Management.

Your line is open, sir.

Thank you, guys.

Just a question.

Refresh my memory, on the $18.8 million, can you just walk me through again what that was as far as one-time gains in FY07?

Yeah, it's -- if you had the press release, it's the Q&A question number five, but it is the gain on the sale, net of expenses, for Fielder's Choice Direct, which was $22.7 million; the insurance settlement of $1.5 million; you had the Aesthetic Sciences milestone of $500,000; so that goes one direction.

Then, backing off, you had losses in the first half of the year prior to the sale of Fielder's Choice Direct of $5.8 million at Landec Ag.

When you add all those together, it comes to $18.8 million.

Okay.

But you guys didn't include the -- what was the actual revenue you were able to recognize on a recurring basis from Monsanto and the license fee in the year?

$2.7 million is what we recognized this year.

Okay, so half a year worth.

We only had half a year (inaudible) year.

Okay.

So if I just look into fiscal '08, you're going to pick up $2.7 million on a year over year basis that you didn't have in the first half of FY07, which is 22% growth right there.

So that basically says, on a pre-tax basis, the rest of the business you're expecting 30% growth.

Is that the right way to think about it?

From a math standpoint, yes.

That sounds right, yes.

On the low end it would be doubling what that is.

Well how do you guys get to doubling?

Because you pick up $2.7 million, right, in the first half of FY08 that wasn't in FY07.

Right, but I'm saying that the rest of the business, you would double that.

Yeah.

Well, you'd pick up another -- roughly $3 million from the rest of the business.

Yeah, yeah.

What I'm asking, I guess -- are you guys being conservative, or is the rest of the business, are you guys just looking for $3 million of pre-tax growth in the rest of the business?

We give a range, and the range is a range of which there's some conservatism in there.

Okay.

I'll follow up offline.

I just -- when you guys gave your dialogue about what needs to occur to hit your '08 guidance, I'm just trying to reconcile that with what looks like conservative pre-tax growth guidance.

I'll follow up offline, but great year, guys.

Okay.

Thanks a lot.

Thank you.

Our next question or comment comes from the line of Jonathan Lichter with Sidoti.

Your line is open.

Hi, guys.

Hey, Jon.

When could the European business become material to Landec?

I would guess in fiscal year '09.

And how many alternative sites would that require?

Boy, I think -- what we're learning, Jonathan, is that it's the "who" that will determine the volumes.

Certain types of convenience stores have a consumption rate that's modest.

Then you get into quick-serve outlets, and those are rather dramatically and significantly higher, so that's going to have a lot to do with mix.

But I would think that once they get into the 10,000 to 20,000 site region in Europe, and if it's in some of these higher-use sites, then it gets to be material, such as we're seeing in the U.S.

Are they currently testing in restaurants or quick-serve outlets?

I don't know.

I don't know; I think it's -- I do know they're in convenience stores, I just don't know if they're testing in quick-serves in Europe.

I just don't know.

Okay.

All right, thank you.

Thank you.

Thank you.

Our question or comment comes from the line of Will Lauber with Sterling Capital Management.

Your line is open.

Yeah, I had two questions.

One on the cash position; if we're sitting here next year, just trying to get an idea of where that will be; I'm guessing your -- looks like your cash for taxes is kind of offset by your CapEx and looks like your R&D was pretty much flat.

Without your cash flow statement, I can't make a great approximation, but I was just wondering where that cash position would be at the end of next year.

You should expect that the cash position will approximate the growth in our net income.

Okay.

That's what I thought.

And the second question that I had --

Will, just so you know.

There are things that could change that.

We're going to be opportunistic to look at -- obviously, first and foremost, internal growth opportunities.

If there's something that we see that makes tremendous sense from an acquisition point of view, we would consider it.

We don't have anything pending right now that's close, but I just want you to know that that could change.

Okay.

And my second question is from your press release.

It looks like you're saying that the anticipated growth in Apio Tech is basically based on Chiquita; and from what I understand in the past you've just been collecting the minimums.

Is that correct?

Right.

So this year, for the first time, you expect to blow through those, or -- I guess blow is not a great word -- but go past those minimums?

Well, remember what we said in past calls that when we entered into the agreement with Chiquita approximately 2.5 years ago now, we had minimums that racheted up each year for three years.

This is -- we're now in the third year.

So there is another increase in minimums for this calendar year.

So right now, I would say that the conservative projections would be that this year, we'll hit the minimums, and then starting in '09 is when we'll start exceeding those minimums.

Just like the way it reads in the challenges and risks; it says that your growth in the Apio Tech is primarily based on the banana program with Chiquita.

That will be true for the next year or two.

Okay.

So I guess, getting around to it, it will -- in your plan, you're expecting to go past the minimums for 2008.

No, I think Greg was saying that since the minimums are going up this year, the numbers going up, we'll probably track that; and this is in the spirit of hopefully underpromising and overdelivering.

Okay.

So then it's really not truly a risk because the minimum -- whether --

Ah, I see; now I see -- why is that a risk if those numbers are guaranteed?

I got it.

Okay.

Fair enough.

That's a fair comment.

Okay.

Thank you.

Thank you.

Thank you, sir.

(operator instructions) We have a follow-up question or comment from the line of Salomon Kamalodine.

Your line is open again, sir.

Just want to get an idea of what you can do from a long-term initiative perspective to improve the margins at Apio.

Looking at the challenges and risks section of the press release and I'm wondering what you can do as far as where you source your product from and how it's distributed nationwide to maybe more than offset some of the pressure that you think could potentially impact your margins in 2008.

That's a terrific question and one that we constantly address.

Let me tell you the high on the list is what I call SKU anti-proliferation.

You can imagine that with the growth that we've experienced in this business over the last five years, and the interest that buyers have had in new products, and we keep talking about new products that we add that we've had an SKU proliferation issue, and we need to aggressively weed that out and shorten the list in terms of SKUs and make sure that we are disciplined in that regard, and so that's high on the list.

Second is product mix, very high.

We have, as you can imagine, a range of margins on our products that are -- some higher, some lower, and we are obviously focusing on those products as we launch new products that are higher in margin so we change the mix.

Third, we made some significant, at least for us, capital expenditures; this last year, $6 million to expand and improve the efficiency of our plant.

So that's important to us.

Fourth is we're looking at some new market segments that are new for us, but represent possibilities for being higher margin opportunities, such as military applications, deli applications.

So we're looking at all those in parallel, and we'll need to do all those because I don't need to tell you that fuel costs are going up, film costs are going up, raw materials for cost are going up.

Ron Midyett, our chief operating officer, that's his focus, and that's our priority.

Okay.

Got it, thanks.

And final question, I was wondering if you could again just go through the math on the total addressable market for the packaged bananas and what that could mean in terms of if the revenue opportunity -- if Chiquita were to sell the bananas at grocery stores and other outlets.

Well, I think what we've said publicly is that there are 230 million cartons.

They're cardboard cartons that have 40 pounds of bananas in them.

Those are imported to the U.S.

every year and consumed by Americans.

Almost all of that goes to the retail grocery store chains, and so you've got 230 million cartons times 40 pounds.

So if you want to get it to total number of pounds, I believe that's something like 9 billion pounds of bananas, and Chiquita controls or represents about a third of that business opportunity.

Chiquita's not spending this kind of effort and money for a market niche product line.

They want to see a sizable portion of their business converted from commodity pricing and commodity displaying and merchandising to value-added products.

So from that math, you can start to think about what's possible.

It is publicly known that some of the initial price points they've been looking at for a tree-finger in testing has been $1.50 per package, which represents roughly one pound of bananas.

So from that, I'll let you take it forward.

But what we'd rather do is address that more specifically as we're beginning to roll it out commercially and then nationally for the retail grocery stores.

Right.

Have you said what your revenue is per package for each patch, and what the margin is on each one?

It really ranges from about -- it depends on the membrane size, but it can range from just roughly $0.05 to -- it can go up to in some of the larger package sizes, it can be $0.15, $0.20 per membrane.

Got it.

And final question; how is Chiquita thinking about the fact that you could potentially go and license the technology to other producers that down the line could compete with them in their value-added business, which to me seems to be what's gotten a lot of people excited about Chiquita.

Are they doing anything to protect that competitive advantage that they have and the relationship that they have with you guys?

It would not be appropriate for me to comment on that right now.

Okay.

Fair enough.

Thanks.

Okay.

Thank you, sir.

Our next question or comment comes from the line of Peter Black of Winfield Capital.

Your line is open, sir.

Good morning, Peter.

Good morning.

How're you doing?

Just a quick question.

Does the inability to earn that earn-out from the sale of Fielder's Choice Direct to Monsanto -- does that say anything about the long-term attractiveness of the Intellicoat seeded business to them?

No.

No, because first of all, you may recall from an earlier call that we said that earn-out, while a nice gesture on Monsanto's part, was a real high -- it was a stretch to ever achieve, and it was there for the management team of Fielder's Choice Direct.

Let me remind you that Fielder's Choice Direct didn't have the benefits, since the year was underway, seed was already planted and sold, etc., etc.

They didn't have the benefit of accessing some of what I'd call the premium Monsanto genetics that they now will have, since they are fully owned by Monsanto, etc.

So they didn't have that; we knew it was a stretch goal; they didn't achieve it.

It has nothing to do with Intellicoat because the vast majority of Fielder's Choice Direct sales were in non-coated seed.

So I don't see any linkage there at all, Peter.

Okay.

Thanks a lot.

Nice job again.

Thank you.

Thank you, Mr.

Black.

Our next question or comment comes from the line of Rick Federman from Federman Investments.

Your line is open, sir.

Good morning, Rick.

Good morning.

One of the earlier callers asked a question that you responded affirmatively to regarding the revenues, or expected revenues, regarding Air Products in Chiquita being in the low (inaudible - technical difficulty) -- comment was low single digits this year.

Were you referring to the growth rate or the -- as a percentage of total revenues?

I thought he was talking about low millions combined.

That's how I responded; to the low single digit millions.

Okay.

Regarding Air Products, do you expect to receive payments this fiscal year in excess of the quarterly payments that they're making based on the original contract?

In terms of minimums?

Yes.

Was it $200,000 a quarter?

Yes.

We'll continue to get $200,000 a quarter from the licensing; and yes, beginning of April this year, we started receiving our 40% of the gross profits.

It was a small amount for this quarter.

We expect it to be much larger next year, past twelve months' worth.

Okay.

Thank you very much.

Thank you.

Thank you, Mr.

Federman.

Our next question or comment comes from the line of Shane Kim of Camden Partners.

Your line is open.

Thank you.

Just a clarification question.

On your revenue guidance, your 10% revenue growth guidance is based on $210 million of fiscal '07 revenues, is that correct?

Correct, and our guidance is 10% to 15%?

Yes, but it's on the $210 million number.

Okay, and then everything else is sort of based on non-recurring -- taking out everything else.

Okay.

Right.

That's right.

We want to make this clean and move past some of these non-recurring events that we had in '07.

All right.

Thank you.

Thank you.

Thank you, Mr.

Kim.

Mr.

Steele, I'm showing no further questions in queue at this time.

I would like to turn the conference back over to you, sir.

We want to thank everyone for participating in this call today, and we appreciate your ongoing support, and we look forward to keeping you posted on our progress and plans.

Thank you very much.

Ladies and gentlemen, this does conclude our conference call for today.

We do again thank you for your participation.

You may all disconnect at this time.

Good day.