How Much Further Will Chiquita Run?

Investors and analysts interested in Chiquita Brands International (NYSE: CQB  ) were disappointed to see top-line growth not quite as high as expected, even though the company beat on the bottom line. Revenue not only missed estimates, but fell year over year by nearly 3%. But the story with Chiquita goes well beyond the income statement, as the company is still in the earlier years of a massive turnaround effort -- one that has already sent the stock up more than 100% in 12 months. As one of Barron's top small-cap picks, is Chiquita ripe for investment?

Earnings recap
The No. 1 banana business in Europe, and No. 2 in North America (first is Dole), Chiquita has an incredibly strong brand name and has come back from its struggling years to impress investors with a sound turnaround plan aimed at cutting costs, boosting margins, and growing the core business. At the helm is Ed Lonergan, a turnaround expert who served time taking earnings-negative businesses, shedding their poor-performing assets, and restructuring around core principles. He has not changed strategies in his efforts at Chiquita, and though it included large up-front costs in 2012 that yielded a net loss for the year, the company is now more nimble and set to grow.

While Wall Street expected $0.46 per share for the recently ended quarter, Chiquita showed its new management is ahead of the cost-cutting game, with earnings coming in $0.20 higher at $0.66 per share. Year-over-year, this represents a 144% increase. As mentioned, revenue shrunk by nearly 3 points to $812 million, shy of the Street's expected $821 million.

In April, Barron's wrote a bullish piece on the stock, predicting much-improved margins, $60 million in annual cost savings, and a full year EBITDA of $175 million -- a number that would nearly triple last year's results.

While revenue wasn't quite as high as expected, suggesting growth isn't happening quickly enough, the company is still in the midst of its overhaul, and the fruits of its labors have yet to fully ripen.

Hang in there 
As mentioned in the Barron's piece, much of Chiquita's coming performance will be dictated by foreign currency and the banana market. Its Fresh Express line, packaged produce, is focusing on the private-label industry and gaining market share.

While Chiquita does hold sizable debt, it's a manageable number and one that investors should not fret about, given its maturity date.

At this point, Chiquita trades at roughly 11 times forward expected earnings, putting it on average with the fruit industry. It's not the bargain it was a year ago, but the company has vastly improved and will grow in the coming years. Upside potential here is not a high-growth story; expect maybe another 10% to 15% if all goes well. But for a quality business, great management, and a relatively predictable return, Chiquita offers a tasty treat to investors.

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