Fresh Del Monte Produce
Since the company is already in the fourth quarter, you can extrapolate from the guidance that earnings could be at break-even or even yield a loss. Analysts were projecting a $0.36 profit for the last quarter and $2.30 for the year.
One of the woes is November pineapples sales. November is usually a high consumption month, but sales fell short of expectations. Pineapples, lumped by Del Monte under the category of "other fresh produce," have been the key profit contributor in recent years.
It's interesting to note that this news did not send the stock of Maui Land & Pineapple
Even more worrisome for Del Monte is the 40% decrease in banana prices because of increased volume from the Philippines, Japan, and Korea. But since bananas contributed a significant portion of Del Monte's gross profit, any price weakness that spreads will be felt on the company's bottom line.
Weak banana prices could have a devastating impact on Chiquita Brands
Chiquita, though, has been working to decommoditize bananas. In 2002, it introduced a sweet banana in Japan called the Chiquita Precious that sold at a significant premium to traditional bananas. This year the company is testing baby banana as Chiquita Minis. And the company announced in December 2004 that it was investing its R&D dollars in bananas of different sizes and tastes.
Chiquita has not released an interim banana pricing report for the fourth quarter, so it's unknown what impact bananas prices are having at this time.
Fresh Del Monte Produce's stock has recovered since this morning's plunge and is down 8.1% at 4 p.m. Because of uncertainty for 2006, investors should wait for the company's earnings guidance before considering the commitment of new money to these shares. Investors wanting to stay away from the commodity end of the food business should consider investments in Motley Fool Income Investor recommendations H.J. Heinz
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Fool contributor W.D. Crotty own shares in Chiquita Brands and likes a ripe banana with lunch. Click here to see The Motley Fool's disclosure policy.