Fresh Del Monte just had a ‘perfect storm’ of a quarter

Fresh Del Monte shares slid 12% Tuesday to mark their biggest one-day decline in 15 months and put them on track to close at a more-than three-year low, after the fresh fruit and vegetables distributor swung to a loss in the second quarter.

“Uncontrollable factors led by congestion, delays and inclement weather at our loading ports in Central America, substantially lower banana selling prices in Europe, an oversupply of pineapples in North America, continued tightening of the transportation market, and higher commodity costs adversely affected our overall performance,” Chief Executive Mohammad Abu-Ghazaleh said in the company’s earnings release.

On a call with analysts, the CEO said the delays in Central America were, “the worst we have ever experienced,” according to a FactSet transcript.

“We also faced increased fertilizers and containerboard costs, along with higher transportation and logistics costs,” he said. In North America alone, inland transportation and logistics costs were $13.4 million higher than in the year-earlier period, he said.

The company swung to a net loss of $7.9 million in the quarter after income of $69.2 million in the second quarter of 2017. Sales rose to $1.27 billion from $1.15 billion. Only one analyst on FactSet continues to cover the stock and he did not provide a sales consensus.

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By product line, pineapple sales rose 3% to $139 million as higher sales volume in Europe weighed against lower selling prices in North America and lower volume and pricing in the Middle East.

Banana sales fell to $458 million from $500 million, as lower sales in Europe, the Middle East and Asia. Avocado sales rose to $95 million from $85 million, but pricing fell 22%, while volume rose 43%.

Chief Financial Officer Richard Contreras said the quarter was “a perfect storm” that the company had not seen coming. Ships in Central American ports were delayed by three or four days on some occasions by bad weather, he said. Once the company loses a time slot, “the ripple effect is tremendous,” he said in response to questions from analyst Jonathan Feeney from Consumer Edge, who was the only person to address the company’s management on the call.

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“We miss delivery to our customers. We have to ship fruits from other ports to be able to satisfy our customer needs, which means our port charges which translates to millions of dollars as well as the quality that was also affected by delays at the port,” he said.

Meanwhile, banana prices in Europe were derailed by massive shipments from Ecuador, said the CFO.

“Ecuador shipped a lot more fruit during the second quarter into Europe and all over the place that have really affected prices drastically all of a sudden,” said Contreras. “I mean, it’s just like overnight prices just dropped and never kind of recovered.”

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The company is expecting to pass some costs onto customers, including transportation, logistics and fuel increases, he said.

Shares have fallen 25% in 2018, while the S&P 500 SPX, +0.46% has gained 5.5% and the Dow Jones Industrial Average DJIA, +0.54% has gained 3.0%.

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