Chiquita

Investor Relations > Fourth Quarter 2008

Transcript
Fourth Quarter and Full Year 2008
Earnings Conference Call
February 19, 2009

BRYAN BROWN (Manager of Investor Relations & Corporate Communications, Chiquita Brands International): Welcome to Chiquita Brands fourth quarter and full year 2008 earnings conference call. On the call today are Fernando Aguirre, chairman and chief executive officer, and Jeff Zalla, chief financial officer.

After today's prepared remarks, we will take questions as time allows. Joining for that portion of the call will be Brian Kocher, president of North America.

If you have not received a copy of today's press release, you will find it on the company's web site at www.chiquitabrands.com or contact Chiquita's Investor Relations department at (513) 784-6366.

Before we begin, let me remind you that this call may contain forward-looking statements concerning operating performance or industry developments. Factors that could cause results to differ materially are described in the forward-looking statements of today's press release and in Chiquita's SEC filings, including its annual report on form 10-K, and quarterly reports on form 10-Q. Now, I would like to turn the call over to Fernando Aguirre.

FERNANDO AGUIRRE (Chairman and Chief Executive Officer, Chiquita Brands International): Thank you, Bryan, and good afternoon and thank you for taking the time to join us today. We welcome the opportunity to discuss our results for 2008 and the progress we're making to strengthen our business in 2009.

As detailed in our press release for the full year 2008 on a comparable basis, we improved our income from continuing operations by $56 million. We achieved higher banana pricing in each of our markets and achieved the targeted cost reductions from our 2007 restructuring. These actions, in addition to favorable euro exchange rates, enabled us to more than overcome unprecedented increases in sourcing costs in both bananas and salads, as well as volume declines in the salads category. We are pleased to have delivered year-over-year improvement in 2008 despite weakness in the general economy, and we expect to do so again in the full year 2009.

In the fourth quarter, we incurred a loss of $33 million on a comparable basis. On a reported basis, we recorded a net loss from continuing operations of $411 million in the quarter, primarily as a result of a $375 million non-cash impairment charge related to Fresh Express goodwill. This impairment charge resulted primarily from a sharp decline in market values in the current economic environment and lower category growth expectations due to recent negative volume trends in the value-added salads category. Jeff will discuss this charge with you in more detail but it is important to note from the outset that this non-cash charge will have no impact on our day-to-day operations or on our liquidity, covenant compliance or borrowing capacity.

Fresh Express remains a vital part of our profitable growth strategy to be the leader in branded healthy fresh foods. We will continue investing and innovating in salads to leverage our number one market position, and continue delivering the freshest, highest quality product.

Throughout 2008, we made significant progress in shaping our business for the long-term:

We transformed the profitability of our North American banana business, earning more than our cost of capital for the first time in decades, and our plans are to maintain this performance.
We successful generated $65 million of savings from the business restructuring in 2007, well within our $60 million to $80 million targeted range.
We sold Atlanta AG, a low margin distribution business, and used the proceeds to pay down debt.
We continue to expand our new product introductions like Chiquita to Go, Just Fruit in a Bottle smoothies in Europe, our Gourmet Café salads and our line of Healthy Snacking products.
We also extended our geographic presence into Africa and China.
And finally, we successfully refinanced our bank debt early in 2008 with more flexible covenants and a very supportive bank group.

As a result, we have ample cash and liquidity and a solid capital structure with no more than $20 million of debt maturing in any year until the year 2014. Overall, we've delivered a strong year in 2008 and positioned ourselves very well for the future, despite significant cost challenges and the overriding economic crisis.

Looking ahead, we believe Chiquita is positioned to outperform in 2009, even during a period of general economic weakness. Specifically:

Bananas are a food staple and a great value compared to other food items, especially in North America where a banana sells, on average, for only $0.30 at retail. Nowhere else in the grocery store can consumers find such a great nutritional and monetary value in any single food item. That makes bananas recession resistant. In 2009, results in bananas should continue to be resilient in North America where pricing remains stable, despite a significant decline in fuel-related surcharges.
In Europe, we will continue to leverage our consumer brand preference and price premium, and results for the year will depend, to a large degree, on local pricing dynamics and the value of the euro, both of which face challenges as we start the year.

Turning to salads, we need to first acknowledge that we are disappointed with current market performance of both the category and Fresh Express. Salads had a difficult fourth quarter. Based on retail scan data, value-added salad unit volumes were down for both the category and Fresh Express. Clearly, the current economic environment has made our challenge more difficult, particularly as consumers have been making fewer trips to the grocery store. However, we are committed to delivering better performance and we are executing a plan that makes us confident that we will turn this business around.

Let me share some details of our 2009 program to improve salad profitability:

First, we have completed the full integration of the Verdelli facility into our product supply network. This will significantly reduce the cost that hampered our results in 2008. We are now producing and distributing Fresh Express products in the Northeast efficiently.
We have also made improvements in every other manufacturing plant, further strengthening our overall network capacity, service levels and product freshness. We have eliminated a high number of our unprofitable SKUs and reduced our production overhead costs. These changes allow us to gain profitable new retail distribution, including some new and expanded accounts, which will begin to benefit our results in the second quarter of this year.
Second, we continue to price up in each contract we renew. Since last June, we have renewed about 50 percent of our annual retail volume and we have another 25 percent coming up for renewal in 2009.
In our foodservice channel, we are doing the same as we strive to ensure that each contract generates an adequate return. We expect this to significantly reduce our food service volumes in the short-term. In fact, food service volume declined 25 percent in the fourth quarter and may be 50 percent lower for the full year 2009 as we are committed to profitability and are unwilling to accept any unprofitable volume. However, shifting our capacity to serve customers in higher margin retail salads is absolutely the right step to position ourselves for much stronger long-term profitability in our salads operations.
Third, our recent product introductions demonstrate that we will continue to lead the category in consumer focused innovation. For example, we are encouraged by the recent introduction of Tender Ruby Reds and Sweet Tender Greens, both of which achieved more than 30 percent distribution in eight weeks. We have also launched three family-sized clamshells that have outperformed sales of similar bags by 60 percent. Through these introductions, we have added new customers, increased sales, and added contribution margin.
As part of Healthy Snacking, as we generate higher revenues in the initial launch markets for Just Fruit in a Bottle in Europe, we expect our total annual investment to be lower in 2009 by as much as $10 million. Just Fruit in a Bottle continues to be recognized for superior product quality which is driving increasing sales and strengthening our position of the number one brand of smoothies in nearly all markets in which we compete. We are also looking for cost efficient ways to strengthen our distribution and expansion into other markets.

Although the current outlook for the general economy is uncertain, we expect to achieve significant progress in our salads business and the Salad and Healthy Snacking segment this year. But we still have much more work to do and I will update you on our progress during the year.

We continue innovating towards high margin products and diversifying our portfolio, and we are on track to achieve our long-term target of generating at least 5 percent of revenue from new, higher margin products.

As part of our efforts to drive improved results, I am pleased to report that we delivered our expected $65 million of savings from the 2007 business restructuring, and we also exceeded our internal cost savings target of $30 million. This helped us to more than overcome the unprecedented cost increases we saw in 2008.

Given the current economic environment, as we prepared for 2009, we needed to focus on improving our cost efficiency. In fact, we've been very aggressive in our cost structure and overhead expenses. We literally declared war on costs and made several difficult decisions in the last two months. I believe it is very important to set an appropriate tone at the top.

Starting with me and the executive leadership team, we froze salaries for 2009, reduced the bonus payment by 25 percent for 2008 performance, and we also eliminated the first of three years in our long-term incentive program. While we will follow our normal compensation principles for employees below the executive level for bonus and salary increases, we eliminated another 170 positions and reduced other benefits and discretionary spending.

In summary, we're well positioned for 2009 and while there will be quarter to quarter volatility, we're committed to generating even better results for the full year on a comparable basis over 2008. From a financial perspective, our balance sheet and liquidity are in excellent shape. We're focused on the right priorities to drive profitability, and because of the actions we took in 2008, we believe we are ahead of the pack.

We have the right strategy in place to leverage global health and wellness trends. Consumers know and trust our brands, and our products are in basic categories that are very affordable. We also have a leadership team that is disciplined and very willing to make some sacrifices to help us all accomplish our goals

We're pleased that we increased comparable earnings and improved our financial condition in 2008, particularly given the most challenging economic environment in decades. These are times of dramatic change, but we will remain flexible to adapt ourselves. I believe it is imperative that we manage our business with short-term focus, but also with the long-term aspirations. We have to manage the current challenges but we cannot lose sight of our long-term goals.

As a management team, we believe that it is our job to continually improve our earnings year after year, despite whatever challenge we face. The economic crisis makes us move with guarded optimism, but we are confident that our plans are right for the times and that our people will continue to drive costs out, to manage for profitability and to innovate the drive growth in both revenue and earnings.

I look forward to updating you on our results as we move through the year. Now, I will ask Jeff to provide more detail on our financial results for the fourth quarter as well as our outlook for 2009. Jeff?

JEFF ZALLA (Chief Financial Officer, Chiquita Brands International): Thank you, Fernando. As detailed in today's press release, on a comparable basis, our full year income from continuing operations was $49 million or $1.12 per diluted share. And our fourth quarter loss from continuing operations was $33 million or $0.74 per diluted share.

On a reported basis, we recorded a net loss in the fourth quarter of $411 million, which includes a non-cash impairment charge of $375 million for Fresh Express goodwill which resulted from our annual intangible asset impairment review. This non-cash charge was necessary to reduce the book value of Fresh Express goodwill through its estimated fair value in light of weak, economic and financial market conditions, as well as lower growth trends in the value-added salads category. Importantly, this charge does not have any impact on our day-to-day operations, on our investment plans for salads or on the company's liquidity, covenant compliance or borrowing capacity.

In the Banana segment, year-over-year sales grew 9 percent in the fourth quarter to $496 million, and comparable operating income was $13 million versus $32 million in the year ago period. The decrease in operating income was due to higher product sourcing costs, lower fuel hedging results, and lower average euro exchange rates. The results included about $8 million of higher product supply cost as a result of flooding in Panama and Costa Rica. Fuel hedging represented an $8 million loss in this year's fourth quarter compared to a gain of $7 million in the year ago quarter, or a $15 million negative variance.

In North America, year-over-year banana pricing increased 34 percent in the fourth quarter due to increases in base contract prices and surcharges on flat volume. January price trends remained about the same while volume was lower due to a shorter first week of the month.
In our core European markets in the fourth quarter, banana pricing was flat on a local basis and 7 percent lower on a dollar basis. Volume decreased by 2 percent due to tight industry volume conditions, and our continued focus on maintaining our premium product quality and price differentiation rather than market share. In January, local prices were about flat and dollar prices were about 8 percent lower than the year ago quarter. On volumes that were down in double digits mostly due to the shorter first week of January and the exit of certain unprofitable volumes in the UK.

In our Salads and Healthy Snacks segment, net sales decreased by 10 percent from the year ago quarter to $295 million, primarily due to a reduction in foodservice volume, which declined 25 percent as we exited certain contracts that were not sufficiently profitable. Net revenue per case in retail value-added salads rose 6 percent in the fourth quarter versus the year-ago period. The fourth quarter of 2008 was impacted by higher industry and production costs, which were partially offset by improved pricing. Comparable operating results were a loss of $14 million versus a loss of $2 million in the year-ago quarter.

These results for the quarter include $8 million of investment spending in the successful expansion of Just Fruit in a Bottle in six countries in Europe versus $5 million a year ago. The total investment in Just Fruit in a Bottle throughout 2008 was $26 million.
In January, retail value-added salad volumes were down in mid single digits as expected, due principally to the exit of unprofitable SKUs. And pricing per case continues to trend up about 5 percent versus year ago. As Fernando outlined earlier, we have a very clear plan to improve margins in this segment.

In our Other Produce segment, net sales decreased 17 percent to $48 million, primarily due to the reduction of lower margin sales of Mexican vegetables. Comparable operating income was $2 million versus break-even results a year ago. This segment will continue to be seasonal but we expect it to be deliver stronger operating income and cash flow in future years.

Now, let's review our outlook for 2009. First, let me say that given inherent risks in our business, we do not believe it is prudent to it give guidance in the form of point estimates for net income or EPS. This is doubly true in the current economic environment. However, let me share with you how we're thinking about the broader trends in our business in 2009.

First, in 2008, we did a great job executing against the challenges we faced and especially in transforming the North American banana business which was our number one priority and in achieving our cost reduction targets. 2009 is shaping up to hold similar challenges. We have several trends going against us:

Higher product supply costs in bananas;
A significantly lower euro exchange rate and;
Sluggish local banana pricing in Europe at the start of this year.

However, we have some positive trends that are significant as well:

Our plans for salads should deliver a significant improvement year-over-year;
We have continuing strong banana pricing in North America;
We continue to attack costs aggressively and;
We will be investing less in startup losses in Just Fruit in a Bottle.

We do have some significant challenges but we're working aggressively to overcome them. Where we will end at 2009 is hard to say at this point, particularly given the uncertainty in the economy. But we believe that we can deliver total company results in 2009 that are an improvement versus 2008, on a comparable basis. And that's what our incentive compensation targets are tied to us achieving.

Now for a few segment-specific comments.

In the Banana segment, overall supply and demand remains relatively favorable with tight supplies in Latin America and relatively stable consumer demand. Banana sourcing and production costs are expected to increase in 2009 compared to 2008, due primarily to purchase fruit contract pricing, government imposed exit prices and close to $30 million of incremental sourcing and logistics costs from flooding that occurred late in 2008 in Costa Rica and Panama. Reductions in fuel-related costs will be partly offset by fuel hedging results, which, at current forward rates, would generate losses in 2009 versus a gain in 2008. As we all know, fuel has been especially volatile lately and hedging serves to mitigate that volatility. But our hedging program presents a challenge for us in 2009, including in relation to competition which typically does not hedge much of its fuel exposures.

Banana pricing remains favorable in North America. In fact, it is expected to remain relatively stable, despite a significant decline in the amount of fuel-related surcharges. Local European banana pricing is less certain, due in part to higher first half volumes of the French West Indies compared to the post-Hurricane Dean period a year ago. We also expect a much lower euro exchange rate. The euro averaged $1.47 in 2008 and we're about 75 percent hedged at $1.39 in 2009 versus the current spot rate of about $1.27 per euro. So our put options are providing valuable protection, but currency will be a significant challenge in our European banana business in 2009 if local prices don't increase to compensate for the year-on-year decline in the value of the euro. Our present plans do not contemplate a reduction in the European tariff on banana imports from Latin America. If the tariffs are reduced, that would lower our costs and benefit our results.

We do expect to generate significantly improved results in our Salads and Healthy Snacks segment in 2009 as a result of the profit improvement strategies for salads, which Fernando discussed, plus, as much as $10 million in lower startup losses for Just Fruit in a Bottle, in keeping with the target for individual markets to reach break-even by the end of their third year after market launch.

In terms of consumer trends in salads, we are seeing consumers make fewer trips to the grocery store. However, they are still purchasing the same number of bagged salads on each of their trips. We're not seeing consumers trading down to commodity heads of lettuce which are actually down slightly in both volume and dollar terms year-on-year. All value-added salads are up, at least in dollar terms. We continue to be the market leader in this category, and our focus on profitability rather than market share positions us with well for 2009 and for the long-term.

In addition, I want to comment on a few unusual items that will impact reported results during 2009.

First, as we announced in the third quarter, we are relocating our European headquarters from Belgium to Switzerland to optimize our long-term tax structure. We expect to incur one-time costs related to this relocation in the range of $19 million to $23 million, of which $7 million was recorded in 2008. With most of the remaining $12 million to $16 million coming during the first half of 2009. This will continue to be a reconciling item in arriving at comparable net income figures for the year.
Second, in January 2009, the company sold its banana operations in the Ivory Coast. The transaction is expected to result in a pretax net gain of $3 million to $5 million as well as tax benefits of approximately $4 million. These asset sale related items will contribute to reported net income in the first quarter of 2009, but will be excluded in arriving at comparable net income for the quarter and the year.
Third, beginning in the first quarter, we will be applying the new accounting standard regarding convertible notes. This will have no impact to the company on a cash basis, but it will increase reported interest expense by approximately $7 million in 2009 and increasing amounts in later years. We will consider this as an add-back in arriving at comparable result for 2009. More information about this accounting change will be included in our upcoming 10-K filing.
Finally, I would like to comment on our capital structure which has placed us in an excellent position to withstand uncertainty in global financial markets. At year-end we had $77 million in cash, had $129 million in borrowing capacity under a five-year revolver with a syndicate of highly rated commercial banks. Further, we don't have any more than $20 million in principal, maturing in any year until 2014. So despite the current market turmoil, we're in very strong financial position and expect to remain so.

In summary, we significantly improved our comparable results in the full year 2008 despite an extraordinary downturn in the entire economy. We demonstrated our ability to significantly improve profitability in bananas despite unprecedented cost increases. We've made progress in executing our plan to improve performance in salads, our innovation efforts are on track. Investors can take comfort in our very solid capital structure and financial discipline, and we expect to deliver year-over-year improvement in comparable results for the full-year 2009 versus 2008. At this time Fernando, Brian and I would like to open the call for questions. We'll take as many questions as time allows.

QUESTIONS AND ANSWERS

JOHN SAN MARCO (Janney Montgomery Scott): I know you gave the number, what was the cost impact of the flooding that you felt during the fourth quarter?

ZALLA: During the fourth quarter it was $8 million.

SAN MARCO: And you expect $30 million for 2009 during the first half, presumably?

ZALLA: Close to $30 million that are incremental, John, year-on-year, and those will be spread through the first three quarters.

SAN MARCO: What are those costs, specifically, that are resulting from the flood?

ZALLA: We had about 1,300 hectares of bananas that were flooded late in '08 in Costa Rica and Panama. So we have two costs as a result of the flood. One, we need to go out and secure replacement volumes so that adds cost and it also adds incremental logistics cost to ship that volume. In addition to that, we've got increased costs in maintaining the owned farms that drive productivity and restore those.

SAN MARCO: Got it, and were those hectares primarily owned land?

ZALLA: Yes, those were owned, that's correct.

SAN MARCO: And then one last subject, switching to salads. Can you give a little more color around the 25 percent volume decline? I guess that was just foodservice. Specifically how much of that decline was from customers that went to zero versus just existing customers ordering less because of their own traffic problems?

BRIAN KOCHER (President, North America): John, we went through a pretty aggressive process throughout 2008 to reposition our foodservice channel and really focus on driving profitability. So the significant portion of that reduction in volume is the result of either SKUs or customers that were low margin or no margin that we agreed to exit because we couldn't get the value that we were providing with the customer. So most of that volume was as a result of us driving our profitability initiatives throughout the foodservice channel.

SAN MARCO: So, if you could strip away the impact of your higher return thresholds you're requiring from your customers, is there any reason to believe that the rest of the business would look any different from general foodservice trends or they've probably declined in line with foodservice traffic. Is that a fair assessment?

KOCHER: The vast majority of the decline of foodservice volume was our driving profitability.

SAN MARCO: Okay, and can you remind me, how much of Salads and Healthy Snacks is foodservice related?

KOCHER: It's about 25 percent now.

SAN MARCO: About a quarter. That's it for me. Thank you very much for your time.

REZA VAHABZADEH (Barclays): Just to get the pricing for January, any commentary on pricing in Europe in February?

ZALLA: No comments for February, Reza. In general, I would say that our pricing in local currency terms in January which is flat was better than what we saw at the bottom of the market. And we have seen the bottom of the market be sluggish in coming up the normal seasonal uptrend in pricing. There's been a lot of competition at the bottom of the market. We haven't seen the movement that we typically do or that we would expect in response to the relatively low value of the euro compared to year ago and the fact that we do see product supply cost increasing. We watch that every week and would hope and expect to see more of a seasonal uptrend in local pricing.

VAHABZADEH: And then when you talk about in the outlook, about improved earnings in 2009 on a comparable basis, is that weighted to the second half, the first half, is that driven by EBIT improvement or interest expense reduction? Any commentary on that, not to give exact numbers, but just the color on that?

ZALLA: Reza, it is difficult in this economic environment to give guidance by quarter and we're not going to do that. But our guidance is for the full year, for the total company and items that would be reconciling between as reported and comparable income would be, for example, the convertible adjustment which will be throughout the year and the EU headquarters move, which will be principally in the first half.

VAHABZADEH: Okay, and then as far as product costs on the banana side, excluding flooding cost, how should we think about product cost on that front? Is it going to be rising at the same rate as in '08 or any comments on that would be appreciated.

ZALLA: We saw unprecedented cost increases in 2008, driven by commodity cost inputs and aggressive competition for purchased fruit. We do not expect the same magnitude of cost increases in 2009. We do expect costs to be higher, driven principally by higher costs for purchased fruit which is both as a result of contract negotiations and government-imposed exit price increases, for example, in Costa Rica. We do expect fuel, of course, to be down but not by an amount that would offset that and the fuel reduction in cost will, at least for us, be offset by negative comparisons year-on-year and the results of our fuel hedging program.

VAHABZADEH: On the cost savings front, are the cost savings that you would be generating in '09, will they be weighted towards the second half, first half? Any commentary on that would be appreciated.

ZALLA: Yes, Reza, we typically give guidance for the full year about that and we have communicated by quarter what the results are. This year, as you can tell from our press release, we're taking a different view about guidance. We're giving directional input for the company as a whole, but not line-item detail or something like internal cost savings. So we have clear targets internally. Management incentive programs are tied to that through total company net income, and you can expect us to continue to try to drive cost efficiency throughout the organization.

VAHABZADEH: Okay. Appreciate it. Thank you.

HEATHER JONES (BB&T Capital Markets): Hi, I have quite a few questions. In the quarter, just looking at the banana results even adding back the $8 million in cost associated with Costa Rican flooding, it looks like your cost targets for the year will exceed the top end of that.

Just looking at the pricing, looking at the currency and the volumes, all of those seem to be roughly in line with where we expected, but the earnings were far shorter. And I was just wondering, did you exceed the high end of your guidance of industry cost increases?

ZALLA: No, Heather, we were in line in terms of bananas. We did have the flood impact. We also had the euro impact which weakened further at end of the quarter. That we had $8 million from the flood. We had $7 million from a weaker euro than we had expected earlier. That, plus weakness in salads volume and cost are what we would view to be the principal drivers of lower comparable results versus analysts' expectations for the quarter.

JONES: As far as the euro, was there anything other than the revenue line, because we had assumed the $1.37 for the quarter? So you all were a little shy of that, but it didn't explain the disparity. Was there just something about the timing of it that caused to be a greater impact than it normally would have?

ZALLA: It actually came in at $1.32. That difference between $1.32 and $1.37 was $7 million in effective impact to revenue and P&L for the quarter or $0.10 a share.

JONES: Was there a greater proportion of -- because you have 75 percent that was at $1.40 for the '08.

ZALLA: Correct.

JONES: Was it a greater proportion of European revenues come in late in the quarter or something?

ZALLA: No, I'm just saying you're comparing to an average for the quarter. I'm saying the average came in lower. The net impact of that for us was $7 million on the quarter.

JONES: Okay. And then I was wondering what is North American banana pricing doing and did it do in January?

KOCHER: North American banana pricing in January was about the same trend that we've seen recently.

JONES: That's up in the 30s?

KOCHER: That's right.

JONES: Okay. And as I'm thinking about this, this last year in February, you instituted that force majeure surcharge, is that a fair timing of late February or so?. Should we start to expect pricing to flatten out, or because of the fuel surcharges, would you actually expect pricing to be down year-on-year for the rest of the year post?

KOCHER: We believe that the pricing environment is stable right now and we'll continue to try to recover cost increases through pricing activity. We're going to drive for the profitability, Heather.

ZALLA: In other words, Heather, we're going to expect stable pricing despite the fact that the fuel surcharge will come down as a result of lower market prices.

JONES: Stable doesn't mean flat year-on-year, you're saying stable relative to what it is now? So it might be up for the rest of the year as well?

ZALLA: Right.

JONES: Can you give us a rough idea, the $30 million on the flood costs, the Costa Rican exit price, Ecuadorian exit price, I mean, don't you have a rough idea of what your costs would be? Is it $60 million, is it $70 million? Understand, you're not putting out hard targets, but just give us an idea of the magnitude of these increases that you do have visibility into. What is your guesstimate as to the total?

ZALLA: That they're higher than that, Heather, that they're significant year on year. The flood-related costs are an incremental $30 million in 2009. Two-thirds of that is for sourcing costs, that's replacement fruit and costs on our owned farm. About $12 million of that or close to a third of it is due to incremental shipping and logistics costs to get replacements. For example, from Ecuador. But we're not going to provide line item by costs.

Last year that proved to be confusing to many investors as we gave line-item details for cost but couldn't give clear guidance and didn't believe it prudent to give clear guidance about pricing. So instead, we're going to simply guide to an expectation about full-year performance.

JONES: And with the exception of fuel, wouldn't you expect some other cost reductions this year with regard to fertilizer, like in the Guatemala. What is your view as far as that?

ZALLA: Well, you would normally think that the fertilizers would drop because they're fuel related and fuel has come down sharply, but our current view of the commodity markets of fertilizer would say that year-on-year we're going to face an increase, notwithstanding the fact that fuel has come down itself and results for grower contracts in Guatemala and elsewhere are an outcome of negotiations. So we do expect year-on-year increases in purchased fruit cost as well which we need to overcome through pricing and other cost reduction actions.

JONES: My final question is just to get an idea of you're saying that you expect on a comparable basis year-on-year improvement. So comparable EPS for '08 would be $1.12. Is that correct?

ZALLA: Yes, that would be comparable.

JONES: And so going to '09, setting aside the relocation, the extra convertible expense, just wondering where an increase is coming because we're looking at a significantly lower euro, sounds like another significant increase in costs. I mean, are we looking for that massive of an increase in Fresh Express or are you expecting pricing to offset these costs in bananas, or if you could walk us through where these levers are that are going to drive year-on-year improvements?

ZALLA: Sure. Well, we're expecting strong pricing in North America in bananas. But to sustain stable pricing year-on-year despite the fact that the fuel surcharge would drop away is significant. We are taking aggressive actions on internal cost control. We've got close to $10 million in lower investment in Just Fruit in a Bottle, and we do expect significant improvement in the salads operations in 2009.

JONES: Okay. All right, thank you very much.

VINCENT ANDREWS (Morgan Stanley): If I could start, maybe just a couple of quick ones. I think you were going to have some legal expense in the fourth quarter, I think you said like $3 million or $5 million. Could you tell us what that turned out to be?

ZALLA: That's correct. They were up actually $6 million versus year ago. Slightly above the high-end of the range we provided.

ANDREWS: Okay and those will persist into this year?

ZALLA: Well it's always hard to estimate how legal expenses will trend, as it depends on some factors outside of our control.

ANDREWS: Those you're considering as part of continuing operations, correct? Whatever they wind up being?

ZALLA: That's correct

ANDREWS: Can you give us any sense as to what level of sales you're achieving in Just Fruit in a Bottle?

ZALLA: We don't disclose that on a product line basis, Vincent.

ANDREWS: I just hear you're spending $26 million and it just sounds like a lot of money. I thought it might be helpful to know what type of return you're getting on that already from a revenue perspective.

ZALLA: It was a significant amount, $26 million in 2008. It could be as low as $16 million in 2009. What we've said is we have achieved in market position the number one position in almost all of the markets that we launched, and we're on track to hit our targets in each of those countries which is to reach break-even P&L results by the end of year three after market launch. So we view it as highly successful.

ANDREWS: Okay, and then on salads, I'm just trying to make sure I understand what Fernando said which was that your retail sales were down 4 percent. The category was down 4 percent. People are going to the supermarket less but they're buying the same amount of salad, is that all correct?

AGUIRRE: That's roughly right, Vincent.

ANDREWS: How did your sales in the category go down 4 percent then?

AGUIRRE: Volume is down, but remember the revenue, because of pricing that we took since the last four or five months, net revenue was per case, which is one of the ways we measure it.

ANDREWS: So when you're saying people are buying the same amount of salad you're talking about from a dollar perspective?

ZALLA: From a trip to the store.

ANDREWS: On a per trip basis?

ZALLA: Correct.

AGUIRRE: What we said was fewer number of trips, but same number of bags that they buy per trip.

ANDREWS: Okay, I get that. I get that piece now. Okay, and just so maybe to follow up on that. When you're talking about salad getting much better in 2009 it sounds like a lot of it has to do with the savings coming from Verdelli but what about from a top line perspective?

ZALLA: I think there are a couple reasons why we are confident that we'll be able to improve the salad business in 2009, and a lot of those are the actions that we took in 2008. Remember, we have taken pricing in 2008. We have been able to integrate the Verdelli business, and now that integration is complete so we won't have the results burdened by these costs in 2009.

We also have some of the foodservice volume that's come out of the system, and we've been able to reduce our production overhead to help match that, and there are other improvements that we've had in the manufacturing environment, which will allow us to profitably gain some distribution, some of which we've already been awarded that will start right in the second quarter of '09.

ANDREWS: So is it fair to say that you were losing money on the foodservice contract that you walked away from and that makes up for what otherwise would have been lost economies of sale from lower production?

ZALLA: Yes.

ANDREWS: And so if you're able to find a new home for that volume and you do it profitably, there's upside to it, but otherwise there's no downside to not producing the volume?

ZALLA: That's right.

ANDREWS: Okay. Let me just see if there's anything else I have for now. I think that's it. I'll pass it along. Thanks so much.

BEN MACKOVJAK (Rivanna Capital): Can you give us guidance for a tax rate for 2009? Is 15 percent fair?.

ZALLA: Well, the tax rate is difficult to forecast with any precision and it depends on jurisdiction and the mix of earnings.

MACKOVJAK: Can we assume similar to 2008?

ZALLA: Yes, that's right, although in reality, the amount of tax expense can vary considerably, based on the resolution of tax contingencies during the year. That's particularly true since companies like us adopted FIN 148 a couple of years ago. You can expect some significant quarter to quarter volatility in the rate.

MACKOVJAK: Okay. And how much of the fuel expense for 2009 is hedged?

ZALLA: We are hedged at about 75 percent of the fuel used in ocean transportation of bananas from Latin America to North America and Europe.

MACKOVJAK: Okay. Can you tell us what price, average price?

ZALLA: At an average rate for Rotterdam barge fuel of $353 per metric ton.

MACKOVJAK: Okay, and one last question. How did those contracts become unprofitable, the ones you walked away from. I assume when you signed them they were profitable?

KOCHER: : I think there are a couple of things. One, we've seen unprecedented cost increases throughout the last year, certainly in 2008 and even through 2007, and some of these contracts were a little bit longer term in nature. So that was certainly one area that changed the economic profile of each of those contracts.

MACKOVJAK: Okay. Thanks a lot, guys, appreciate it.

AGUIRRE: Thank you very much for your questions and for joining us today. We look forward to updating you on our progress in the year ahead and that concludes the call.

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[The information contained in this transcript is a textual representation of an audio presentation. Efforts are made to provide an accurate transcription; however, there may be inadvertent errors, omissions or inaccuracies in the reporting of the conference call.]

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