Yes, We Have No Bananas: Did Chiquita (CQB) and Del-Monte (FDP) Pick-Pocket Wal-Mart (WMT)?

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Fresh Del-Monte (FDP) came out with some pretty strong earnings today. Income climbed to $63.6 million, or $1 per share, compared with $51.6 million, or 89 cents per share a year ago. Much of the improvement was due to “higher banana selling prices: industrywide shortages due to bad weather in Central America.”

Most of those higher prices appear to have been passed along to retailers like Wal-Mart (WMT) and Kroger (KR). The quarterly numbers certainly don’t indicate that Del-Monte ate the increase.

But, was the reason for price increases the weather or was it Russian buyers moving into the market to import more fruit to their country? Four Russian companies including JFC and Sunway Group began aggressive bidding on bananas last fall. Between then and January the bid on a box of Ecuadorian bananas went from a range of $6 to $7 to a $13 to $14 range.

Much of the banana supply taken out of Ecuador by Dole and Del Monte is based on fixed annual contracts. Chiquita (CQB), on the other hand, buys in the spot market and ran into real trouble.

The weather must not have been all that bad. On April 21 there were news reports that banana exports out of Ecuador were rising. That usually works against higher prices. About the same time there was a report that the country’s growers were dumping bananas onto the market because of falling demand and a shortage of reefer capacity.

None of that prevented Chiquita’s president, Brian Kocher, from writing the company’s retail customers in February saying that flooding in Ecuador had cut down the company’s supply of bananas. Chiquita said it was applying the Force Majeure section of its contract and raising the price per box by $2.00.  The flooding was an ‘act of God.” The Russian buyers must not have fallen under that rubric.

The Chiquita letter went on to mention weather problems in countries in the Caribbean which also export the fruit. However, the company did not mention that most of that supply has gone to Europe for many years.

There is certainly some evidence that the banana market was not in as much trouble as Chiquita was saying. It passed the $2 per box fee on to retailers like Wal-Mart and Kroger nonetheless. Since about 14 million boxes of bananas come into the US each month, the amount of cost being passed on to retailers or consumers is fairly large

Chiquita’s costs break down this way: pricing of 40 of bananas on the East Coast of $6.50 fruit on the boat price plus $4.80 surcharge plus $2.00 force majeure or approx. $13.30 per box. The letter from Mr. Kocher was worth a lot of money to Chiquita.

Dole sent out a similar letter at about the same time. It added a Force Majeure charge of $1.89. Del Monte’s Force Majeure price was $1.94.

It is clear from the Del Monte earnings that the company is making much more money than it did last year. As the cost of bananas went up, they passed that along to their retailers. But, the reasons given in their earnings release many not be the entire story.

It may have been Russians and not an “act of God” that pushed prices up. That extra $2 a box will be a nice bonus for earnings.

Yes, we have no bananas. We have no bananas today.

Douglas A. McIntyre