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Chiquita Slips On High Costs

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Banana brand warns of third quarter loss.

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Foodmakers are struggling to preserve profits as high commodity prices put pressure on already slim margins. Some firms are even shrinking boxes to sustain profitability. Unfortunately for Chiquita Brands (CQB), it can't sell half of a banana.

Yesterday, the ubiquitous purveyor of bananas and other fresh fruit warned investors of an ugly third quarter. The company said higher input costs, bad weather in Latin America and weak seasonal demand for fruit will amount to a loss for the quarter ending July 31st. Shares traded down sharply, off 28%. Competitor Fresh Del Monte Produce (FDP) also took a beating, tumbling nearly 16%. The company intends to return to profitability later in the year, indicating its belief that higher fertilizer and fuel costs will subside and buying patterns will normalize.

To fend off skyrocketing commodity prices, foodmakers like Chiquita are being forced to pass along their higher input costs to consumers. And, as Professor Depew notes, some firms are resorting to smaller sizes in an attempt to bring their offerings in line with shrinking demand. General Mills (GIS) is reducing the size of its cereal boxes, Wrigley (WWY) is dropping the number of sticks in a pack of gum and Coca-Cola (KO) and Pepsi (PEP) are ditching the 20-ounce bottle of soda in favor of the smaller, 16-ounce size.

Other companies, like Kraft (KFT) and Sara Lee (SLE), are simply raising prices.

Fruits and vegetables don't typically constitute discretionary purchases. Unlike plasma televisions and Nintendo (NTDOY) Wii consoles, humans don't get along well without vitamins and minerals. But as consumers trade down and opt for more affordable foodstuffs, nutrition often suffers. Should the trend continue, we could see our already questionable diets slide further into the deep fryer.
No positions in stocks mentioned.

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