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General Investing

In European Economy, Even the Price of Bananas is Going Bananas

June 22, 2010

The European debt crisis and shaky economy are not only affecting foreign exchange rates and raising borrowing costs, but they are also taking a toll on farm products companies, such as Chiquita Brands International (CQB).

“They have 40% of their business out of Europe, so clearly what’s going on in Europe is having a somewhat dramatic impact on expectations for the company in two ways,” said Scott A. Mushkin, a managing director and senior research analyst at Jefferies & Company. “One is currency, and the second is that they sell premium bananas. And as the European economy starts to slow significantly, that would hurt them on sales as well.”

Although Mushkin is optimistic the company will be better positioned following a European recovery — thanks to Chiquita’s proactive stance to try to keep its European bananas profitable — he is wary of the immediate impact the European crisis will have on the company.

“Bananas are priced in dollars, and so supply will adjust because of what’s going on with the euro. So that’s one issue, the euro. But the other issue is what’s going on with the economy over there, and that clearly is going to hurt demand for Chiquita’s bananas because of premium pricing,” Mushkin said. “Clearly what’s going on in the economies over there is going to impact particularly Chiquita because of the 20% premium we estimate they get on their bananas because of the brand. So if the economies roll over in Europe, or if they never get off of the mat, if you think they are going to do poorly, that would be a problem.”

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