Bear of the Day: Chiquita Brands (CQB)


April 16, 2013 |

While many consumer stocks have had a solid start to 2013, some food providers have not been able to keep up. In particular, Chiquita Brands International (CQB), despite its famous brand name and solid position in the banana market, has been floundering.

The company has struggled with heavy competition in its vital banana business and hasn’t seen anything in terms of growth in years. This is both on the earnings and revenue fronts, suggesting broad weakness for the firm.

While competition and commodity prices are partly to blame, management has made its share of mistakes as well. The company recently went into a restructuring, and it has had trouble righting the ship.

In fact, the stock has lost about 10% in the past year compared to a roughly 20% gain the same time frame for the broad consumer sector. And over longer time frames, it is even worse as CQB has lost about 50% in the trailing two year period, suggesting that this has been a long move lower for this troubled company.

Estimate Trend

This troubling trend doesn’t look to be shaken anytime soon, especially when looking at earnings estimate revisions. For the current quarter, the consensus called for 43 cents 60 days ago and now that figure is down to just 17 cents a share today.

The picture isn’t much better for the next quarter or current year consensus estimates either, as both of these have moved markedly lower in the past two months. Furthermore, not a single estimate has gone higher in the past two months, suggesting total agreement among those following the company closest.

If that wasn’t enough, CQB also has a terrible track record when it comes to living up to expectations on earnings day. Over the last four quarters the company has missed expectations every time including two misses of 88% or more. If this is any guide, the upcoming earnings announcement could also be a rough day for the company.

For these reasons, CQB currently has a Zacks Rank of 5 or ‘Strong Sell’ suggesting even more weakness ahead for the company. This is further confirmed by the Zacks Recommendation of ‘Underperform’ which means that both short term and long term isn’t looking good for this embattled firm.

Other Factors

Competition is tough in the food market, and some of Chiquita’s major rivals are seeing weakness as well.  The industry is in the bottom half in terms of Zacks Industry Ranks, while Dole Foods (DOLE) and Fresh Del Monte Produce both have Zacks Ranks of 5 or ‘Strong Sell’ too.

These two companies, along with Chiquita, make up roughly two-thirds of the global banana market, so clearly there is a negative trend brewing in this space that most investors should stay far away from.

Better Pick

Clearly, the story for CQB isn’t looking very good in the near term, but that doesn’t mean that the entire food space is facing weakness. In fact, Flowers Foods (FLO - Free Report) is in the same sector as CQB but it has a Zacks Rank of 1 or ‘Strong Buy’.

While the company isn’t dealing with the same foods as CQB, the stock does look to have much more favorable earnings growth going forward. Current estimates are looking for 44% growth this quarter while estimates have broadly moved higher over the past 90 days, suggesting that many are growing more bullish on the company in the near term.

So, if you are in the market for a food play, consider avoiding the trio of big banana producers and look to the frozen segment instead. A company like FLO is much better positioned, and looks to be a better play than the ever-struggling Chiquita Brands in this uncertain environment.   

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