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Chiquita Announces Major Restructuring

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TERRY KINNEY | October 29, 2007 05:22 PM EST | AP

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CINCINNATI — Fruit and salad distributor Chiquita Brands International, struggling to boost profits amid higher costs and worries over food safety, said Monday that it will cut management and production jobs, close facilities and leave businesses as part of a plan to reduce costs by $60 million to $80 million a year.

The news sent Chiquita's stock up by almost 12 percent Monday.

"While we have already taken various actions to strengthen our balance sheet, improve our risk profile and diversify the company, we continue to endure rising industry costs, punitive European banana import regulations and a slower-than-expected recovery in the value-added salads category," Fernando Aguirre, chairman and chief executive, said in a statement.

Chiquita will take a $25 million charge for severance and write-downs this quarter but will begin seeing benefits in 2008, the company said.

Chiquita said it will eliminate 160 management jobs worldwide, a 21 percent reduction at the three highest levels, and will simplify an organizational structure that will be realigned by geography instead of product line.

The company said it will close a distribution center in Greencastle, Pa., and a production facility in Carrollton, Ga., over the next several months as part of a reorganization of its salad business. The plants employ 280 workers.

Chiquita also said it will stop making fresh-cut fruit bowls and will convert plants in Edgington, Ill., and Salinas, Calif., to focus on producing and distributing salads and healthy snacks. The conversion will eliminate 130 jobs.

Chiquita also said it is exploring alternatives, including a possible sale, of its German fruit and vegetable distributor Atlanta AG that has annual sales topping $1 billion. And it will close a banana distribution center in Bradenton, Fla., that will eliminate 15 jobs.

Analysts and investors welcomed Chiquita's plans.

Shares rose $2.03, or 11.9 percent, to close at $19.04 Monday. The shares have traded between $12.48 and $19.92 in the past 52 weeks.

"Today's announcement indicates to us that management is serious about addressing its structural cost problem and pursuing much improved profitability," analyst Heather Jones of BB&T Capital Markets said in a note to investors. "That is what we have been looking for, as we believed it was imperative for sustained improvement at the company."

"These are sensible steps to balance profits against potential growth," Wachovia Securities analyst Jonathan Feeney wrote in a note to investors. "Frankly, too many resources have been thrown against building global scale in the commodity business, and times have changed to make those kind of fixed costs less leverageable, especially in Europe but even in the U.S. salad business."

Aguirre said the restructuring will improve profitability and help the company grow. Still, the company blamed rising costs, European Union tariffs and the recall of a competitor's spinach because of an E. coli outbreak last year that killed one person and sickened more than 100 for slowing its growth plans.

In 2006, Aguirre laid out a series of broad, long-term goals to investors that included doubling revenues and profits within five years.

Chiquita is a leading international marketer and distributor of bananas and other fresh fruits and salads. The company employs about 25,000 people in more than 70 countries.

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On the Net: http://www.chiquita.com