Chiquita Brands International Inc. is burning through cashfaster than any U.S. packaged-foods company after its $855 million2005 purchase of Fresh Express Inc. in a bid to diversify intosalads failed to raise profit.

The owner of the namesake banana label is consuming funds at arate that would exhaust its $53 million of cash in fewer than eightmonths, down from 131 months two years ago, according to datacompiled by Bloomberg. The firm's $200 million 4.25 percentconvertible securities, which traded above face value last year,have dropped to 79 cents on the dollar.

Chiquita, which agreed in June to limit capital spending inexchange for loosened loan covenants, is working to trim costs asdeclining earnings raise leverage to the most since 2007. Sales of$953 million by the salads and healthy snacks unit in 2011 are down20 percent since the purchase of Fresh Express as customers such asWal-Mart Stores Inc. favor their own brands.

“I threw in the towel,” said James Lee, an analyst at Bethesda,Maryland-based Calvert Investment Management Inc., which overseesabout $12.5 billion and sold its Chiquita bonds last year. Thecompany's salad business is “the biggest disappointment. You'd justthink that if you've been in one line of business for a number ofyears, you'd be better at it,” he said.

The estimated time Chiquita can operate using existing cashwithout additional financing is less than the median cash burn rateof 12 months for the six packaged foods and meats companies withnegative free cash flows and market values bigger than $50 million,Bloomberg data show. Chiquita had negative free cash flow of $83.6million in the 12 months through June 30.

“We do have a bit of cash burn” that reflects costs linked todebt repayment, moving the company's headquarters to Charlotte,North Carolina, and a weakening euro, Chief Financial Officer BrianKocher said in a telephone interview. “Our number one priority ispaying down our debt.” The euro has fallen 8.2 percent against abasket of currencies over the past year, Bloomberg data show.

The company repaid $50 million of its 7.5 percent seniorunsecured notes due November 2014 in December, cutting its ratio oftotal debt to earnings before taxes, interest, depreciation andamortization to 4.09 at the end of last year, Bloomberg datashow.

Chiquita has missed earnings estimates for the past two quartersand said a weakening euro cost the company $26 million in the threemonths ended June 30, Kocher said during an Aug. 7 teleconferenceto discuss earnings with analysts and investors. Analysts expectChiquita to post a $27.9 million loss this year.

Total Debt

The company's $589 million of total debt is the most relative toearnings among 31 packaged foods and meats companies in the U.S.with more than $100 million owed, Bloomberg data show. Leverage of7.55 times in the three months ended June 30 was up from 4.09 ayear ago and higher than 5.71 at similarly- rated Dole Food Co.

Grocers such as Bentonville, Arkansas-based Wal-Mart and KrogerCo. are increasing sales of packaged salads through so-calledprivate labels, the marketing of another company's products undertheir own brand, as consumers purchase cheaper goods amid asputtering economic recovery, according to Bryan Hunt, a high-yielddebt analyst at Wells Fargo & Co.

Chiquita avoided selling private-label salads out of concernthat it would curb sales under its own brand even as competitorssuch as Dole entered the market, Hunt said. Chiquita said inFebruary that it would sell private-label salads.

“Retailers' desire to expand their private label offeringshas made it very difficult for the brands in the bag lettucebusiness,” Hunt, based in Charlotte, North Carolina, said in atelephone interview. Chiquita's unit “has been losing share for avery long time due to growth in the consumption of private label,”he said.

Equity investors are paying less for Chiquita's revenue than 95percent of its peers, Bloomberg data show. A price to sales ratioof 0.09 has declined from 0.15 in February and is 12 times lessthan the 1.05 industry average. The stock dropped 26 percent thisyear through yesterday to $6.14, before falling another 3.6 percenttoday to $5.92 as of 1:37 p.m. in New York.

Chairman and Chief Executive Officer Fernando Aguirre said in aJune 2005 statement that buying Fresh Express would “help usdiversify our business and improve the quality of our earnings” asChiquita worked to trim its dependence on bananas.

Salad Business

“We expect this to result in increased sales, reduced costs andstrong bottom-line performance,” Aguirre said.

Operating income for the salad business last year fell 93percent from 2010 to $7 million as capital expenditures at the unitincreased 18 percent to $33.4 million, Bloomberg data show. Bananarevenue accounted for 64 percent of the company's $3.1 billiontotal in 2011, the highest portion since at least 2003.

While operating income from Chiquita's banana unit rose 58percent last year to $127.2 million, it remains below the $182million recorded in 2005.

Buying Fresh Express “hasn't introduced any stability into theirearnings stream,” Heather Jones, an equity analyst at BB&TCapital Markets in Richmond, Virginia, said in a telephoneinterview. “It levered up the balance sheet, it worsened thecompany.”

Chiquita, which said in an Aug. 7 statement it would search fora new CEO, may save at least $60 million per year by cutting morethan 300 jobs and reducing research and development expenses in abid to become a “high volume, lower cost operator,” the companysaid in the statement.

“This year, in terms of their profitability, it's a disaster,”Mary Ross Gilbert, a managing director and equity analyst atImperial Capital LLC in Los Angeles, said in a telephone interview.“But the brands are very good. We're starting to see an improvementin execution.”

Chiquita, rated five levels below investment-grade at B2 byMoody's Investors Service and an equivalent B by Standard &Poor's, agreed with lenders June 26 to amend the covenants on its$330 million senior secured term loan and $150 million revolvingcredit facility to allow increased leverage levels while limitingcapital expenditures to $125 million in 2012 and $85 million nextyear, according to a regulatory filing.

The company spent $75.5 million investing in its business lastyear, Bloomberg data show.

'Tight' Liquidity

Chiquita has an average maturity of 3.4 years for its $306million of bonds outstanding that include $106 million of the 7.5percent notes. Those bonds traded at 98.5 cents on the dollar onAug. 8 to yield 8.25 percent, according to Trace, the bond-pricereporting system of the Financial Industry RegulatoryAuthority.

While Chiquita's ratio of debt to Ebitda may approach 4 times ifits projected cost cuts are successful, only $53 million of cash onhand contributes to “tight” liquidity despite the relaxedcovenants, Kim Noland, an analyst at debt research firm GimmeCredit LLC, wrote in an Aug. 14 report.

“At least the company is making debt reduction a priority nowrather than using free cash flow for innovation anddiversification,” Noland wrote. “Chiquita needs to address the 2014maturity of its bonds soon, but the frothy high yield market couldpermit a refinancing.”

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