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Chiquita Brands International, Message Board

  • hoodsie99 hoodsie99 Jul 16, 2002 12:19 PM Flag

    Effect of Currency on earnings???

    I was under the opinion that every .01 gain by
    the Euro vs. the dollar would add $6 million
    to EBIDT???? Have new hedges changed this or
    is the recent weakness unrelated??? Any
    informed opinions??/

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    • Current exchange rate is about 0.9918. A change of .01 means (0.9918+.01)/0.9918 = 1.01% increase. Thus, if the Euro revaluates .01 the equivalent in US$ increases by 1.01%. Likewise, if the Euro devaluates .01 the dollar-equivalent ammount decreases by 1.01%.

      Since the shipping and agricultural industries are dollarized for the most part, and retail fruit pricing is in local currency (Euros), most of the exchange rates gains will go to EBITDA (As Chiquita might have Euro-denominated debt, and depending on the bookeeping depreciation might also be kept in local currency).

      So, depending on the European revenue, the windfall from forex would be as follows

      Revenue => EBITDA
      ========= ======
      $200 mill => $2 million
      $400 mill => $4 million
      $600 mill => $6 million
      $800 mill => $8 million

      From your understanding, then European revenues should be close to $600 million for it to be true.

      Hedging programs are generally a fixed expense (depending on the negotiation) and will only protect from a deteriorating market (if company reports in Dollars) and offer no upside for a Dollar-reporting company when the Euro revalues (all kind of exceptions here, but for the current situation fairly accurate.)

    • that's my understanding as well. Considering the strength of the Euro; the settlement with the EU; and the restructured balance sheet (more than a new debt load, also includes a total restatement of balance sheet under quazi -reorganization accounting rules) if Company doesn't absolutely blow away last year's comparative quarter than problems must run REALLY deep either with CQB itself or the industry as a whole