Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Nick Genova - B. Riley & Co.
Nick Genova - B. Riley & Co.
I wanted to ask on a comment that was in the press release that you expect operating margins to improve sequentially. Do you think that that’s going to be primarily driven by a higher gross margin or do you think it will be more on the cost side, like a reduction in SG&A sequentially?
Gregory S. Skinner
Well, I think it’s going to be a combination of the fact that we expect that some of our packaging costs will be lower in the fourth quarter than they were in the third quarter and secondly, we also expect operating expenses to be lower in the fourth quarter and the third quarter. So it’s a combination of the two.
Nick Genova - B. Riley & Co.
I saw that even in Q3 expenses were down. What’s driving that expense reduction? Can you give us a little more color on that?
Gregory S. Skinner
Well, it’s a combination of things. Last year we had, particularly in the fourth quarter, some fairly sizeable G&A expenses, but also in the area of Apio and this is volume driven, a lot of your sales and marketing is tied to your revenue and when your revenue is down, your sales and marketing is going to be down.
Nick Genova - B. Riley & Co.
And on the gross margin side, within Apio, I know that produce prices have been somewhat elevated, what’s the outlook on that? Is it kind of staying there and as you look into the season throughout 2009, what do you see there?
Gregory S. Skinner
They’re going to stay at the same levels that they’re at right now. Most of these contracts are calendar-year contracts and so that will affect us through the rest of 2009, which ends in May, and then through at least the first half of 2010. The higher produce costs as compared to 2008.
Nick Genova - B. Riley & Co.
One thing that has been impacting California and actually has for several years and then looks like it will be even more severe this year is just general drought conditions. Does that impact your business at all?
Gary T. Steele
Obviously it can but fortunately most of where the areas we get our produce from is ground water and so far ground water has not been impacted from what you’ve seen about the fed cutting off the San Joaquin Valley, so on and so forth.
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