CEO: ML&P ‘under stress’

Article Photos

WAILUKU - Incredible fuel costs and downturns in tourism and real estate all clobbered Maui Land & Pineapple's three divisions, resulting in 274 layoffs, Chairman, President and CEO David Cole said on Friday.

"My personal philosophy is to measure twice and cut once," Cole said a day after the company's 26.2 percent work force reduction became public knowledge. "The whole idea is to make a stronger organization that at the same time is very agile. . . . We don't want to be surprised on the downside, and we're hopeful that we can be surprised on the upside."

The company may be struggling, but it certainly is not stagnant, with a number of ambitious agricultural and large-scale development projects in the works, company officials said. Cole also said the company needs its agricultural land for farming and has no plans to introduce any new resort or housing developments.

Economic observers also noted Friday that ML&P's problems are shared throughout Maui, Hawaii and the rest of the United States.

Wall Street investors apparently agreed with the publicly traded company's moves. ML&P's stock rose 43 cents to $33.22 per share by the close of the New York Stock Exchange on Friday. With heavier-than-usual trading, ML&P's low for the day was $32.38, with a high of $34.

Maui Pineapple Co. is the largest of the three subsidiaries that include the Kapalua Resort and a community development group. On Friday, the latter two units lost 46 and 24 employees, respectively.

ML&P on Friday said it is cutting its pineapple-growing work force by about 50 percent, or 204 employees. The parent company said Maui Pine had "consumed over $100 million in capital investments and operating losses over the past four years" and that the downsizing would cut its costs by $11 million.

The number of pineapple employees has gone down from 1,400 in 2003 to about 200 after Thursday. In the past, when one unit faltered, the others could help support the straggler, Cole said.

"What's different about this contraction is that all three segments are under considerable stress," Cole said. "With higher airline tickets, it's more expensive for tourists to get to us and harder for us to get pineapples to our customers. Our markets are further away."

Cole said the move to reorganize the entire company actually started a few months ago when company executives recognized problems in the credit markets and decided to respond by trimming consultants and expenses. The company also restructured its financing and jettisoned some unnecessary contracts, he said.

The tipping point for the pineapple operation arrived with skyrocketing operating expenses, Cole said. Cost for fuel has risen 62 percent, fertilizer 66 percent and packaging 84 percent.

The costs, which also included the crippling loss last month of a direct shipping route from Kahului to the West Coast, ran far ahead of the company's ability to make them up with higher pineapple prices, Cole said.

As the problems mounted, he said, he organized a meeting May 20 with the company's top 100 managers "in anticipation of a deep and prolonged contraction in the economy."

Management began to further consolidate departments and functions, and then evaluated each and every employee in order to make Thursday's job cuts, Cole said.

By July 15, they were finished restructuring, and Cole met representatives of U.S. Sen. Daniel Inouye's office to let him know about the company's intentions. On Monday, he met with Gov. Linda Lingle and then Mayor Charmaine Tavares and other elected officials.

"We met with everybody who could help mitigate the impact of the reduction," Cole said.

Inouye issued a statement Friday calling on ML&P to continue to cultivate pineapples, possibly under a different business model.

"While it is a sign of our down-turning economy, we cannot simply throw in the towel," the state's senior senator said. "I will be working with the company, ILWU (International Longshore Warehouse Union) and the agricultural leadership to keep at least some pineapple cultivation on Maui."

The business model ML&P chose focuses on select Mainland accounts and Hawaii sales of its Maui Gold fresh fruit. The company intends to cut the 6,000 acres it typically cultivates in half, Cole said.

"Moving forward, Maui Pineapple itself is going to become a very small grower," Cole said.

An independent grower already produces the Maui Gold organic pineapple, and the company wants more outside farmers, he said. It also plans to expand its Kapalua Farms, which grows a variety of organic fruits, vegetables and free-range chicken. In addition, ML&P will venture into forestry soon with a 600-acre koa tree farm.

Finally, ML&P will continue to move forward with its plans to grow biomass for alternative energy, Cole said.

"We don't have enough arable land resources for all we're looking at doing," Cole said.

The company is a founding partner in Hawaii BioEnergy LLC, which is looking to turn sugar cane into ethanol and algae into military jet fuel. Hawaii BioEnergy, which Cole chairs, has a defense contract for the jet fuel project.

"It's inevitable," said state Rep. Joe Bertram III, a Democrat representing South Maui, of the job losses. "What we are seeing is a whole changeover that is happening all over the world. We are basically out of oil now."

He said the idea of growing food for local consumption is exciting and smart, because it promotes real sustainability and job creation. Bertram said he wants to see ML&P lease out its land to family farmers, and he would be happy to sponsor bills to help these folks get easier access to water and required permits.

ML&P owns 25,000 acres on the island, 23,000 of which are in West Maui. Company spokeswoman Teri Freitas Gorman said on Friday that ML&P has no new plans to develop subdivisions on farm land at Honolua in West Maui or Haliimaile in Upcountry.

"We have no other developments planned that have not been announced," Cole said.

The company is pursuing a residential project at Haliimaile in a joint venture with Alexander & Baldwin and its proposed Pulelehua project district at Mahinahina, Gorman said.

Pulelehua is a 900-dwelling project district on 310 acres that includes affordable housing, shops, churches, schools and a library. The request for community plan amendment and project district zoning is pending in the council Land Use Committee. Haliimaile calls for somewhere between 1,500 and 4,000 homes. The proposed project district is still in initial planning stages and is not included in the county's proposed General Plan urban boundaries map.

ML&P also has Kapalua Mauka in the pipeline. The planned expansion of Kapalua Resort includes 690 resort residential sites, a private golf course and five acres for commercial development.

Finally, Cole said company officials are still trying to work out a compromise with the community objecting to a proposed development at Lipoa Point and above Honolua Bay. The Honolua project was to have included a golf course and 40 luxury homes on 310 acres.

ILWU Maui Division Director William "Willie" Kennison said he met with company officials on Friday. He said ML&P's decision was very disappointing but not altogether shocking since he's been seeing other Maui employers laying off small numbers of employees or cutting hours for months now. The union represents 8,000 employees from a wide variety of occupations.

"With the economy what it is, they cannot get the extra revenue from sales in the resort area, and fuel has cut into the profit margin," Kennison said. "Another big factor is foreign competition.

"No matter how unfair it is, if they don't do some of these cost-cutting measures, it will jeopardize the entire company," he said. "We see what's happening with all the other companies, and my biggest fear is that this is just the tip of the iceberg."

Economist Leroy Laney, an analyst for First Hawaiian Bank, also said that ML&P's situation was not unique. In addition to agriculture, tourism is seeing a slowdown both in Hawaii and on the Mainland, and construction is slowing down as well, he said.

"This is not going to be a good year for Hawaii's economy," he said. "I don't think anyone is holding out any hope that it's going to be. That's true across all islands and pretty much all sectors of the economy."

Laney said Hawaii hasn't seen the end of the economic downturn.

"If we have a recession, it's usually not over in one year," he said. "You're looking at a situation that could be prolonged a year or two. It doesn't look terribly bright for 2009. There could be some recovery in 2010."

* Staff Writer Ilima Loomis contributed to this report. Chris Hamilton can be reached at chamilton@mauinews.com.