Dole Food Company Inc. (NYSE:DOLE) Memo
Important Company Financial Data
Market Cap 954.82M EPS (ttm) 0.79 ROA 1.59% Perf Week -‐11.60%
P/E 13.61 EPS next Y 1.37 ROE 8.21% Perf Month -‐11.96%
Forward P/E 7.85 EPS next Q 0.19 ROI 2.18% Perf Quarter -‐14.89%
PEG 1.7 EPS this Y 200.63% Shs Outstand 88.82M Perf Half Y 23.00%
Debt/Eq 1.88 EPS next Y 10.48% Shs Float 29.04M Perf Year 15.22%
LT Debt/Eq 1.63 EPS next 5Y 8.00% Short Float 51.91% Perf YTD 24.28% Thesis / Key Points
Dole Occupies a Strong Position in the Market Dole is the largest producer, marketer and distributor of fruits and vegetables in the world. It boasts the #1 market share of bananas in North America, the #2 market share of bananas in Europe and the #2 market share of pineapples in the world. Additionally, Dole owns a significant amount of land, valued at around $900 million. Approximately $600 million of this land is idle and could be sold.
Dole Is Refocusing Its Core Business
Recently, Dole announced the sale of its Worldwide Packaged Food and Asia Fresh businesses (together “Dole Asia”) to Itochu Corporation for $1.68 billion. This decision allows Dole to refocus on North America, Europe and the fresh fruit business. Packaged food is a declining product in North America and Europe due to changing health/wellness trends. Additionally, while the value-‐added nature of packaged food provides for higher margins, the margin gap between packaged food and fresh food is decreasing, especially in North America and Europe.
Dole Is Improving Its Debt Situation After the sale to Itochu, Dole told investors that it would use most of the proceeds to pay off and restructure its significant $1.6 billion debt. Additionally, Dole has assured investors that it is pursuing debt-‐reduction methods that should save $50 million a year. This course of action is notably different from historical decisions made by management and is indicative of a new willingness to reward shareholders.
Dole Is Benefiting from the Aging Population
Baby Boomers are growing older and are still having a significant effect on market demand. This affects Dole insofar as there is substantial research to support the point that seniors prefer fruit, specifically bananas. Tangentially, one member of the aging population, Dole’s Chairman David Murdoch (age: 89), has a disproportionate affect on Dole’s operation. Without an heir-‐apparent, Murdoch may resort to merging with another company or selling his company altogether. Factoring in Dole’s intrinsic value, this could be a boon for investors.
Misperception Dole Recently Missed Quarterly Estimated
The volatile agricultural, economic and political conditions surrounding Dole’s business will cause it to occasionally miss an estimate. If, however, one invests for the long-‐term then these cycles will be of minimal concern.
Dole Is Sacrificing Product/Geographic Diversity While the common perception may be that decreasing diversification is universally a bad idea, in certain situations, it can be the optimal choice. Demand for packaged foods is declining in its target regions and by selling their assets ahead of the curve, Dole was able to earn a premium on their divesture.
VAR China/Philippines Trade Conflict
I communicated with Heather Jones, an analyst with BB&T Capital Markets, about her take on Dole’s transaction with Itochu. She believes that the deal was a wise one because Dole didn’t give up anything of extraordinary value. Apparently, China recently decided to block Filipino banana imports. Since Dole exports from this area, they were limited in trade opportunities with Asia anyway. When they sold the Asian fresh fruit division to Itochu at a premium, they were getting a real deal since that money can go to a much better use (e.g., by paying down their debt).
Name: Will Lovell College/School: CLAS Year: 2014 Clic
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Dole Food Company Inc. (NYSE:DOLE) Memo How It Plays Out Dole is sitting on a treasure-‐trove of valuable assets and is running an ever-‐improving business operation in an enviable market position with one of the best-‐known brands in the world. Assuming they follow through with plans to pay down their admittedly large debt, I could foresee, in the long run, the stock surpassing its all-‐time high of $14.87 and going to around $20. Risks / What Signs Would Indicate We Are Wrong?
Dole Is Not Successful in Paying Back Debt Political or Economic Conditions Permanently Hinder Dole Operations Overexposure to Europe Results in Declining International Revenue
Signposts / Follow-‐Up Company Land Value Fresh Fruit Revenue European Economy Long-‐Term Debt Acquisitions/Mergers Earnings Per Share
Company Description DOLE is a producer, marketer and distributor of fresh fruit and fresh vegetables. The Company has two business segments: fresh fruit and fresh vegetables. The fresh fruit segment contains operating divisions that produce and market fresh fruit to wholesale, retail and institutional customers worldwide. The fresh vegetables segment produces and markets fresh-‐packed and value-‐added vegetables and salads to wholesale, retail and institutional customers, primarily in North America and Europe.
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