Year Has Been the Pits for Dole Foods
Dole Food Co. is the world’s largest producer of fruits and vegetables, and 1998 has been a stark reminder to Dole and its investors that the world is full of surprises.
First it was El Nino, whose heavy rains led to excess world banana production in the spring. That drove down prices, eroded the first-quarter profit of Dole--the leader in banana production--and sent its stock tumbling.
Now it’s the economic crisis in Russia, which has virtually ceased buying imported bananas from Westlake Village-based Dole and other producers.
Russia wasn’t yet a major profit source for Dole. But Russia had been buying 5% to 7% of the world’s banana supply, and that portion is spilling over to other world markets, again putting downward pressure on prices.
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Analysts responded by shaving their estimates of Dole’s profit this year--the consensus is now $2.66 per diluted share--and Dole’s shares plummeted again. The stock, which closed on Wednesday at $36.13, down 88 cents, in New York Stock Exchange trading, has now skidded 30% in just six weeks.
The setbacks “are disappointing, because this company otherwise has done such a great job of growing its basic business,” said analyst Timothy Ramey of Deutsche Bank Securities in New York.
“But they have these land mines go off from time to time,” he said.
No one has felt the financial shrapnel more than tycoon David H. Murdock, Dole’s tight-lipped chairman and the company’s biggest stockholder with an 18% stake, according to Dole’s most recent proxy statement.
The stock’s slide means Murdock’s holdings have shed $107 million in value since Jan. 1, to $401 million. But his total net worth is still about $990 million, according to Forbes magazine.
Despite this year’s shocks, Dole and Wall Street analysts remain generally upbeat about the outlook for the company, which sells not only fresh fruits and vegetables, but also canned and packaged food items, such as snack-size fruit cups.
Dole still enjoys strong demand for bananas in North America, Japan and other regions, although ample supplies are keeping prices down in the U.S. market. Pineapple and vegetable sales also are robust, as are sales of the ready-to-eat salads that Dole sells in grocery stores.
Murdock also is trying to expand Dole’s sales by widening its global distribution network, partly through acquisitions. Earlier this month, for instance, it tentatively agreed to buy a majority stake in Saba Trading of Sweden, a produce distributor and marketer in Europe.
He’s also pushing Dole to make other acquisitions that expand its presence in the fresh-cut flower market--thus diversifying further from its core produce business, which is subject not only to such uncontrollable shocks as weather and economic turmoil, but disease, political risk and currency fluctuations.
“We’re looking to find ways to immunize ourselves” from the volatile produce markets “as best we can with these expansions into other businesses” that offer “greater stability of prices,” said Dole spokesman Thomas Pernice.
That’s one factor that led Standard & Poor’s analyst Pamela Atkins to recently upgrade her outlook for Dole’s credit quality, on grounds that Dole’s increased diversity should mean an “increase in the stability of the company’s operating results.”
Dole’s results were surging when 1998 began. In 1997, its earnings had soared 80% from the prior year to $160 million on a 13% sales gain to $4.3 billion. But after El Nino, its first-half 1998 profit fell 7% to $105 million despite a 5% sales gain to $2.2 billion.
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Even so, Dole continues to wring more profit from its operations, which is important because food production is notorious for carrying thin profit margins. Dole’s after-tax margin has been edging higher for the last four years, and even in this year’s first half, when net income fell, Dole’s margin kept rising to 4.8 cents per dollar of sales.
A key reason: Dole has been shedding lower-margin units, such as a dried-fruit and nut operation it divested two years ago, and buying companies that generate higher after-tax earnings, such as the fresh-cut flower business.
The flower line currently accounts for only $200 million of Dole’s annual sales. But it fits in with Dole’s strengths, which are growing, harvesting and distributing products for sale at supermarkets and other retail outlets.
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Mixed Fruit
Dole Food’s stock rallied early this year but has since fallen sharply because El Nino and Russia’s economic crisis chipped away at Dole’s earnings. Weekly closes and latest:
Wednesday: $36.13
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Source Bloomberg News
