Dole’s Stock Plunges; Weather, Banana Dispute Blamed

Dole Food Co. could surely make a case that its dismal performance of late, in which its stock has dropped more than 35% in the last quarter, is the result of some circumstances beyond its control.

Dole is the world’s largest producer of fresh fruits and vegetables, with $4.4 billion in 1998 revenue. But its size couldn’t protect it from devastating losses in 1998 attributed to Hurricane Mitch, El Nino, a citrus freeze in California, and a big drop in demand for its products as a result of economic problems in Russia.

Dole took a $100-million charge last year for damage from Mitch, which leveled more than 30,000 acres of the company’s pineapple and banana plantations in Honduras.

Mitch’s mischief followed El Nino storms earlier in the year that reduced industry banana volumes from Ecuador by 18% and hampered production operations in California and the Philippines, according to Dole’s 1998 annual report.

Meanwhile, the citrus freeze in December hurt Dole’s operations in the San Joaquin Valley. Many analysts expected Dole would recover this year, albeit slowly. For the first two quarters this year the company showed a profit, although a smaller one than for the previous year. It reported net income of $47.4 million, or 83 cents per share, for the second quarter ended June 19, compared with net income of $82.1 million, or $1.36 per share, for the like period of 1998.

Analysts were still forecasting a small profit for the third quarter, about 19 cents per share, but the company’s woes have continued, once again as the result of world events beyond Dole’s control. Now Dole says it will either break even or lose money for the third quarter, for which results have not yet been announced.

The upshot of its problems is that Dole’s stock, which had already slipped considerably as a result of its 1998 troubles, is now trading at between $18 and $19 a share, compared with a 52-week high of $35.50 and a five-year high of more than $57. It closed Monday at $18.13.

This time, Dole says it is the victim of an ongoing trade dispute between the United States and the European Union that has prompted the European Union to issue “an increased allocation of banana licenses.” The resultant oversupply of bananas, along with softer demand in Eastern Europe and Russia, have continued to depress prices, the company said in its Sept. 20 statement.

How long the banana battle will continue is uncertain, said Stephen Layton, a former international produce marketer and vice president at South Coast Packaging, a San Juan Capistrano-based food packaging company.

Layton said he had expected the banana licensing dispute, in which the United States has imposed trade sanctions on some European Union imports, would be settled by now, but it has dragged on for months.

Dole officials refused comment on the company’s troubles. But its chairman and chief executive, David H. Murdock, said in the company’s recent announcement that Dole expects its performance to improve despite the European banana battle--once it rides out the results of last year’s horrible weather.

The company expects “improved results in the future despite continuing soft markets in bananas,” said Murdock, who is also the owner and developer of Sherwood Country Club.

While Dole still relies heavily on its banana and pineapple crops, it has expanded in recent years into new lines like canned and packaged foods such as salads and snack-size fruit cups, and the fresh-cut flower business. At the same time, it has divested such lower-profit operations as its dried-fruit and nut business.

But Dole will always be at the mercy of the weather, politics and other unpredictable world events as long as it’s in the crop-growing business, said Michael J. Gilles, president of the Growth Group, a Dana Point-based food industry consultant.

“Dole has done an excellent job of creating value for its brand name, but as long as it’s in the business of farming, it’s going to face a certain amount of risk of feast and famine,” Gilles said.

Consultant Layton pointed out that all companies dealing in perishables face those same risks.

“The business has an appeal because there is always going to be demand for fresh fruits and vegetables,” Layton said. “When you’re in the perishable business, as Dole is, it’s not something you can get into and out of just because the weather changes. It’s like riding a tiger. Once you’re on it, you pretty much have to ride it out.”