Today notwithstanding, Fresh Del Monte continues to lag and gets little respect.
They reported a profit of $2.26 for the year which means the stock is selling at a p/e of less than 10. Trading below book value. No leverage concerns. Plus in an industry (farming/food) with very bright longterm prospects. In a word, cheap.
So what is the problem then?
Well, for one, earnings declined year over year and WallStreet loves growth first. Valuations be damned unless there is growth too. Plus with the cyclical nature of FDP there is a tendency to keep ratios low at perceived cyclical tops. Especially with bananas.
The competitors are also a problem. With Chiquita and now Dole trading at even lower p/e ratios. Somewhat justified to the leverage concerns at both companies. But regardless, they keep the overall industry's metrics lower which affect FDP.
Management was overall pleased with the year and gave themselves a few pats on the back. They seemed sanguine about next year. They are still worried about the world economy, but were confident FDP was well positioned to do well in any environment.
They didn't provide on call any direct guidance but the tone seemed to indicate that current estimates were generally ok. Although a higher tax rate in North America was addressed which will probably lower estimates a little.
One analyst asked about the lack of a stock buyback. Management basically said there are a couple of capital initiatives they are going to fund first (Saudi expansion & ~4000 new pineapple acres.) After getting a feel for how those were progressing they seemed to indicate they would be more open to buyback.
The analyst did not seem satisfied and he might poo-poo the stock because of it. He seemed to want a buyback just due to stock being so cheap and didn't want to hear any talk of fiscal prudence.
(I think I also remember in the past management said they prefer debt to be under 200M. Right now it stands at 325M so until it gets below there, I would not expect a substantial buyback or possible dividend.)
So I suppose more patience is needed. I doubt FDP is going to surge anytime soon. It will probably hover for the forseeable future until either earnings grow again or the market in general surges. I would prefer it to hover around 25, but WallStreet seems fixated on the low 20s for FDP.
But regardless of its current status on WallStreet, I have no problems holding the stock. One of my favorite holdings. It makes a great inflation hedge and should be a solid defensive stock if things get bad again.
And maybe, just maybe, the food/farming commodity sector will have its day and finally get some respect.
The analyst asked about the buyback not because "he wanted it" but because the company announced one back in August and have done nothing. Same as back in October 2006 when they announced a $300 million buybcak. Not only did they not buy in shares then, they issued dilutive stock to let insiders get out. THat analyst was probing the issue to get a read on management credibility on the issue. IMHO they have none after two buyback announcements go unfulfilled.
The analyst that asked about the buyback also asked at the last conference call. In one of them, he mentioned in the same breath that he thought the stock was cheap and didn't they also? I interpreted that to mean he wanted it.
Although, now, it's actually good they did not do the buyback since those shares would be underwater now. So maybe they know what they are doing. Ever think that?
Yeah, they probably should not have announced the buyback since they did not plan on implemented it immediately, but just having it announced does give them the flexibility to use it whenever. So if the market plunges and takes down FDP with it, the program is ready.
One last thing, I don't mind at all them paying down debt and funding expansion first. Just because the rest of WallStreet thinks debt and buyback can go together doesn't mean it's the prudent move. Paying down debt is always a good move to me.
The 403M Caribana purchase two years ago is almost paid for because of management prudence. I think they need another 125-150M to have debt levels back to where it was at the time of that purchase. And that's something tangible that's owned.