Oh my gosh, I just had a piece of the best pineapple upside down cake I have EVER tasted. And the key ingredient was Fresh Del Monte brand Gold pineapple.
But what I'd really like to taste is a DIVIDEND from FDP. I heard on CNBC that 2010 is the year of the dividend. So this is a plea to the FDP management: Don't buck the trend, please restore the dividend.
That means that whoever Caribana was supplying besides FDP is now short of bananas (and, therefore, so are their downstream customers). so why not sell either directly to whoever was taking those bananas int he first place, or just unload to the "other major" at the market price?
Thanks for your well-reasoned post. As a financial professional whose clients own a personally significant stake in this (as I also do for my account), I encourage you to keep posting. Whether I agree with you or not, you contribute significantly to important and helpful discussion.
Here's the main problem with your fan mail on them buying up banana capacity. Caribana was supplying other majors with a good part of their bananas, so that has to go somewhere. Guatemala fruit was going to another importer, so that has to go somewhere. Until you have a customer, that means jamming the market, trashing the prices and hurting earnings. lets see what happens.
You're right, we both agree that the company is massively undervalued. I do, however, think that management should only engage in any expansionary activity (including acquisitions) so long as they expect the results to exceed the cost of capital. With a single man holding control of the company, the chances of the company engaging in activities that do not meet the above criteria increase exponentially. FDP's management has been prudent and I am a fan of their current strategy of buying up plantations (i.e. Caribana). That being said, I am sure the CEO has a soft spot for something in the Middle East (he lives there now) which might translate to some misguided pet-project expansion.
The whole group is trading ridiculously cheap.... I am at times amazed at how the street seems to not recognize that a dollar made by a fruit company is exactly the same as a dollar made by some high-tech company.... Given these guys' growth profile and RoIC of the last decade, there is absolutely no reason on planet earth why they should trade at less than 12~13x trailing earnings, at least!
I don't think companies with debt ought to pay dividends. It reduces flexibility. Hinders expansion. Plus they have to pay interest on that debt. (Not to mention that fact that dividends are double taxation.)
Let's say FDP paid a 50 cent per share dividend last year, well, that would mean the company would have 32M more in debt today. Two years worth would be 64M and so on and so on.
Now I know my opinion is in the minority on WallStreet, but it's something I believe fervently in; and I hope FDP does not institute a dividend when they could instead pay off debt.
FDP is the least levered of the bunch!! With a ~15% Debt/Capital ratio, they pretty much don't have any debt. A dividend or a share repurchase would lift the overhang of a possible large acquisition that is keeping this stock down... There is no reason why a company with a stable earnings profile, reasonably high profitability, and a stellar balance sheet should trade this low except for corporate governance fears. The CEO has effective control over 34% of the stock (he has an irrevocable proxy over the family's shares) and thus can do anything he wants. So the fear is that he might do something value destructive such as the 2004 European expansion. This is why returning cash to the shareholders will be seen as a positive for FDP.
I respectfully disagree that debt should be paid off before declaring a dividend, and here's why:
As an MBA, I have come to learn that debt is usually a desirable component of a company's capital structure. Every company has an optimal mix between debt financing and equity financing. The optimal level depends on the industry and other factors. Having debt is a good thing because it allows a business to use the proceeds for strategic aquisitions which will ultimately help the company grow faster (and raise the stock price). The interest on the debt is tax deductible. Debt financing is cheaper that equity financing, since debt does not dilute existing shareholders.
In FDP's case, as of 12/31/09, there is $325M of long term debt, and the company has consistently had net income of about $150M for the past 3 years. Obviously they are making enough money to both pay a dividend and pay down their debt. Declaring an annual dividend of, say .40/share (about 2% yield), would signal to stockholders that management has confidence in future earnings power of FDP, and would cause the stock to be more attractive to investors, and would push the stock up. FDP could easily afford this. With 63 million shares outstanding, the dividend would cost only about $25M per year.
I wish management of FDP would come to the same conclusion. However, since they have not hired me as upper management, they may not value my advice. Advice is funny. Sometimes unless you pay for it, you don't respect it. But in case anyone at FDP is listening, there you have it, some very valuable free advice.
p.s I have a 'buy' rating on the stock because I feel that at current levels, the stock has become too cheap to pass up. However, to unlock the potential, management needs to take some basic actions such as I mentioned in this message to unlock the stock value.