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Fresh Del Monte Produce Inc. Message Board

  • stockbull2004 stockbull2004 Jan 21, 2004 4:39 PM Flag

    What Kept The Stock Price Down?

    1 lawsuit is gone. How big is the impact of this lawsuit on this company?

    2 How about the antitrust thing? What is the deal here? Is it a bad thing? I would say if the company does not buy more, it is good for the stock price.

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    • You are missing some point but I can't tell which.

      Let's look at a simplified caricature of the numbers to help clarify the issue. Suppose FDP gets half its revenue in dollars and half its revenue in euros and its production costs are fixed in dollars. Now if the euro goes up 20% relative to the dollar, FDP's revenue is going up 10% while its production costs stay the same. If its previous op margin was 10%, it would now be doubling its pre-tax earnings. In this example, that isn't a one time gain from some sort of currency trade - the op earnings will *stay* doubled indefinitely as long as the dollar and euro stay at those levels.

      The numbers above are made up, but they illustrate the ideas. You may think that the dollar is coming back next year, but in that case, you are betting that you know better than the currency markets. But for an investor who is agnostic about future current fluctuations and has most of their assets in dollars, there is value to the diversification.

    • Sorry to disagree, but i think it shows up in a line called "sales". I believe that is the top one. You treat this as if it is the ugly stepchild. It is not.

    • Can I intervene? You both have your own points of view but I and my grandchildren will only live to see 100 if we are lucky. 15% a year forever is past where I care about. To say that the change in the dollar is cyclical is niave for the next two or three years assuming Bush is in the White House - i.e. continuing budget and current account deficits. To think that an extra $30MM in free cash flow can't improve the balance sheet is naive. To think that eventually the government is not going to have to balance the budget either through increased revenues or changes to the budget is equally naive. Can you two try to reach some type of centrist position so we can concentrate on FDP?

    • I cannot remember for sure, but if foreign currency exchange earnings (meaning loss or gain) are material, they will be excluded from 'above'the line in the income statement called net income. It may be reported in other comprehensive income and show up in comprehensive income. It will boost shareholder equity.

    • You are correct in that "core earnings is what can be counted on as a base from which one hopes growth will come. However, currency earnings can significantly help cash position to either re-invest and yield a return that is accretive to eps or can be used to pay down debt or buy back shares, also accretive to eps.

      Thus, it does get some weighting.

    • This company sells fucking fruit, it doesn't change currencies at the airport. It is the produce and fruit sales that make the determination of earnings not lucking out on swings in currency fluctuations. Real investors will set aside those losses or gains due to currencies and look at the busines numbers.

    • Disagree with your main argument for two different reasons. First, let's be clear about whether we are talking about the information relevant to estimating long term value or just the information relevant to estimating long term growth. If the dollar declines quickly against other currencies and stays down then that is relevant to long term (dollar denominated) value but not to growth estimates.

      Now moving to the issue of growth, people should realize that Wall Street estimates and thinking on this topic are usually a joke for several reasons. One is that no analyst can estimate how many years of growth lie ahead for a company, and another is that the analysts and the public don't really understand the mathematical implications of geometric growth.
      Your point that the dollar cannot go to zero was technically incorrect for the discussion because the dollar could, mathematically speaking, decline by a given percentage each year indefinitely. That won't really happen, but all the companies that are supposed to grow by 15% for the next 20 years won't really do that either.

      In summary, if you believe in a secular decline of the dollar then it makes sense to factor out currency gains from *growth estimates*, not the part of valuation estimates that is independent of growth, and even then, one might still value the protection against continuing declines in the dollar that many smart people anticipate.

    • It wouldn't be considered recurring. If it was, the dollar would eventually go to zero. One wouldn't count on an exchange rate to save your company's ass from quarter to quarter. It is just langniappe on top.

    • How one evaluates the currency issue depends on whether one considers the decline in the dollar compared to other currencies to be cyclical or a secular trend. There are a lot of strong advocates for the secular view, so for them, this is 'quality' in the relevant sense (long term, sustainable, etc.)

    • I don't know, but I suspect the antitrust case has to do with the fact that FDP claimed (falsely) to have a patent on the gold pineapples. You never know whether it will be material or not.

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