|Is the Recovery Changing the Way We Eat? What Dole's Earnings Might Reveal|
By Andrew Keene
MAR 12, 2013 11:50 AM
Fruit and vegetable processors thrived during the recession as cash-strapped consumers substituted cheaper, premade alternatives for fresh food.
For the quarter that has just ended, earnings estimates for Dole Food Co. (NYSE:DOLE) have decreased all the way from an expected $0.11 per share profit to the current loss call, and analysts have cut $0.37 per share off their full-year 2013 expectations. The stock price has not changed much, though, losing just half a percent since early December.
Dole updated its guidance back in January in light of its decision to sell its packaged foods and Asian fresh fruit business to Japan's Itochu Corp. (TYO:8001) for $1.685 billion back in September. This deal is set to be executed by April 1. Dole announced that earnings for the full-year 2013 would come in between $45 million and $60 million, which is well below expectations. This earnings loss would most likely decrease share price. Dole is forecast to report a loss of $.02 per share in the fourth quarter. Its revenue is estimated to be $1.3 billion. Adjusted EBITDA for Dole in Q3 was $62 million (up $1 million from the previous year). Adjusted EBITDA for Dole in Q2 was $138 million (down $29 million from the previous year). Adjusted EBITDA for Dole in Q1 was $71 million (down $40 million from the previous year).
Fruit and vegetable processors thrived during the recession as cash-strapped consumers substituted cheaper, premade alternatives for fresh food. With the economic recovery under way, however, the industry (canned fruits and vegetables) will struggle to stay afloat. Consumers will once again be able to afford fresh fruits and vegetables, which are staying fresher for a longer period of time due to improvements in transportation and storage technologies.
The industry remained fairly stable in the past five years as lower incomes encouraged consumers to purchase frozen fruits and juices rather than higher-priced fresh varieties. Additionally, consumer desire for convenient and faster-to-prepare foods increased demand for frozen fruit. Still, industry products faced significant competition from fresh fruit and juice, which are often perceived to be nutritionally superior. In the next five years, the industry is expected to experience slightly stronger growth; however, demand and revenue will be hindered by stronger competition from fresh fruit and juice as disposable incomes rise.
11/16/12 $11.61 $10.70 $-0.91 (-7.8%)
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03/16/12 $9.97 $11.13 $+1.16 (11.6%)
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Historical Earnings Move: Mean 7.5%, Median 7.8%
NearTerm Straddle Indication:
Term Strike NBBO Size %Spot(Mid)
03/16 $11 $0.85 - $1.00 13 x 10 7.9%
My Trade: Let's take a lottery ticket and buy the March 12 calls or $.25.
Risk: $25 per 1 lot
Greeks of this Trade:
No positions in stocks mentioned.