Throwback Thursday – Dole Investment Analysis Case Study Part 1
This is the sixth post in our new Throwback Thursday’s Series, where we share with you posts from the past blogs to bring you as much value as possible.
Today, I’m beginning a series on Dole in these Throwback Thursday posts.
I researched and wrote extensively about Dole when I began doing ‘real’ investment research in 2012.
I’m going to be reposting a series of my past research and investment articles on Dole beginning today.
They’re a great case study in doing deep work. Here are some of the things we’ll be looking at in this series…
- HOW to find the value of potentially hundreds of millions or billions of dollars worth of hidden assets
- The signs of a company potentially having hidden value
- Doing deep work to find the value of these and other things people won’t look for
- Valuations and how and why I’ve done these valuations
- And more
I hope you enjoy this series and know we can all learn a lot from doing this.
Oh and please excuse the poor writing style and huge paragraphs. I wrote this in 2012 before I learned how to write.
As always, nothing is changed below from the past article in 2012.
This article is the fourth and final article in the series detailing the businesses of Dole (DOLE), Chiquita (CQB), and Fresh Del Monte (FDP). If you want to see the valuations and brief descriptions of these companies, please view these articles: DOLE, CQB, and FDP.
In this article, I will go over the margins of all the companies to determine if there are any sustainable competitive advantages. I will decide whether I would buy any of these companies as they currently stand, without the possibility of any kind of merger, spin off, or massive asset sales. I will also look into whether or not a merger between any of the companies would be a good thing.
Before I start with my analysis of the three, I need to go back and look into Dole’s total contractual obligations in comparison to Chiquita’s and Fresh Del Monte’s. At the time I’ve done Dole’s valuations, I wasn’t doing as thorough of research as I am doing now, and did not talk about their total obligations in the original article I wrote.
On page 40 of Dole’s 2011 10K, they list their total obligations and commitments as of December 31, 2011. The total obligations and commitments, including debt, is $4.68 billion, and over the next two years it comes out to $2.661 billion. Their current market cap is $765 million. Not a great ratio, but not terrible like Chiquita’s. The total obligations / market cap ratios for all of the companies are:
- Dole: 4680/765=6.12
- Chiquita: 3167/220=14.40
- Fresh Del Monte: 1992/1310=1.52
Fresh Del Monte has by far the most sustainable ratio in my mind and should have no problems if another crisis hits them individually or the economy as a whole. Dole might be able to make it through another crisis, even if they don’t decide to do some kind of asset sale or spin off like they are looking into right now. Chiquita’s ratio is horrendous and I would be worried about them if I was a shareholder of theirs.
All of these companies have low amounts of cash and cash equivalents on hand, which is another thing to possibly worry about with Dole and Chiquita if something bad were to happen in the economy. In any kind of emergency, they would most likely either default on some of their obligations, have to draw down their credit facilities, or try to take on some more debt if they could, most likely on unfavorable terms.
Now, let us get to the margins of all three and try to determine if any of them have a competitive advantage.
|Dole (DOLE)||Chiquita (CQB)||Fresh Del Monte (FDP)|
|Gross Margin (Current)||10.5||12.9||8.8|
|Gross Margin (5 years ago)||9||12.4||10.8|
|Gross Margin (10 years ago)||16||16.1||16.1|
|Op Margin (Current)||2.7||-0.3||3|
|Op Margin (5 years ago)||1.9||0.7||5.2|
|Op Margin (10 years ago)||6.5||2.2||10.3|
|Net Margin (Current)||0.75||0.69||2.84|
|Net Margin (5 years ago)||-0.83||-1.05||5.34|
|Net Margin (10 years ago)||0.83||0.91||9.34|
|FCF/Sales (5 years ago)||N/A||-0.08||2.42|
|FCF/Sales (10 years ago)||N/A||2.37||11.86|
|BV Per Share (Current)||$9.30||$17.42||$30.41|
|BV Per Share (5 years ago)||N/A||$21.03||$23.65|
|BV Per Share (10 years ago)||N/A||$15.80||$13.51|
|ROIC (5 years ago)||-2.12||-2.72||11.66|
|ROIC (10 years ago)||1.98||1.63||22.56|
|Insider Ownership (Current)||59.06%||3.33%||35.72%|
These companies, for the most part, all have operations in the same segments and the next table will be showing the margins of those comparable operations.
|Dole||Chiquita||Fresh Del Monte|
|Total Fresh Fruit EBIT||172||N/A||N/A|
|Total Fresh Fruit Revenues||5,024||N/A||2,721|
|Fresh Fruit EBIT Margin||3.42%||N/A||N/A|
|Total Vegetable EBIT||31||N/A||N/A|
|Total Vegetable Revenues||1,002||N/A||523|
|Vegetable EBIT Margin||3.10%||N/A||N/A|
|Packaged Food EBIT||96.5||N/A||N/A|
|Packaged Food Revenues||1,197||N/A||355|
|Packaged Food EBIT Margin||8.10%||N/A||N/A|
|Total Operations EBIT||300||33.7||116|
|Total Operations Revenues||7,224||3,139||3,590|
|Total EBIT Margin||4.15%||1.07%||3.23%|
In a perfect world Chiquita and Fresh Del Monte would have broken their operations out further like Dole does. Instead they choose to combine their operations reporting data, especially the Operating Margin data, otherwise known as EBIT. So at this point, it is impossible for me to break out the data further than it is in the above table.
Taking the above information, combined with the information in the previous articles, I think that I have enough information to make some judgments on the companies.
As things currently stand, I would NOT buy Chiquita under any circumstance, not even with the possibility of a spin off or asset sale. Their low margins, combined with their huge amount of total obligations, and low cash on hand, scare me too much to invest in them. That is not even taking into account the fact that, in my valuations, I found them to be about fairly valued to slightly undervalued, not nearly enough of a margin of safety for me considering all the risks. I also do not see them being bought out by anyone due to their high amount of total obligations. The only thing going in their favor is that they are selling for less than book value by a good margin, which is currently $17.42 per share, but at this point it looks to be justified.
Fresh Del Monte is interesting. They are selling for less than book value by a good margin, which is currently at $30.41 per share, they generally have the best margins of the three companies, and they also have high insider ownership, which I always love. However, by my estimates they appear to be slightly overvalued at this point, and have low cash on hand. They are also the company out of the three in the best position to make some acquisitions: in my opinion, a merger between Dole and Fresh Del Monte could possibly be a good thing. They have already been buying back a lot of shares and are the only one out of the three to pay a dividend, which are more pluses. At this point, I am not going to buy Fresh Del Monte, but I will wait for an opportunity when they are undervalued and will reassess at that time whether or not I will be a buyer then.
Without the possibility of a spin off or asset sale that I outlined in my original article on Dole, I would not be a buyer into their company right now either. Pretty much the same problems as Chiquita: high debt / total obligations, low cash, low overall margins. However, they do have high inside ownership, they are selling at a slight discount to book value, and by my valuations are extremely undervalued. I do stick to my original assessment about Dole though, that they are a great spin off opportunity if they decide to do a spin off or asset sale. If they do what I suggested in the original article I think they could unlock value, get rid of a lot of their debt, and become a much more focused and profitable company. Especially if they put a lot of their resources into the packaged fruit portion of the business, as it has the highest margins in Dole’s operating structure. Dole also has the 88,000 acres of land that they could sell some of to pay down debts as well.
I did buy half of a position in Dole based on the spin off thesis in my original article. I am waiting to see if they announce a spin off or asset sale to jump fully into Dole at this point. They are in the spin off portion of my portfolio which I plan to hold for 6 months to several years. I do not consider them a long term buy and hold for decades company.
It also appears to me that none of the companies have any kind of sustainable competitive advantage, with their wildly fluctuating margins over the past 10 years, and no one becoming dominant.
I hope everyone has enjoyed and learned something from the analysis and valuation series on Dole, Chiquita, and Fresh Del Monte, and I look forward to some feedback.
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