The market does not seem to be happy with Dole Food Company, Inc. (NYSE:DOLE)’s recent decision of suspending its buyback. Its share price dropped nearly 6% right after the company announced that it would cease the recently announced $200 million share repurchase program to upgrade its own vessel fleet and acquire three new refrigerated container ships. Should investors buy Dole Food after this announcement? Let’s find out.
Dole Food Company, Inc. (NYSE:DOLE) is a global fresh fruit and fresh vegetables manufacturer and distributor operating in two main business segments: fresh fruits and fresh vegetables. Most of its revenue, $3.14 billion, or 73.8% of the total 2012 revenue, was generated from the fresh fruit segment, while the fresh vegetables segment contributed more than $1.1 billion in revenue. The fresh fruit segment was also the biggest operating income contributor with nearly $103.5 million in operating income whereas the fresh vegetables segment produced nearly $24.84 million in operating profit.
A much better shape after business divestment
In the beginning of April, Dole Food Company, Inc. (NYSE:DOLE) announced that it completed a $1.68 billion sale of its package foods and Asia fresh produce business to Itochu. After the divestiture, Dole Food had a much stronger balance sheet. As of December 2012, the company had $887 million in equity, $460.75 million in cash, and nearly $573 million in long-term debt. The adjusted EBITDA from continuing operations came in at $145.8 million in 2012. Dole Food would book more than $227.8 million in sales and it would use more than $1.63 billion to repay debentures, notes, revolving credit facility, and term loan facilities. Dole Food expects that its 2013 adjusted EBITDA would be in the range of $150 million to $170 million.
What makes Dole Food Company, Inc. (NYSE:DOLE) more interesting is its ownership of 24,700 acres of lands in Hawaii. The company expects to get around $175-$200 million by divesting around 20,600 acres of land where it has no farming activity. Maybe, as the prospect of land sale is not clear, the company had to use amount earmarked for the share repurchase plan to address the capital expenditure issue. With an estimated adjusted EBITDA of $150 million for 2013, the market values Dole Food at around 10 times EV/EBITDA.
Compared to its peers, Chiquita Brands International, Inc. (NYSE:CQB) and Fresh Del Monte Produce Inc (NYSE:FDP), Dole Food’s valuation is in between the two. Fresh Del Monte seems to be the cheapest. The market values Fresh Del Monte at only 7.7 times EV/EBITDA. While Dole Food Company, Inc. (NYSE:DOLE) has suspended its share buyback program, Fresh Del Monte authorized its own share repurchase program. Recently, Fresh Del Monte announced a three-year share repurchase program of around $300 million.
If the company completes this program, Fresh Del Monte Produce Inc (NYSE:FDP) will create a buyback yield of as high as 18.75% for its shareholders in the next three years. At its current trading price, investors can already get a decent dividend yield of 1.80%. In the near future, the increasing trend of maintaining good eating habits and a healthy diet would benefit Fresh Del Monte as more people turn to fresh fruit products.
Chiquita Brands International, Inc. (NYSE:CQB) has the highest valuation. The market values Chiquita more expensively than Fresh Del Monte Produce Inc (NYSE:FDP) and Dole Food, at 12.55 times EV/EBITDA. The company is in a restructuring process, focusing on cost reduction. Its new CEO, Edward Lonergan, has placed the margin target for banana sales at 4% and the margin target for salads at 7%-8% by 2015. The company expects to achieve at least $60 million per year in savings via streamlining, reducing jobs, and the divestment of several non-core businesses.
Its adjusted EBITDA came in at $39 million in the first quarter, much higher than $28 million in the first quarter last year. According to Barron’s, Janney Capital Markets believes that Chiquita Brands International, Inc. (NYSE:CQB) is worth around $12 per share.