Dole Food Company, Inc. (DOLE) is the world’s largest producer and distributor of fresh fruit and vegetables, including an expanded line of value-added products. The company operates three different business segments, with fresh fruit bringing in the lion’s share of revenues (68% in 2010), as vegetables and packaged foods comprise 15% and 17% of sales, respectively. More than half of Dole’s sales are generated outside the United States, with roughly one-third of revenues derived from the company’s top 10 customers. Its patrons consist primarily of leading global and regional mass merchandisers and supermarkets in Asia, Europe, and North America.
The outlook for Dole Food Company appears solid. This is because the underlying dynamics of the $675 billion fresh produce industry have it poised for long-term growth, since demand for these goods has outpaced overall population expansion. Moreover, the cultural shift toward healthier dietary habits has been accelerating; retailers have increased the square footage dedicated to such items; and a diverse variation of products continues to provide healthy momentum. Medical communities also have furthered their efforts to convince consumers to switch-off less nutritious food sources, and partake in preservative-free items instead. This, too, should augur well for Dole’s top and bottom lines going forward.
Despite the positive long-term trends, Dole Food Company has struggled with recent global turmoil, as have many food distribution businesses. Pricing levels in Asia have been hurt by a difficult operating environment, but should improve as efforts to repair lost infrastructure begin to take hold. Furthermore, continued unrest across sections of the Middle East temporarily closed key Iranian markets, causing supply levels to climb quickly, which disrupted the company’s distribution chain and pricing initiatives. Still, it is likely that as Middle-East tensions begin to ease, order will be restored to central commerce locations. This will likely lead to firmer demand, which ought to help alleviate some of Dole’s recent price troubles in the region.
The company also has been taking steps to reduce overall costs and bolster its margins. In Latin America, for example, it has closed high-cost, company-owned farms, renegotiated several existing labor contracts, and improved the terms of various grower covenants. These maneuvers should bear fruit over the next year, as Dole will need to trim these problematic expenses in order to regain its previous profitability.
Longer term, the fresh produce giant is seeking to expand market share via new product lines, such as fruit bowls in 100% juice and health-focused frozen snack items. Although it faces stiff competition, primarily from produce-kingpin Fresh Del Monte Produce, Inc. (FDP) and Chiquita Brands International (CQB), Dole remains well positioned, with a number 1 or 2 market share rank in core territories of Europe, Japan, Latin America, and the United States.
Although Dole’s shares have long-term appeal, they are not well suited for risk-averse accounts. The company generally faces sharp shifts in short-term demand and supply levels, due to the fresh produce industry’s highly volatile nature. Still, growth opportunities and a foray into new product lines should provide support for solid sales and earnings advances over the long haul, which make this particular stock an intriguing option in the food distribution and production segment.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.