The Value Line Investment Survey

Fresh Del Monte Produce is one of two survivors of the division of Del Monte Corp. in 1989; the other is Del Monte Foods. The company went public in 1997, and, on its own, has established a solid competitive position, with wellknown brands, in the produce market. In 2007, record sales of $3.3 billion were achieved, thanks to the company’s success with the production, sourcing and marketing of fresh and fresh-cut products. Fresh fruit (especially bananas and pineapples) operations are the core of the business, but prepared foods also contributed to the latest sales milestone. Indeed, prepared foods, such as canned fruits and bagged salads, are gaining importance.

Despite market turmoil in the first quarter of this year, the stock has held up well, staying close to its all-time high. Based on recent share-price and earnings momentum, Fresh Del Monte shares are ranked 1 (Highest) for Timeliness. Over the next 3 to 5 years, we project steady, single-digit top-line growth and double-digit share-net advances. The stock offers decent shareprice appreciation potential over that period, but will probably not quite keep pace with the Value Line average. It is better suited to those focused on the coming six to 12 months.

Producing Good Results

We expect the key banana business to perform well throughout 2008, considering currently strong demand and a favorable pricing environment. Separately, fresh-cut produce segment results should benefit from a rationalization of offerings. Management wants to concentrate on high-margined fruits, as opposed to less-profitable vegetable brands. Too, a canned pineapple shortage among competitors, augurs well for FDP’s share of the prepared foods business. This year, rising fuel expense, a higher tax rate and an expanding common share count will likely bar Fresh Del Monte from duplicating the robust share-net gain realized in 2007. Still, taking a conservative position, we look for the company to maintain earnings at last year’s elevated level, and then restore upward momentum in 2009.

Additionally, ITC intends to expand into Kansas and Nebraska. Management’s “Kansas V-Plan” aims to build a 180- mile, V-shaped transmission line, thereby providing improved access to power, especially that generated by wind. The company has another plan to build a 180-mile power line between Kansas and southern Nebraska. So far, these proposals have received support from the Southwest Power Pool, which oversees local transmission planning. We expect final approvals from the FERC and the Kansas Corporation Commission shortly. ITC will probably continue to expand beyond its Midwest base over the next few years.

Emerging markets remain a focal point for future growth. Fresh Del Monte is working to build a sizable presence overseas, most notably in the Middle East. A number of distribution centers are under construction in Saudi Arabia, and management is establishing relationships with some of the region’s largest food distributors (e.g., C-stores) and restaurant franchises (McDonald’s). By the end of next year, the company may well double sales, to roughly $280 million, in the Middle East. Incremental annual sales and earnings contributions are likely through 2011-2013.

Improved Finances

Early this year, the company conducted a public offering of 10 million common shares, six million of which were sold by principal shareholder IAT Group, priced at $28.97 each. The proceeds from the four million shares sold by FDP are going to reduce outstanding debt. The resulting improvement of the balance sheet puts the company’s Financial Strength rating at B+.

Fresh Del Monte stock has a relatively volatile trading history. Recently, a strong operating performance has helped to limit share-price swings. The stock is ranked 3 (Average) for Safety and has a beta of 0.65. Rising standards of living around the world augur well for 3- to 5-year sales and earnings. We caution conservative investors, however, that a severe world recession, which does not appear likely, would probably re-ignite volatility.

Jason A. Smith
Analyst-Specialist