Dole Poised for a New Era of Growth

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Dole Food (NYSE: DOLE) definitely deserves a slot in the watch list of punters these days. Come this April, close to $1.7 billion in cash will be infused into this company which produces, markets, and distributes fresh fruits and fresh vegetables. By that month, Dole would have completed the sale of its Asian fresh produce and its worldwide packaged foods operations to the Itochu conglomerate of Japan. Itochu’s purchase includes the exclusive rights to the Dole brand on Asian fresh produce and packaged food products worldwide.

Dole retaind its fresh fruit operations in North America, Latin America, Europe, and Africa, as well as its entire fresh vegetable business in North America. The completion of the sale will turn Dole into a more focused company retaining a significant scale in fresh fruits and fresh vegetables with a rich asset base and a $4.2 billion range in overall revenue, according to Dole Chairman David H. Murdock. To complete the sale, Murdock reassumed the CEO role in the company, a post he held between 1985 and 2007. Former Dole CEO David DeLorenzo and the company’s ex-CFO Joseph Tesoriero are moving to Itochu as part of the purchase deal.

Formidable war chest

For Dole, a substantial debt reduction is one immediate result of the transaction. The company will use part of the $200 million non-refundable cash deposit, which Itochu already paid in cash, to repay debt. The deposit will also be used for general corporate purposes and some expenses related to the transaction. Besides debt reduction, the sale will likewise result in cost savings of $50 million resulting from the streamlining of Dole’s corporate structure and global personnel.

All told, the sale puts Dole in a strong financial position to explore growth opportunities in the fresh produce business. Furthermore, if the expressed company intention to sell 21,800 acres of its Hawaii farm land holdings materializes, Dole’s war chest indeed would look even more formidable. Proceeds from this planned sale range from $175 million to $200 million.

What to expect

More acquisitions could be in Dole’s future. In October 2011, the company acquired SunnyRidge Farm, which contributed to a 10% increase in fresh vegetable sales during the 2012 third quarter. In March 2012, Dole acquired Mrs. May’s Naturals, from which Dole drew successful product launches in this year’s third quarter.

For the nine months ending October 6, 2012, the company posted net revenues of $5.03 billion, down from the $5.69 billion of the comparable previous nine-month period. Its 2012 nine-month net income totaled $68.8 million ($0.78 EPS), up from $38.1 million ($0.43 EPS) a year earlier.

Going bananas on organic

Greater emphasis on value-added products, such as organic produce, would also appear consistent with Dole’s future growth strategy. Notably, the company has successfully introduced organically produced bananas into the market. The US organic food market has a mother lode of opportunities, according to the RNCOS industry research, US Organic Food Market Analysis. This study noted that even during the 2010 recovery period, the industry had a 7% year-on-year gain and garnered $26.7 billion, well above the growth of total food sales. For the 2011–2015 period, research estimates a 14% growth rate for the organic food industry.

Already, there are many success stories woven into the organic food industry, one of which is Whole Foods Market (NASDAQ: WFM). This Austin, Texas-based company maintains a chain of 311 supermarkets in the U.S., Canada, and the U.K., specializing on natural and organic foods. For its 2013 first quarter ended this January 20, Whole Foods sales rose 14% to $3.9 billion, while net income was up 24% at $146 million and EPS higher by 20% at $0.78.

The Fresh Market (NASDAQ: TFM) is another specialty grocery retailer reaping rewards from the growing consumer preference for organic foods. It now has close to 120 locations across the U.S., following the opening of several Fresh Market stores since the start of this year. In its fiscal 2012 third quarter, Fresh Market net sales rose 22.1% to $321.5 million from the year-ago period, while net income saw a 19.0% year-over-year increase $10.9 million. Diluted EPS was $0.23, up 18.5% from $0.19 in the fiscal 2011 third quarter.

“Cash is king”

The rosy top line and bottom line results of these two organic food retail chains will certainly not escape notice from Dole corporate planners. Now refocused as a purely fresh commodity produce company, Dole could be on the threshold of a new era of growth that will further bring greater value to its shareholders. Following the adage that “cash is king,” the proceeds from the sale of its Asian fresh produce operations and worldwide packaged food business truly make Dole well positioned to tap more emerging growth areas in the food industry.


dARTtanyan001 has no position in any stocks mentioned. The Motley Fool recommends The Fresh Market and Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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