Dole Plc: Finally Starting to Ripen?
Latest thoughts on DOLE following sale of Fresh Vegetables division
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“We believe the sale of this division will strengthen our financial position and increase the Group’s focus on and investments in our core activities.”
Carl McCann, Executive Chairman, Dole Plc.
Dole Plc’s (DOLE, DOLE 0.00%↑ ) announcement last week that it had agreed to sell its struggling Fresh Vegetables Division to Fresh Express Incorporated (a subsidiary of privately held peer Chiquita Holdings) for $293m came as something of a positive surprise to the market.
To recap, the Fresh Vegetables division suffered from two issues last year which adversely impacted market sentiment towards DOLE:
Firstly, it announced a recall of salad products produced at two of its facilities in Dec-21 due to a potential Listeria risk, which was followed up a second, wider recall announced in Jan-22. The cumulative impact of these recalls was a ~$21m hit to earnings in FY21 and an estimated further ~$40m hit in FY22, due to temporary closure costs and cost absorption on lower volumes. Following a plant investigation at the affected facilities no contamination was found however.
Secondly, the division was particularly hard hit by cost inflation, experiencing cost pressures across freight, packaging materials, ingredients and labour.
The cumulative impact of these issues was that revenues for the Fresh Vegetables division declined ~9% in the FY22 YTD period (Sep-22 quarter-end), while EBITDA turned negative vs. FY21, running at -$27.4m YTD and -$32m on an LTM basis.
The slide below sums up the state-of-play at the end of Q3 (note full year FY22 results are not expected to be published until March):
Source: Dole Plc Q3 2022 Results presentation.
Today, Fresh Vegetables could perhaps best be described as follows:
A loss-making turnaround situation following the salad recall issue and FY22 operating performance
A non-core division within the overall DOLE business, representing just ~13% of LTM sales.
Certainly DOLE’s share price performance last year in part reflects the challenges in the Fresh Vegetables segment - the stock declined ~28% through 2022 (bottoming down ~45% at $7.30/share at end of Q3-22):
Since then it has rebounded significantly, up ~58% since the trough last September quarter-end, and at the time of writing is up ~19% YTD, comfortably outperforming the SPX and peers:
DOLE’s stock is up over 7% since the sale announcement on 31 January, with the market clearly positive on the news.
Many readers have asked me what I think of the sale and what it means for the stock, so in this issue of the newsletter I thought I’d outline my current thoughts and provide some updated valuation analysis.
Before delving into the numbers, I will say at the outset that I believe the disposal of Fresh Vegetables makes sound commercial and financial sense, and may finally be the catalyst for a market re-rating of the stock as management focus on the core business without the distraction of an underperforming, non-core division.
As my analysis below outlines, I see substantial upside for DOLE’s valuation along with immediate improvement in risk profile…