The big players have fairly poor margins. Chiquita a LNDC customer is struggling.
Poor Margins Go To Chiquita's Core May 10, 2012 | Filed Under » Stock Analysis Tickers in this Article » CQB, DOLE, FDP, WMT, MCD, JACK
Investing in companies that produce agricultural products is almost always dicey; few of these companies can control either end-market pricing or input costs. Not surprisingly, companies like Dole (NYSE:DOLE), Fresh Del Monte (NYSE:FDP) and Chiquita (NYSE:CQB) don't score especially high on measures of long-term economic value creation. That said, aggressive investors can often do reasonably well in these stocks by trading the huge swings in sentiment.
Rotten Margins Spoil First Quarter Results If there was any good news in Chiquita's first quarter, it was that the company exceeded analyst revenue expectations by a modest amount. That's pretty much it for the good news.
Although better than expected, revenue fell 4% on a 3% decline in banana revenue and a 25% decline in "other" revenue, while salad/healthy snack revenue was flat with last year. This marks the fourth straight quarter of year-on-year revenue declines and the core banana revenue fell, as weak pricing (down mid-to-high single digits across sales geographies) outweighed 3% growth in volume.
Margins are always tenuous at agriculture companies and they certainly were not strong this quarter. Gross margin slid five points (due in part to higher fuel costs) and although SG&A expenses actually fell 10%, it pushed the company to basically breakeven operating income - ultimately leading to a big per-share miss.
SEE: Getting The Real Earnings
Hard to Gain Meaningful Traction Although Chiquita is the number one banana seller in Europe and has a strong enough brand that it can often charge a premium, the company's overall brand power is very limited. For instance, while the company tried to push through some force majeure charges, it doesn't look like they stuck. For better or worse, Chiquita, Dole and Fresh Del Monte are price-takers, not price-makers.
This has been especially true in the company's salads business, as the company as lost business to private label offerings at stores like Walmart (NYSE:WMT). The company is doing what it can to fight back. Not only is Chiquita expanding its portfolio, it's also looking to compete in the private label sector - a move that doesn't sound great for margins, but should create more volume leverage.
Similarly, the move to offer more salads and healthy snacks through quick service restaurant channels like Jack in the Box (Nasdaq:JACK) and McDonald's (NYSE:MCD) has been, at best, a mixed success for Chiquita and the industry as a whole.
SEE: How To Analyze Restaurant Stocks
Only the Brave Need Apply There's an awful lot that can go wrong at Chiquita. The company is at the mercy of shoppers' budgets and severe weather, and there's also a growing drumbeat of concern about how these large produce companies source their product and treat their workers. All that said, people like bananas and that's not going to go away.
Chiquita has been a stock that has rewarded purchases made in the worst of times, and with the stock carving out some new lows on a price/book basis, now may be the time to consider it again. These are lousy long-term business with virtually no chance of compelling returns on invested capital, but capital gains all spend the same and Chiquita may well be close to a point of maximum pessimism.
Apio, Dole strike deal for fresh-cut 06/11/2003 12:00:00 AM Terry Scruton Printer-friendly version of this articlePrinter-friendly version of this article ShareThis
An incorrect headline for this story was previously published in The Packer Online and The Packer Online Extra newsletter.
GUADALUPE, Calif. — Apio Inc. has signed a deal with Dole Fresh Vegetables Inc., Salinas, to package and market a line of fresh-cut vegetables under the Dole label in the U.S. beginning this fall.
“Both companies recognized the ability to apply the strength of the Dole brand to a new category in produce, using Apio’s fresh cut vegetable line as a mutually beneficial opportunity,” said Jennifer Browder, Apio’s director of marketing. “Discussions, and ultimately the licensing agreement, developed from that basis.”
While full details of the multiyear agreement were not disclosed, what is known is that Apio will package a line of pre-cut vegetables and party trays from its processing facility in Guadalupe. Apio also will provide national sales support and retail distribution for the line in exchange for a royalty payment to Dole.
Apio will continue to market its Eat Smart line of ready-to-prepare meals that includes potato leek soup, stir fry with chicken and stir fry with noodles. The Eat Smart brand also includes a line of fresh-cut vegetables and party trays. Browder said there will be no disruption in the marketing of the Eat Smart line. Ron Midyett, senior vice president of operations for Dole, said that both companies will benefit from the agreement.
“It gives us an opportunity to expand the Dole name within the produce section with a high quality product,” he said. “Apio’s product line is complimentary to our fresh-cut salad and cut fruit programs.”
Apio will market vegetable party trays in 1.5-, 2.5- and 5-pound formats, as well as pre-cut vegetable blends in 12-ounce, 2- and 3-pound sizes. The company also will market sugar peas in 8-ounce packages.
The vegetable blends will come in several varieties, including broccoli florets, vegetable medley, stir fry vegetables, broccoli slaw and a broccoli and cauliflower floret combination.
The party trays will feature grape tomatoes, broccoli, carrots, celery or snap peas and ranch dip for the 2½ -pound tray. The 1½-pound tray will have broccoli, carrots, celery and a ranch dip. The Petite tray will contain broccoli, carrots, celery, grape tomatoes and ranch dip.
While there are no plans on the board to add to the line, Midyett said he wouldn’t rule it out in the future.
“We never will say never as far as new product possibilities,” he said.
All of the products will be packaged using Apio’s proprietary Intelimer packaging technology. The packaging technology comes from Apio’s parent company, Landec Corp., Menlo Park, and allows membranes to be customized for each specific product to provide the optimal oxygen and carbon dioxide levels.
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