This is the fourth and final article in my series detailing the businesses of Dole (DOLE), Chiquita (CQB), and Fresh Del Monte (FDP). You can see the valuations and read brief descriptions of these companies by viewing the first three articles here, here, and here. Each company's 10K can also be viewed here, here, and here.
In this article I will go over the margins of all the companies to determine if there are any sustainable competitive advantages. I will decide whether I would buy any of these companies as they currently stand, without the possibility of any kind of merger, spin-off, or massive asset sales. I will also look into whether or not a merger between any of the companies would be a good thing.
Before I start with my analysis of the three, I need to go back and look into Dole's total contractual obligations in comparison to Chiquita's and Fresh Del Monte's. At the time I did Dole's valuations I wasn't doing as thorough of research as I am doing now, and did not talk about its total obligations in the original article I wrote.
On page 40 of Dole's 2011 10K, the company lists its total obligations and commitments as of Dec. 31, 2011. The total obligations and commitments, including debt is $4.68 billion, and over the next two years it comes out to $2.661 billion. The current market cap is $765 million. Not a great ratio, but not terrible like Chiquita's. The total obligations/market cap ratios for all of the companies are as follows:
- Dole: 4680/765=6.12
- Chiquita: 3167/220=14.40
- Fresh Del Monte: 1992/1310=1.52
Fresh Del Monte has by far the most sustainable ratio in my mind and should have no problems if another crisis hits it individually or the economy as a whole. Dole might be able to make it through another crisis, even if it doesn't decide to do some kind of asset sale or spin-off like it is looking into right now. Chiquita's ratio is horrendous and I would be worried about it if I was a shareholder.
All of these companies have low amounts of cash and cash equivalents on hand, which is another thing to possibly worry about with Dole and Chiquita if something bad were to happen in the economy. In any kind of emergency they would most likely either default on some of their obligations, have to draw down their credit facilities, or try to take on some more debt if they could, most likely on unfavorable terms.
Now let's get to the margins of all three and try to determine if any of them have a competitive advantage.
|Dole||Chiquita||Fresh Del Monte|
|Gross Margin (current)||10.5||12.9||8.8|
|Gross Margin (5 years ago)||9||12.4||10.8|
|Gross Margin (10 years ago)||16||16.1||16.1|
|Op Margin (current)||2.7||-0.3||3|
|Op Margin (5 years ago)||1.9||0.7||5.2|
|Op Margin (10 years ago)||6.5||2.2||10.3|
|Net Margin (Current)||0.75||0.69||2.84|
|Net Margin (5 years ago)||-0.83||-1.05||5.34|
|Net Margin (10 years ago)||0.83||0.91||9.34|
|FCF/Sales (5 years ago)||N/A||-0.08||2.42|
|FCF/Sales (10 years ago)||N/A||2.37||11.86|
|BV Per Share (Current)||$9.30||$17.42||$30.41|
|BV Per Share (5 years ago)||N/A||$21.03||$23.65|
|BV Per Share (10 years ago)||N/A||$15.80||$13.51|
|ROIC (5 years ago)||-2.12||-2.72||11.66|
|ROIC (10 years ago)||1.98||1.63||22.56|
|Insider Ownership (Current)||59.06%||3.33%||35.72%|
These companies for the most part all have operations in the same segments. The following table shows the margins of those comparable operations.
|Dole||Chiquita||Fresh Del Monte|
|Total Fresh Fruit EBIT||172||N/A||N/A|
|Total Fresh Fruit Revenues||5,024||N/A||2,721|
|Fresh Fruit EBIT Margin||3.42%||N/A||N/A|
|Total Vegetable EBIT||31||N/A||N/A|
|Total Vegetable Revenues||1,002||N/A||523|
|Vegetable EBIT Margin||3.10%||N/A||N/A|
|Packaged Food EBIT||96.5||N/A||N/A|
|Packaged Food Revenues||1,197||N/A||355|
|Packaged Food EBIT Margin||8.10%||N/A||N/A|
|Total Operations EBIT||300||33.7||116|
|Total Operations Revenues||7,224||3,139||3,590|
|Total EBIT Margin||4.15%||1.07%||3.23%|
In a perfect world, Chiquita and Fresh Del Monte would have broken their operations out further like Dole does. Instead, it chose to combine its operations reporting data, especially the Operating Margin data, otherwise known as EBIT. So at this point it is impossible for me to break out the data further than it is in the above table.
Taking the above information, combined with the information in the previous articles, I think that I have enough information to make some judgements on the companies.
As things currently stand I would not buy Chiquita under any circumstances, not even with the possibility of a spin-off or asset sale. Its low margins, combined with its huge amount of total obligations and low cash on hand, scare me too much to invest in it. That is not even taking into account the fact that in my valuations I found it to be about fairly valued to slightly undervalued -- not nearly enough of a margin of safety for me considering all the risks. I also do not see it being bought out by anyone due to its high amount of total obligations. The only thing in its favor is that it is selling for less than book value by a good margin, which is currently $17.42 per share. But at this point it looks to be justified.
Fresh Del Monte is interesting. It is selling for less than book value by a good margin, which is currently at $30.41 per share. It generally has the best margins of the three companies, and it also has high insider ownership, which I always love. However, by my estimates it appears to be slightly overvalued at this point and has low cash on hand. It is also the company out of the three in the best position to make some acquisitions, and in my opinion a merger between Dole and Fresh Del Monte could possibly be a good thing. It has already been buying back a lot of shares and is the only one out of the three to pay a dividend, which are more pluses. At this point I am not going to buy Fresh Del Monte, but I will wait for an opportunity when it is undervalued and will reassess at that time whether or not I will be a buyer then.
Without the possibility of a spin-off or asset sale that I outlined in my original article on Dole, I would not be a buyer of this company right now either. It has pretty much the same problems as Chiquita: high debt/total obligations, low cash, low overall margins. However, it does have high inside ownership, it is selling at a slight discount to book value, and by my valuations is extremely undervalued. I do stick to my original assessment about Dole, though, that it is a great spin-off opportunity if it decides to do a spin-off or asset sale. If it does what I suggested in the original article, I think it could unlock value, get rid of a lot of its debt, and become a much more focused and profitable company. Especially if it puts a lot of its resources into the packaged fruit portion of the business, as it has the highest margins in Dole's operating structure. Dole also has 88,000 acres of land that it could sell some of to pay down debts as well.
I did buy half of a position in Dole based on the spin-off thesis in my original article. I am waiting to see if it announces a spin-off or asset sale to jump fully into Dole at this point. It is in the spin-off portion of my portfolio that I plan to hold for six months to several years. I do not consider it a long-term, "buy and hold for decades" company. It also appears to me that none of the companies have any kind of sustainable competitive advantage, with their wildly fluctuating margins over the past 10 years and no one company becoming dominant.