Just about everyone knows that the world’s population is increasing
and thus global food demand is in turn on the rise. For
those of us fortunate enough, it's certainly an area of potential
profitability. As an investor, there is a right way and a
wrong way to profit from mounting food demand and lately it seems that
Del Monte Foods (FDP - Snapshot Report) is on the wrong end of that profit scale.
I’m sure you’ve heard the name, as Fresh Del Monte Produce
Inc. is a world leader in the production, distribution and marketing of fresh
produce. The DEL MONTE brand name is widely recognized in everything from
bananas and pineapples to fruits and melons. The deciduous fruit the company
sells includes primarily grapes, plums, nectarines, peaches, apricots,
cherries, apples, pears and citrus.
Keep in mind that Fresh Del Monte Produce (FDP - Snapshot Report) is separate
from the Del Monte Company that manufactures food and pet products under brands
such as namesake Del Monte, S&W, College Inn, Meow Mix and Kibbles 'n Bits;
it was taken private in 2011 by KKR.
Regardless of the bad news and massive restructuring,
investors are still buying the stock.
The problem is that it might not be the right choice for everyone and
may take quite a while to get all the cockroaches out.
Revenue for the last quarter fell 0.5% year over year to
$776.90 million in the quarter. Analysts
expected close to $800 million in revenue which would have equated to earnings of
7 cents. Instead the company reported flat
earnings, a huge miss.
GAAP EPS were -$0.01 for Q4 versus -$0.18 per share for the
prior-year quarter and seemed to add to the already bearish earnings
trajectory. The only good news seemed
that margins improved slightly. For the
quarter, gross margin was 5.1%, 1.4% better than the prior-year quarter.
Operating margin was -0.1%, 2.5% better than the prior-year quarter. Net margin
was 0.0%, 1.3% better than the prior-year quarter.
After the report, there have been several downgrades to the
stock and we have seen the Zacks Consensus drop for all reporting periods. Analysts
are now looking for growth of -19% for FY2013, but a recovery of almost 20%
growth in FY2014.
Shares resilient despite financial woes
interesting is that shares have held their bullish
trend through all this mess. Even as
losses were mounting and sales lacking any momentum, the stock is
remarkably still in a
somewhat bullish trend. A breakdown below the $26.75 level could
spell a short term technical meltdown for FDP, so watch that level
Perhaps the forward p/e of 13.08 is attracting investors for
the long term, but with its recent earnings growth history (or lack thereof), global
economic uncertainly and competition, Fresh Del Monte might be a stock you should
substitute for a agri-stock in a slight different space with a better Zacks Rank and financial picture.
CF Industries (CF - Analyst Report), a Zacks Rank #3 stock or CVR Partners (UAN - Analyst Report),
a Zacks Rank #1, might be a couple to look at as alternatives.
In the meantime, FDP analysts are not expecting much when
they report earnings on May 7th.
Zacks Consensus Expectations are for earnings of 94 cents, but I suspect
they will come down from that level just ahead of the report.
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