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FEBRUARY 6, 2006
Skip This Fruit Plate Carmen Miranda and me. We love bananas. Even more I love pineapples, especially those "gold" ones, the thought of which makes my mouth water. Fresh Del Monte Produce (FDP ), which popularized the variety and is its top purveyor, knows a good thing. So it has trademarked its Del Monte Gold Extra Sweet pineapples, a label I search for at the supermarket. Fresh Del Monte, not to be confused with Del Monte Foods (DLM ), a separate food processor, also is a leading global seller of fresh bananas. Then, there's Fresh Del Monte's common stock. It lately generates a golden 3.6% dividend yield -- even more mouth-watering, perhaps, than any banana-pineapple salad. So why would I avoid Fresh Del Monte's shares? At 22, they look like a bargain, down from nearly 34 in February, 2005, and close to their 52-week low. Shunning Fresh Del Monte may seem stranger still, given that it might be up for sale, a market rumor that the company, via the New York Stock Exchange, declined to comment on. (Fresh Del Monte, which is based in the Cayman Islands but has executive offices in Coral Gables, Fla., also did not respond to my several calls.) My distaste for the stock stems only in part from the company's opacity. A bigger worry for prospective investors is the company's fundamental outlook and valuation. HERE'S WHAT I MEAN: Fresh Del Monte has yet to post its full 2005 results, and while it expects to show a sales gain, earnings per share will decline, to between $1.90 and $2 from $2.14 in 2004. For the current year, the Wall Street consensus is for no better than flat profit performance. But even that might be too rosy. Heather Jones, an analyst at BB&T Capital Markets, notes in a Jan. 11 report that a new tariff regime in Europe figures to raise Fresh Del Monte's costs of selling there. Other costs, including shipping and energy, also are subject to hikes this year, further pressuring profit margins. To be generous, let's assume that Jones's bearish take is wrong. Assume instead that the consensus, flat earnings this year compared with 2005, is closer to the mark. In that case, with an enterprise value -- that is, market capitalization plus net debt -- of nearly $1.6 billion, Fresh Del Monte is trading in the stock market at 10.7 times its earnings before interest and taxes (EBIT) over the past four quarters, according to Capital IQ, a unit of Standard & Poor's (MHP ). How does that multiple compare? The most analogous company is Chiquita Brands International (CQB ). Based in Cincinnati, it's a little bigger by revenue ($3.7 billion, vs. Fresh Del Monte's $3.3 billion) but has posted noticeably higher EBIT, $221 million, compared with $147 million at Fresh Del Monte. So that means anyone purchasing shares of Fresh Del Monte is paying a sharp premium to the 7.6 times EBIT commanded by Chiquita. But what if a private-equity firm or an industry rival (one rumored suitor, Dublin-based Fyffes, told me it had no comment on the speculation) opens its wallet to buy the company outright? How might it be valued then? As Boston Scientific (BSX ) and Johnson & Johnson (JNJ ) have shown in their battle for Guidant (GDT ), almost any price might be paid in the heat of a bidding war. But we can look back to the March, 2003, going-private deal for Dole Food, another close competitor to Fresh Del Monte in pineapples, bananas, and more, to see what cooler heads decided. After negotiating with independent directors of Dole's board, Chief Executive David Murdock wound up buying out public shareholders at a price that valued the company at nearly $2.4 billion. That worked out to just 9 times EBIT. No question, I fancy bananas and gold pineapples, too. Whenever Fresh Del Monte's toothsome dividend yield whets my appetite, however, I'm just going to swallow hard, pause a beat, and start humming the old tune: "Yes! We have no bananas. We have no bananas today."  By Robert Barker
BW MALL
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