Dole Stock in Bunch of Pain as Banana Prices Slip

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Dole Food Co. Inc. could use more people going for bananas.

The giant Westlake Village fruit and vegetable grower has been slammed by continued weak pricing for bananas in North America. As a result, company executives last week lowered their 2013 earnings expectations by about 20 percent.

“The current environment in the banana market remains challenging,” Dole Chairman David Murdock said in a Jan. 2 press release.

Investors promptly sent shares plunging 13 percent to $9.93 in the largest one-day selloff in the three years Dole has traded on the public markets. The selloff also made Dole the biggest percentage loser on the LABJ Stock Index for the week ended Jan. 2. (See page 32.)

Dole’s problem is intense price competition among banana suppliers trying to get their fruit into stores. Prices have remained weak despite last month’s Typhoon Bopha, which leveled plantations on the Philippine island of Mindanao and destroyed roughly 14 percent of Asia’s banana crop.

“While the typhoon in the Philippines … has resulted in higher (banana) prices in Asia, the company noted that it hasn’t seen any impact on prices in North America and Europe,” Jonathan Feeney, an analyst in the Philadelphia office of Janney Montgomery Scott, said in his Jan. 2 research note on Dole.

But that’s not the only issue for the company. Dole General Counsel Michael Carter said the company intends to complete the sale of its worldwide packaged foods and Asia fresh foods business to Itochu Corp. of Osaka, Japan, early this year.

Previously, Dole had expected to close the $1.7 billion deal by the end of 2012, but the company is waiting for approvals from Chinese antitrust officials. The Chinese Ministry of Commerce started meeting with Dole and Itochu officials last month, Carter said. Dole intends to use the sale proceeds to help pay off the company’s $1.7 billion in debt.

One Wall Street analyst said the sale delay, combined with uncertainty over how much cash the sale would generate for investors, were also factors behind the share selloff.

“There is increased uncertainty around timing of the proposed transaction … and continued lack of clarity on return of cash to shareholders post-transaction,” Jason English, an analyst with Goldman Sachs & Co. in New York, said in his research note Jan. 2.

English termed Dole’s announcements as “clear negatives,” and lowered his 12-month price target for Dole to $10 from $11.50.

Once the sale closes, Dole’s current chief executive, David DeLorenzo, will leave for Itochu. Murdock will take the CEO title and still hold the chairmanship.