Supply Chain Disruptions Blemish Dole plc Results
Newly formed Dole plc (NYSE: DOLE) is having a tough time with systemic headwinds. The company, now merged with Total Produce, is a global supplier of fresh fruits and vegetables and is exposed to labor, freight, and input cost inflation like no other company we’ve seen. The Q3 results are ok but fell far short of the Marketbeat.com consensus and we don’t see the headwinds subsiding soon. Worse, the company is also exposed to weather conditions that have halted production in one location until plantations can be replanted and product availability limited in another. Dole plc is a good company and it might be a good investment but we don’t think now is the right time to start scooping up shares.
Operational Hurdles Cut Into Dole plc Results
At face value, Dole had a fantastic quarter. The $1.94 billion in revenue is up 63% from last year but includes the merger with Total Foods. On a pro forma basis, YOY growth is less than 0.5% and missed the consensus estimate by 1450 basis points. The company reports growth in Veggies, Diversified Fruits, and Diversified Vegetables but all are less than expected. This was offset by a decline in U.S. fruits that was only partially made up for with price hikes that were enacted across all segments.
Moving down the report, the company’s margin and earnings are equally poor. On segment to segment basis, labor shortages and shipping costs cut into U.S. results while supply chain and weather disruptions, including freight and shipping, hurt results in Europe and Latin America/Emerging Markets. The net result is a GAAP loss of $0.35 that not only missed the consensus figure but leads us to believe the full-year results could be worse than forecast. As for the guidance, the company is expecting $9.2 to $9.4 billion in annual revenue, a tenth shy of the Marketbeat.com consensus at the high end of the range.
Dole plc Issues A Dividend, Don’t Get Excited
Dole plc issued a dividend of $0.08 along with the earnings report and we are not quite sure why. The company says it is committed to returning cash to shareholders but, in our view, there wasn’t any. The dividend is worth about 0.6% of the stock’s price which is nothing to get excited about anyway. We’d rather the company work on paying down some of its debt and getting into a better cash position. The company used some of the proceeds from the merger/IPO to pay down debt and has a fine EBITDA leverage ratio but, when compared to FCF, the numbers are less impressive.
The Sell-Siders Are Holding Dole
Dole has attracted five ratings since its IPO that amount to a strong Hold with a price target of $19.60. The Marketbeat.com consensus price is worth about 53% in upside and that figure could grow in the near term. On the flipside, insiders hold about 40% of the stock so there is the risk of insider selling as well as dividend risk to be aware of.
The Technical Outlook: Has Dole Hit Bottom?
Shares of Dole plc fell hard in the wake of the earnings report but are showing signs of support. The day’s action created a large red candle with an equally large lower shadow the reveals some strong buying in the $12.15 to $12.85 range. This may lead to a bottom in price action but it is too soon to tell. The bears are in control of this market and could easily push prices down to retest the recent low. If that level fails as support, a much deeper move could be in store.
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