Dole Food Company Inc.'s shares gained heavy trading Friday after the fruit and vegetable company said it is considering its strategic alternatives, including a possible spin-off of parts of its business.
THE SPARK: Dole Food said late Thursday that it had started a strategic review of its business. The company said this may include a full or partial separation of parts of its business through a spin-off or other transaction.
The news came as Dole reported a jump in its first-quarter net income to $17.2 million, or 19 cents per share, from $2 million, or a penny per share, last year. After adjusting for a number of special items, the company's income from continuing operations fell to $13 million, or 15 cents per share, for the quarter versus $46.5 million, or 53 cents per share, in the prior year's period.
Dole's revenue fell 4 percent to $1.63 billion. The company's revenue and profitability was hurt by lower banana distribution sales in Europe and an oversupply of vegetables that drove down prices.
The quarter's results missed average analyst expectations for profit of 31 cents per share on revenue of $1.66 billion, according to data provider FactSet
THE BIG PICTURE: Dole's business is always subject to the volatility of food prices, but that pressure has intensified over the past few years as commodity prices have swung wildly.
The company has cut costs over the past two years to control its financial picture. It also has been trying to sell some of its non-core assets in the hopes of reducing its debt and improving its operating margins. That included a recent agreement to sell a distribution company in Germany.
By engaging outside help to review its strategic alternatives, Dole is showing that it is focused on improving its financial picture.
THE ANALYSIS: Janney Capital Markets analyst Jonathan Feeney said that management hopes to complete its review of the business by the end of the year, but he believes it could be within the next few months.
Dole's outlook may be soft, but Feeney said its large base of assets and its attractive packaged food business are undervalued, given recent fluctuations in profitability tied to fresh produce.
A spin-off of the packaged foods business could raise between $900 million and $1 billion, Feeney estimated, which along with a sale of some land that it is not currently using, could be used to cut most of its debt.
SHARE ACTION: Shares of Dole Food Co. rose 40 cents, or 4.6 percent, to $9.12 in midday trading, on more than twice normal volume. Its shares have traded between $8.02 and $14.58 in the past 52 weeks, with its stock price peaking last summer and taking a bumpy ride down since.