Novice Investing - Rotten Earning + Sweet Buy Back

Date: Monday 01st 2008f December 2008 05:13:49 PM

Rotten Earning + Sweet Buy Back - 03/08/2006

By: Novice Investing Staff

Fresh Del Monte Produce (FDP) delivered what is now common for shareholders; a worse than expected earning results. On February 28th, Fresh Del Monte reported loss of 6 cents per share for the 4th quarter of 2005. Weaker banana pricing and lower pineapple demand contributes to the shortfall. So, what did the company do to enhance shareholders' value? The answer came a week later.

On Monday March 6th, Fresh Del Monte announced a $ 300 Million, 3 year buy back program. Is this huge? Absolutely. At recent price of $ 19, this translates into 27.3% of the entire worth of the company. About 9% of the shares outstanding will be bought each year if the current price stays the same.

The next question will be: can the company afford the stock buy back using its own generated cash flow? The answer is yes. Del Monte is expected to earn $ 1.73 for fiscal year 2006. This is equivalent to $ 100 Million in earnings. With this buyback, management seems to give a gesture that earnings cannot fall any further. They also signals that they will not leave any cash laying around with this buy back announcement.

Overall, we are pretty disappointed with Del Monte's performance thus far. Management seems to understand this concern by deploying all the generated cash flow towards a big buyback. So, while Fresh Del Monte's performance is awful, we are willing to give management one more shot at this due to their shareholders' friendly attitude.


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Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding Fresh Del Monte Produce Inc. (FDP) or any other securities.

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