What: Shares of produce giant Fresh Del Monte Produce Inc. (NYSE:FDP) jumped 21% in May, according to data provided by S&P Global Market Intelligence, after the company reported better-than-expected first-quarter results.
So what: Revenue rose slightly in the quarter to $1.02 billion and net income jumped 92% to $81.7 million, or $1.57 per share. That easily topped the $0.84 in earnings Wall Street had expected.
The driver of growing profits was a decline in cost of goods, which can often be volatile in the produce business. It's a positive right now, but keep an eye on costs going forward because next quarter the trend could go the other way.
Now what: An earnings beat can be great for a stock in the short term, but investors should look at the long-term picture more closely. Produce is a very low-margin business and profits can be extremely volatile quarter to quarter. While this quarter was great for Del Monte, I don't see its future position improving enough to justify paying a premium for the stock right now.
Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.