Why Fresh Del Monte Produce Inc.'s Shares Spiked 21% in May

A big jump in profits helped Fresh Del Monte Produce, but does that make the stock a long-term buy?

Travis Hoium
Travis Hoium
Jun 2, 2016 at 2:07PM
Consumer Goods

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.