You've heard it said that the markets don't like uncertainty. Well, neither do individual investors. Unpleasant events, whether in the form of nasty earnings surprises or executive departures, need to be telegraphed well in advance so management can devise a plan and at least look like it knows what it's doing.
That's why seeing Dole Foods (NYSE: DOLE) lurch from a stock buyback program one day to suspending it weeks later so it can buy new ships instead, rattled investors and caused its stock to drop 10% so far.
Left hand, meet right hand
Certainly, the rationale it offered makes the executive suite seem schizophrenic. When announcing the buyback program on May 9, Dole President and COO C. Michael Carter said the fruit purveyor's new capital structure was specifically designed and implemented to allow it to "launch the new Dole" while increasing shareholder value, which a share buyback would help achieve.
Unfortunately, the "new Dole" is apparently one that's ready for the rubber room, because three weeks later, Carter was bemoaning "significant losses" in its strawberry business as part of the reason it had to suspend the repurchase program. It also has more than 20,000 acres of land on Oahu that it can't get rid of, so coupled with a desire to suddenly buy three new ships to upgrade its aging fleet, the stock buyback is now out the window.
Hello? Wasn't this apparent three weeks ago, when Dole announced the $200 million repurchase plan? In just 19 days, management suddenly realized that money they planned on returning to investors might actually be better used elsewhere? Didn't they even look at the financial statements they released the week before they announced the program?
Slipped on a banana peel
Maybe they were just envious of rival Fresh Del Monte Produce (FDP +1.36%), which had served up a buyback plan the week before they did and wanted to show they had the financial wherewithal, too.
After all, like Chiquita Brands (NYSE: CQB), Dole's been undergoing a significant corporate restructuring, and last month it sold its packaged-foods and Asia fresh business for $1.7 billion, making it a more focused international fresh fruit business, but one subject to all the vagaries that entails. In comparison, Chiquita's reorganization has it looking to become a high-volume, low-cost producer of bananas and chopped salads.
The difference is Chiquita's stock is up 25% in 2013 and has nearly doubled over the past year, even as it searches for a new CEO. Dole's stock, on the other hand has lost 13% of its value this year, albeit much of it because of its latest shenanigans. Yet Fresh Del Monte Produce has realized a more modest gain of 5%, and its shares are up 17% year over year.
Sipping strawberry daiquiris
Economist John Maynard Keynes once remarked: "When the facts change, I change my mind. What do you do, sir?" And a management team ought to be encouraged to adapt quickly when new facts present themselves. But in this instance, it can't be said there was some sea change in outlook that caused them to go from wanting to spending $200 million on their stock to spending $165 million on new boats instead.
They knew they had unproductive land; they knew their strawberry business was suffering, as the company had reported lower pricing and earnings in its quarterly report; and they surely knew the age of their fleet beforehand. While the chance to buy new ships may indeed be opportune given conditions in that industry, didn't they investigate that option first?
Dole's management has given investors a taste of their biggest fear: The company doesn't know what it's doing. Stumbling from one idea to the next makes it appear it has no plan in place and leaves the market to wonder if the shipbuilding program will be canceled next month, when the next new thing pops into management's head.
If that were to happen, investors might not be wrong for thinking executives aren't just fruity, but rather that they're nuts!
