Smart shoppers know that the best time to buy your produce is early in the morning, before other buyers have picked through the bins. For investors who think like produce shoppers, fruit hawker Fresh Del Monte (NYSE:FDP) will open for business bright and early tomorrow morning, reporting its third-quarter earnings before Wall Street's opening bell.
Tomorrow could be a good day for anyone interested in buying; the stock might well be offered "on sale." Analysts aren't at all enthusiastic about the company, predicting that its profits will decline 38% despite a 23% increase in sales. There's a good reason why those kinds of figures may sound familiar to Fresh Del Monte shareholders; they're similar to the Q2 numbers the company reported in August. Sales grew a healthy 21%, but margins rotted on the vine, leading to a 22% decline in net profits. Even worse, the company issued a minor earnings warning that caused analysts to slice $0.02 off their consensus projections for tomorrow's Q3 report.
Although August's bad news did little to harm Fresh Del Monte's stock price, last week's earnings results from rival Chiquita Brands (NYSE:CQB), described by fellow Fool W.D. Crotty here, suggest that investors may not be so forgiving now. Despite turning its year-ago loss into a small Q3 2005 profit, the company missed estimates, and its stock suffered an 11% haircut in consequence. Chiquita shares now trade for just six times trailing earnings, nearly half of Fresh Del Monte's price.
There's one important difference between the two companies, however, that may help insulate Fresh Del Monte from suffering a similar share-price decline. In contrast to Chiquita, the Motley Fool Hidden Gems recommendation pays a healthy 3.2% dividend -- nearly twice Chiquita's annual payout. The cheaper Fresh Del Monte shares get, the larger and more attractive its dividend yield becomes to income seekers.
What's more, at least one analyst expects Fresh Del Monte to earn more this quarter ($0.27) than it did one year ago ($0.24). Combine a low-priced stock, a rich dividend, and the possibility of an earnings surprise to the upside, and Fresh Del Monte shareholders should have little fear of suffering a Chiquita-ing on the morrow.
Both Chiquita and Fresh Del Monte have another opportunity to profit from ongoing quota- and tariff-maneuvering in Europe. Read all about it in:
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Fool contributor Rich Smith does not own shares in either company named above.
