On the money: Dole unveils "strategic" capex programme

US produce group Dole Food Co. has detailed plans to step up the capital expenditure programme behind its strategic initiatives in 2013.

The company booked declining sales and earnings during 2012, as falling banana prices and costs associated with the sale of its prepared foods and Asian fresh produce businesses hit the top and bottom lines. The company said the disposal of the units to Itochu Corp for US$1.69bn is expected to close on 1 April.

Dole confirmed that it expects 2013 earnings to come in at the low end of its guidance range. However, management was upbeat on the group's longer term prospects and revealed that it plans to use some of the proceeds from the disposal to significantly step-up its investment programme.

"While the current environment in the banana market remains challenging, we are optimistic that this transformative sale transaction will leave the new Dole with the financial and operational flexibility to grow in this competitive environment," president and CEO Michael Carter told investors and analysts during a conference call.

Capital expenditures for 2012 totalled $109m, up from $77m in the prior year, CFO Keith Mitchell detailed. "We estimate that capital additions for 2013 will be approximately $170m, of which $100m relates to our strategic projects," he said.

Dole revealed it would invest in expanding its owned fresh fruit farms, a move that the group expects will result in improved productivity.

"There's been a margin squeeze with the grower on the one hand and the retailer on the other and the exporter in between. So the way we see it expanding in the owned farms is a strategic advantage doing it the right way where we're already seeing in our own farms increased productivity coming from our farms," Carter explained.

Mitchell added the group is also focused on "rehabilitation, rejuvenation of existing farms".

The group also intends to invest in improving its shipping capabilities and vessel fleet. This will be achieved through "strategic enhancements" of the existing fleet as well as acquiring new ships, Mitchell said. New ships cost around $50m "a pop" and other internal funding will be available for this purpose, he said.

Dole also plans to use the proceeds of the Itochu sale to pay down debt. Previously, it has been suggested that Dole would reduce its borrowing by around $400m. However, Carter was coy on the group's capital restructuring plans. 

"We continue to assess our capital structure. We're working with our banks now. And that's why I'm deferring saying anything about our capital structure until we have that assessment completed," he commented. 

Janney analyst Jonathan Feeney suggested the company would do better to return the cash to shareholders in the form of a share buyback.

"While Dole will seemingly retain significant assets following the Itochu transaction, capital allocation risks remain, as the company cited potential investments in owned fresh fruit farms and vessel fleet updates. With its banana earnings depressed versus historical levels, we don't see why Dole wouldn't more seriously consider repurchasing a portion of its shares," he wrote in a note to investors.