Dole Food Co. Inc. posted lower first quarter revenue than in 2011, partially because of the lowest vegetable commodity prices in 15 years, according to company executives who said they are considering spinning off part of the business to increase stock values.

Chief executive officer David DeLorenzo discussed the first quarter and the exploration of “full or partial separation,” of Dole’s packaged foods business during a conference call with investors and media on May 3. He said the “strategic review” of the Westlake Village, Calif.-based company had just begun.

“Our goal would be to accomplish something by the end of this year,” DeLorenzo said. “We have come across some opportunities that, if we are able to execute, would be good for both the packaged foods business and the commodities business.”

The Miami Herald reported Janney Capital Markets analyst Jonathan Feeney said the spin-off of the packaged foods business could raise between $900 million and $1 billion.

Improvement expected

Despite the drop in revenue, income for “continuing operations” for the first quarter of 2012 was $17 million, compared to $2 million in 2011’s first quarter.

Major factors in the income were the October 2011 acquisition SunnyRidge Farm Inc., Winter Haven, Fla., with its berry business, and Dole’s packaged salad line, DeLorenzo said.

“Our first quarter results were impacted by extraordinarily low prices in all of our major commodity vegetables,” DeLorenzo said. “Our packaged salads and fresh berries businesses had very strong results in the quarter.”

He predicted year-to-year improvement for the second and third quarters of 2012 as the commodity side of the business moves into the Salinas Valley harvest in California.

As for the banana backbone of the company, DeLorenzo said he anticipates flat prices in North America and higher costs of fruit from Latin America to continue this year.

Fresh pineapple sales were up for the quarter because of improved volumes worldwide, DeLorenzo said, adding that deciduous fruit from Chile is also enjoying good sales.

But the big winner was packaged salads, posting more than a 50% increase in earnings. However, DeLorenzo said they had not seen much growth in private label packaged salads.

Banking on berries, packaged salads and Dole’s traditional commodities business, officials said they were not worried when media asked about the separation the more predictable packaged foods business.

“We have great faith in the banana business,” DeLorenzo said during the call. “It’s been a very good cash flow business for us. We have very strong assets in that business. So, with the right structure we are not concerned at all.”

Undervalued stock

DeLorenzo said that he believes Dole’s stock is currently undervalued, and that is one reason for considering separating the businesses.

“Packaged foods has high growth potential and really deserves higher valuation,” DeLorenzo said. “This is really more about unlocking value than any other strategic type of movement.”

If the company does split fresh commodities from packaged food operations, Dole officials are not yet sure which entity would retain about 14,000 acres of land that it has for sale in Hawaii. The land is not in production and is valued at about $400 million, DeLorenzo said.