(Aug. 3) Dole Food Co. Inc., reacting to decreased revenues, plans to increase prices, slim down its Chilean export program, drop lower-performing products and restructure its packaged salad business.
The Westlake Village, Calif.-based company’s fresh vegetable sales dropped from $304.4 million in the second quarter of 2006 to $265.1 million during the same period this year.
“Packaged salad volume has not returned to what the industry had hoped for,” Dole president and chief executive officer David DeLorenzo said during an Aug. 3 conference call. “The industry, ourselves included, is reacting by starting to plant less acreage in anticipation of not as quick of a recovery as we had hoped.”
DeLorenzo said category sales, which still are affected by last year’s E. coli outbreak linked to fresh spinach, were 4.1% lower than in the second quarter of last year. He also said that low sales of packaged salads had led to an oversupply of commodities that had been intended for the salad market.
DeLorenzo said Dole plans to reduce acreage to below the company’s anticipated volume requirements and will purchase more product on the open market. He said the company plans to take other steps to stimulate the business:
- Bring spinach and tender leaf production in house and eliminate outsourcing in the salad business;
- increase prices, even at the expense of market share;
- phase out customers and stock-keeping units that are unprofitable or have low profit margins; and
- focus on new product development and marketing.
DeLorenzo said Dole was challenged by increasing costs and unfavorable exchange rates abroad. He said price increases were possible in other areas, including fresh-cut fruit.
“Across all our product lines we are watching the markets carefully,” he said. “We are going to take price increases every place we’re able. The industry needs to pass on cost increases that we’re all experiencing.”
In April, Dole Fresh Vegetables announced intentions to tack a 22-cent surcharge onto cartons of bagged leafy greens to pay for extra food safety measures.
OPERATING INCOME SLIDES
Dole reported $1.77 billion in revenues for the quarter, a 12% increase from last year. Increased banana volumes and improved prices accounted for 32% of the increase. In North America, banana volumes increased 9%, while prices were 2% higher than a year ago. The company also benefited from increased revenues in Europe stemming from the acquisition of United Kingdom-based JP Fresh. Overall, fresh fruit sales increased 23% to $1.23 billion for the period.
Despite those positive steps, Dole’s operating income dropped from $72.3 million in the year ago period to $70.6 million for the quarter ending June 17. Dole attributed the decrease to sagging sales in its vegetable, packaged foods and floral businesses.
Dole raised about $33 million by selling a trucking company and land in California in the previous three quarters and is looking closely at the possibility of additional asset sales. DeLorenzo said Dole expects the sale of five Chilean farms to close by the end of the year, generating about $7 million.
He said farm wages in Chile have doubled in the past five years. That fact and the weak U.S. dollar have led the company to scale back its Chilean grape program, and DeLorenzo said he expected other companies to follow suit. Other assets that could wind up on the auction block include valuable land in California, Hawaii and abroad, he said.