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Subject:  Fresh Del Monte Produce Inc. (FDP) - PART 4 Date:  9/30/2004  8:14 PM
Author:  DCFNewbie Number:  981 of 1264

Fresh Del Monte Produce, Inc. (NYSE:FDP)

4) Operational Growth/Risk


The market is clearly knowledgeable of the risks that FDP presents. It doesn't necessarily mean that they are correctly priced in, but it does mean that the low P/E is there for logical reasons.

Those reasons include:

- Fluctuations in yearly earnings

There is not much FDP can do to solve this, except increasing diversification. It's somewhat similar to portfolio management. If a certain company is overweighted in your portfolio it will obviously potentiate increasing volatility. In this case bananas are the overweighted asset in FDP's portfolio. FDP has managed to increasingly reduce the impact of bananas on the overall revenues (now stands at 34%). Still, anything above 20% will be objectively harmful to the company in the long term. Investors will not appreciate higher reliance on bananas. Other production risks like weather, are obviously, unavoidable. Higher operating margins associated with the sale of pre-packaged produce will somewhat reduce these swings.

- Current and future lawsuits

Lawsuits are abundant in FDP's pass. By employing over 25,000 workers directly and indirectly in dozens of countries, FDP is subject to a large number of personnel related lawsuits. Those lawsuits include the use of harmful pesticides and intimidating tactics to discourage unionization. Also, a lawsuit persists regarding FDP's acquisition by the IAT Group. The affect that future losses might have on shareholders is unknown.

- Majority shareholders benefited in detriment of the minority shareholders

This is obviously a common scenario. A public company whose majority ownership belongs to a reduced number of insiders is potentially insecure to minority shareholders. There hasn't been past evidence of either violent equity dilution or any other tactic to harm small investors. The current 3.0% dividend is actually very shareholder-friendly.

- Possibility of failed integration of current and future acquisitions

This is pretty self-explanatory. If FDP doesn't manage to seemingness integ