Market Proves Unripe for Dole IPO

Shares of the newly public Dole Food (DOLE) continued to sink on Monday, further supporting the opinion that the company probably should have waited a bit longer before emerging from six years of private ownership.

There's just too much debt—$1.9 billion—on the company's books, and the recovery just isn't strong enough yet for investors to feel good about Dole's ability to pay it off and return some profits to shareholders.

That debt came from the $2.5 billion private equity deal that took Dole off the public market six years ago, when leverage was still seen as a positive on Wall Street. It isn't any more—at least, not yet.

That's especially so for a company like Dole, which operates on the slimmest of margins. Sales have been down, though they can be reasonably expected to pick up as the recovery expands and shoppers again become attracted to pricier brand names in the produce aisle.

But that hasn't happened yet, and in the meantime, a huge chunk of profits is going to pay off debts. In the first half of this year, Reuters reports, Dole's operating income was just $131 million, even as it was paying $74 million in interest expenses.

The company's debt is four times its earnings, more than 50 percent higher than the leverage at such Dole competitors at Del Monte (DLM) and ConAgra Foods (CAG), notes the New York Times' DealBook blog.