Del Monte Foods Company Reports Fiscal 2009 Third Quarter Results

Feb, 24, 2009 - Net sales growth is now expected to be 9% to 11% above F08 net sales of $3.2 billion, compared to prior expectations of 8% to 10%.

• Third quarter net sales growth of 8.4% largely reflects pricing actions and new product volume, with the elasticity volume impact coming in as anticipated.
• Third quarter EPS of $0.30 increased 25% from third quarter fiscal 2008 EPS of $0.24 (which included $0.02 for transformation); reflects pricing and cost reduction actions taken to neutralize operational cost increases.
• Company increases F09 guidance:

• F09 adjusted cash flow target of $150-$170 is maintained; however, the Company now expects to be toward the midpoint (rather than lower end) of the range.

¹ In October 2008, the Company completed the sale of its seafood business, including StarKist. Unless otherwise noted, all of Del Monte’s financial information included in this press release excludes the seafood business, which is reported as discontinued operations. Cash flow data includes the seafood business.

Del Monte Foods Third Quarter Results

Del Monte Foods today reported net sales for the third quarter fiscal 2009 of $942.3 million compared to $869.0 million last year, an increase of 8.4%. Income from continuing operations was $59.6 million, or $0.30 earnings per share from continuing operations (EPS), compared to $49.6 million, or $0.24 EPS in the previous year. Results for the third quarter of fiscal 2008 included $0.02 of transformation-related expense.

“I am very pleased with the Company’s overall quarterly performance,” said Richard G. Wolford, Chairman and CEO of Del Monte Foods. “Our robust performance and the strength of the topline are the direct result of Del Monte’s steadfast execution of its Accelerated Growth Plan. Our earnings are now benefiting from our strategic pricing plan, which combined with our focused cost reduction program was critical in helping to combat the inflationary pressures that have been impacting the industry and Del Monte. These actions have now enabled Del Monte to recoup some of the margin contraction we experienced over the last few years. We have also focused squarely on our higher margin core brands and growth engines, and believe our leading consumer and pet brands, which provide superior quality and value, are even more compelling for our retail partners and consumers during challenging economic times.”

“The trends are in our favor, our categories are healthy and our strategy is working. The work we have done, combined with continued marketing and innovation investment and an ongoing, aggressive focus on cost reduction, position Del Monte to deliver our fiscal 2009 goals and drive shareholder value.”

The 8.4% increase in net sales for the quarter reflects strong topline growth driven by pricing actions taken to recoup some of the margin contraction experienced over the past few years. New product volume in both Consumer Products and Pet Products also contributed to the increase. Overall, existing product volume declined, primarily due to the volume elasticity impact from pricing actions.

Third quarter EPS of $0.30 was up $0.06 from third quarter fiscal 2008 EPS of $0.24. The positive impact of the topline and cost reduction actions exceeded inflationary and other operational cost increases in the third quarter. Higher marketing costs reflecting increased investment behind packaged produce as part of the Company’s Accelerated Growth Plan strategy also impacted the quarter. Additionally, the prior year period included an approximate $0.03 (~$10 million) gain from the sale of the S&W trademark and related assets in the Eastern Hemisphere.

Reportable Segments – Third Quarter Results

Consumer Products

For the third quarter, Consumer Products net sales were $509.3 million, an increase of 3.4% over net sales of $492.7 million in the prior year period. The increase in Consumer Products net sales was driven by pricing actions taken across the product portfolio as well as by new product volume (primarily in fruit, broth and vegetables). These gains were largely offset by existing volume declines (primarily due to the volume elasticity from the pricing actions as well as select competitive promotional activity affecting vegetables and fruit).

Consumer Products operating income increased 15.2% from $59.9 million in the third quarter fiscal 2008 to $69.0 million in the third quarter fiscal 2009. The positive impact of the topline and cost reduction actions exceeded higher inflationary and other cost increases (primarily relating to higher raw product costs and packaging costs). Higher marketing costs reflecting increased investment behind packaged produce as part of the Company’s Accelerated Growth Plan strategy also impacted the quarter. Additionally, the prior year period included a gain from the sale of the S&W trademark and related assets in the Eastern Hemisphere.

Pet Products

For the third quarter, Pet Products net sales were $433.0 million, an increase of 15.1% over net sales of $376.3 million in the prior year period. The increase in Pet Product net sales was driven primarily by pricing actions (taken in both food and snacks) and new product volume (primarily Meow Mix new products). Also, strong Kibbles ‘n Bits dry pet food performance benefited existing product volume. However, overall existing volume was slightly down, due to the elasticity from pet pricing actions.

Pet Products operating income increased 15.5% from $66.4 million in third quarter fiscal 2008 to $76.7 million in third quarter fiscal 2009. The positive impact of the topline and cost reduction actions exceeded higher inflationary and other costs (primarily due to higher ingredient costs).

Del Monte Foods Nine Months Ended January 25, 2009 Results

The Company reported net sales for the first nine months of fiscal 2009 of $2,569.5 million compared to $2,304.0 million last year, an increase of 11.5%. Income from continuing operations was $78.9 million, or $0.40 EPS, compared to $77.0 million, or $0.38 EPS in the previous year. Results for the first nine months of fiscal 2008 results included $0.04 of transformation-related expense.

The 11.5% increase in net sales was driven primarily by pricing actions and new product volume in both Consumer Products and Pet Products. These gains were partially offset by existing volume declines (primarily due to the volume elasticity from the pricing actions).

EPS for the first nine months of fiscal 2009 of $0.40 increased $0.02 from the first nine months of fiscal 2008 EPS of $0.38. The positive topline impact exceeded higher inflationary and other operational costs (particularly ingredient and raw products costs, packaging costs, and energy and logistics costs). Higher marketing costs reflecting increased investment in both Consumer Products and Pet Products as part of the Company’s Accelerated Growth Plan strategy negatively impacted EPS. Expenses relating to the centralization of marketing and certain related functions in San Francisco also negatively impacted EPS. Additionally, the prior year period included a gain from the sale of the S&W trademark and related assets in the Eastern Hemisphere.

Outlook

Fiscal 2009

For fiscal 2009, the Company is increasing its net sales growth target to 9% to 11% over fiscal 2008 net sales of $3,179.8 million. This compares to its previous net sales growth target of 8% to 10%.

The Company is increasing its fiscal 2009 diluted EPS from continuing operations target to $0.64 to $0.68. This compares to its previous EPS target of the midpoint of $0.58 to $0.62. Preliminary fiscal 2008 EPS from continuing operations was $0.60 (which included $0.08 of transformation-related expense).

The Company is maintaining its fiscal 2009 cash provided by operating activities, less cash used in investing activities target of $450 to $470 million (which includes approximately $300 million relating to the sale of its seafood business), but now expects it to be toward the midpoint (rather than the lower end) of the range. The Company is also maintaining its adjusted cash flow³ guidance for fiscal 2009 of $150 to $170 million, but now expects it to be toward the midpoint (rather than the lower end) of the range. Fiscal 2008 cash provided by operating activities, less cash used in investing activities was $207.2 million.

³ DLM defines cash flow as cash from operating activities, less cash used in investing activities. Del Monte also uses adjusted cash flow which, in general, excludes the impact of large acquisitions or divestitures on the consolidated statement of cash flows for the period. Adjusted cash flow for F09E excludes ~$300 million relating to the sale of the seafood business, including StarKist.

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