Del Monte Foods Sees Net Income up 41% in Q4 FY08

San Francisco, 11 June 2009

Announcement Highlights¹

• Reports fourth quarter net sales growth of 20.7% and diluted EPS from continuing operations of $0.35, up 75% from $0.20 in Q4F08 (which included $0.04 expense for transformation). Results primarily reflect pricing actions, positive volume, and productivity savings.
• Reports full year 2009 net sales growth of 14.1% and diluted EPS from continuing operations of $0.74, up 27.6% from $0.58 in F08 (which included $0.08 expense for transformation). Results reflect successful execution of the Company’s Accelerated Growth Plan strategy.
• Provides F10 guidance:
  • Expects net sales growth of 4% to 6% over F09 sales of $3,626.9 million.
  • Expects F10 EPS from continuing operations of $0.76-$0.80 compared to F09 of $0.74.
  • Expects F10 cash from operations less cash from investing of $160-$170 million.

Del Monte Foods Fourth Quarter Results

Del Monte Foods reported net sales of $1,057.4 million for its 14-week quarter ended May 3, 2009, compared to $875.8 million for its 13-week quarter ended April 27, 2008, an increase of 20.7%. Income from continuing operations for the quarter was $68.8 million, or $0.35 earnings per share from continuing operations (EPS), compared to $40.7 million, or $0.20 EPS in the previous year. Results for the fourth quarter of fiscal 2008 included $0.04 of transformation-related expense. As expected, the Company estimates the positive impact of the extra week in the fourth quarter fiscal 2009 (7% sales growth and $0.03 diluted EPS) was offset by the absence of fiscal year end pricing and promotional activities.

“I am extremely pleased with the Company’s performance in the fourth quarter which is a direct reflection of our successful implementation and execution of our Accelerated Growth Plan,” said Richard G. Wolford, Chairman and CEO of Del Monte Foods. “The exceptionally strong topline results were balanced across both the Pet and Consumer businesses and reflect the increasing momentum behind our Brands following a step change increase in marketing support, the success of our pricing actions taken to recoup margins following several years of aggressive cost pressures, as well as the performance of our products in challenging economic times. Importantly, overall volume increased during the quarter, despite the elasticity impact of our pricing actions. The strength of our topline combined with strong productivity savings exceeded cost increases, funded increased marketing investment, and drove solid expansion of operating margins and EPS for the quarter.”

The 20.7% increase in net sales for the quarter reflects strong topline growth driven primarily by pricing actions taken to recoup some of the inflationary cost-driven margin contraction experienced over the past few years as well as volume growth. Total product volume increased, reflecting growth in existing product volume and new product volume in both Consumer Products and Pet Products.

Fourth quarter EPS of $0.35 was up $0.15 from fourth quarter fiscal 2008 EPS of $0.20. The positive impact from the topline and cost reduction actions more than offset inflationary and other operational cost increases in the fourth quarter. Higher G&A expenses and higher marketing costs (reflecting increased investment as part of the Accelerated Growth Plan) also impacted the quarter. Lower taxes (due to a favorable change in California State Tax Law) also contributed positively to EPS. In addition, the prior year period included an approximate $0.04 of transformation-related expense.

Reportable Segments – Fourth Quarter Results

Consumer Products

For the fourth quarter, Consumer Products net sales were $568.8 million, an increase of 20.0% over net sales of $474.1 million in the prior year period. The increase in Consumer Products net sales was driven largely by pricing actions taken across the product portfolio. Existing volume growth (particularly in Vegetables and Tomatoes driven by key Easter promotional programs) and new product volume also contributed to Consumer Products net sales growth.

Consumer Products operating income increased 54.6% from $45.6 million in the fourth quarter fiscal 2008 to $70.5 million in the fourth 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). Higher marketing costs across the Consumer Products portfolio as part of the Accelerated Growth Plan strategy, as well as higher G&A expenses, also impacted the quarter.

Pet Products

For the fourth quarter, Pet Products net sales were $488.6 million, an increase of 21.6% over net sales of $401.7 million in the prior year period. The increase in Pet Product net sales was driven by pricing actions (taken in both food and snacks) and existing volume growth (primarily in dry pet food). New product volume (primarily Meow Mix and Kibbles ‘n Bits new products) also contributed to net sales.

Pet Products operating income increased 7.5% from $76.4 million in fourth quarter fiscal 2008 to $82.1 million in fourth quarter fiscal 2009. The positive impact of the topline and cost reduction actions exceeded higher inflationary and other cost increases (primarily due to higher ingredient costs). Higher G&A expense (which included an $11.7 million write-off of secondary Pet trademarks and also reflected the absence of the pet recall insurance proceeds recognized last year) as well as higher marketing costs (reflecting a significant step up in investment to support our Pup-Peroni and Milk-Bone branded pet snacks as part of the Company’s Accelerated Growth Plan strategy) also impacted the quarter.

Del Monte Foods Full Year Ended May 3, 2009 Results

The Company reported net sales for fiscal 2009 of $3,626.9 million, for its 53-week fiscal year ended May 3, 2009, compared to $3,179.8 million, for its 52-week fiscal year ended April 27, 2008, an increase of 14.1%. Income from continuing operations for fiscal 2009 was $147.7 million, or $0.74 EPS, compared to $117.7 million, or $0.58 EPS in the previous year. Results for fiscal 2008 included $0.08 of transformation-related expense. As expected, the Company estimates the positive impact of the extra week in fiscal 2009 (2% sales growth and $0.03 EPS) was offset by the absence of fiscal year end pricing and promotional activities. Cash provided by operating activities, less cash used in investing activities for fiscal 2009 was $478 million. Adjusted cash flow² for fiscal 2009 was $167 million.

Commented Mr. Wolford, “The Company’s strong fiscal 2009 results are a testament to the actions we have taken over the last several years to upgrade our portfolio and increase our competitiveness. These efforts culminated in the implementation and execution of the Accelerated Growth Plan in fiscal 2009 and drove our solid financial performance. With our Accelerated Growth Plan in place, further execution in fiscal 2010 is expected to drive ongoing solid performance. Similar to fiscal 2009, we will continue to invest behind our core brands and key growth engines, as well as execute against our pricing and productivity strategic initiative. We are strongly committed to driving topline growth and shareholder value and our fiscal 2009 performance and outlook for fiscal 2010 give us the confidence that we will achieve these goals.”

The 14.1% increase in net sales was driven primarily by pricing actions, as well as new product volume across the portfolio. These gains were partially offset by existing volume declines in Consumer Products (primarily due to the volume elasticity from the pricing actions).

EPS for fiscal 2009 of $0.74 increased $0.16 from fiscal 2008 EPS of $0.58. The positive impact of the topline and cost reduction actions exceeded higher inflationary and other operational costs (particularly commodities, ingredient and raw products costs, energy and packaging costs). Higher G&A expense and 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. The absence of $0.08 of transformation expense also benefited fiscal 2009 EPS.

Outlook

Fiscal 2010

For fiscal 2010, the Company expects net sales growth of 4% to 6% over fiscal 2009 net sales of $3,626.9 million. Fiscal 2010 net sales are expected to be driven by balanced growth across both Consumer and Pet, driven primarily by existing products and the wrap-around benefit from the Company’s fiscal 2009 pricing actions.

The Company expects fiscal 2010 EPS from continuing operations to be $0.76 to $0.80. The Company reported $0.74 diluted EPS from continuing operations in fiscal 2009. Fiscal 2010 expected EPS reflects another year of increased marketing support with investment expected to increase 30% to 40% over fiscal 2009.

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¹ Within the next 12 months, the Company expects to pursue a refinancing of some or all of its debt, particularly its debt under its senior credit facility. A refinancing may change fiscal 2010 guidance.

In fiscal 2010, the Company expects cash provided by operating activities, less cash used in investing activities to be approximately $160 to $170 million. This compares to $167 million in adjusted cash flow in fiscal 2009.

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