Del Monte Foods Company (DLM) reported strong second quarter 2010 results with earnings of 31 cents per share. Earnings were 10 cents above the Zacks Consensus Estimate of 21 cents and were up 121% year over year.
Net sales for the quarter grew 6.4% year-over-year to $958 million driven by growth in both the Consumer Products and Pet Products segments. New product introductions and price increases also contributed positively to the top-line.
In the Consumer Products segment sales increased 9.1% to $492 million. The increase was driven primarily by strong volume growth across the product portfolio, especially vegetables. In addition, new product volume, primarily from Del Monte Packaged Produce items, also benefited the top line.
The Pet Products segment reported an increase of 3.2% to $409 million. The growth was primarily attributable to increased pricing. However, unit volume growth was flat year-over-year.
Overall gross margins expanded a strong 623 basis points (bps) to 32.3% versus 26.0% in the comparable prior-year quarter. The increase was driven by effective pricing actions and positive volume mix. However, this was partially offset by higher metal packaging and commodity costs. The operating margin also increased 584 bps during the quarter to 14.7% from 8.8% in the prior-year period.
Cash and cash equivalents at the end of the period were $18.9 million. The company has a debt-to-capitalization ratio of 44%. Capital expenditures for the quarter were $45.7 million.
Based on the strong results for the first quarter, management raised its guidance for fiscal 2010. Annual earnings are now expected in the range of 93 cents to 97 cents per share. Previous guidance was 88 cents to 92 cents per share. The guidance includes 5 cents related to the recently closed 7½% notes offering and 8 5/8% notes tender offer.
Net sales growth is reiterated in the range of 4% to 6%. Management expects to increase its marketing investments by 55% to 65% compared to 40% to 50% stated earlier.
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