Del Monte Foods Company (DLM) posted record first quarter earnings as sales rose 12%. The company has posted big surprises the last four quarters, averaging 246.91%. DLM is trading at 12.1x forward earnings.

Company Description

Del Monte Foods distributes food and pet products in the United States and South America. It owns many well-known brands such as Del Monte, Contadina, Meow Mix, Kibbles ‘n Bits, 9Lives and Milk-Bone.

The company is not affiliated with Fresh Del Monte, the fruit and vegetable provider.

On Sep 17, Del Monte announced that it was making a private placement offering of $450 million in aggregate principal amount of senior subordinated notes through its wholly owned subsidiary Del Monte Corporation. The notes will not be registered securities.

Sales Jump in Record First Quarter

On Sep 3, Del Monte reported fiscal first quarter 2010 results that blew by the Zacks Consensus Estimate by 900%.

Earnings per share were a record for the first quarter of 30 cents compared to the Zacks Consensus Estimate of 3 cents and easily surpassed EPS of a year ago which was a loss of 4 cents.

Sales jumped 12% to $813.7 million from $726.2 million in the second quarter of fiscal 2009. The major driver of the increase was pricing actions taken in 2009 to recoup some of the inflationary cost-driven margin contraction of prior years.

Volume gains, especially in the Pet Products segment, also contributed to the growth. Pet Products net sales jumped 20.3% to $412.3 million from $342.7 million in the year ago period.

Consumer Products net sales rose 4.7% to $401.4 million from $383.5 million in 2009. The company saw growth in several new items including Del Monte Fruit Chillers Tubes and Packaged Produce.

Fiscal 2010 Outlook Raised

Given the record first quarter, it’s not surprising the company boosted full year guidance to the range of 88 to 92 cents up from the prior target of 76 to 80 cents. This is well above fiscal 2009’s EPS of 74 cents.

Del Monte maintained its sales growth projection of between 4% and 6% compared to fiscal 2009.

Zacks Consensus Estimates Jump

Not surprisingly, the Zacks Consensus Estimates for the second quarter and the full year are on the move given the company’s raised guidance.

The second quarter Zacks Consensus Estimate rose 3 cents to 20 cents in the last 30 days with 2 out of 9 analysts raising in just the last week.

The full year has actually moved 2 cents higher than the current guidance range, climbing 17.5% in the last 30 days to 94 cents from 80 cents. All 6 covering analysts raised estimates in that time period.

Del Monte was a Zacks Bull of the Day on Sep 17 and was raised to Outperform at Zacks.

Bull of the Day: Del Monte (DLM)

Value Fundamentals

Del Monte Foods is a Zacks #1 Rank (strong buy) stock. It has a price to book ratio of 1.35. The company’s 5-year average return on equity (ROE) is a solid 11.22%.

Additionally, the company also pays a dividend which it just raised in July by 25%. A 5 cent quarterly dividend was paid in August, up from 4 cents prior. It currently yields 1.80%.

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