Del Monte Foods Co. (DLM), producer, distributor, and marketer of branded pet products and food products, posted diminutive top-line and earnings results for fourth-quarter 2010, a 13-week quarter ending on May 2, 2010.
San Francisco-based Del Monte’s earnings slipped to 31 cents from 35 cents a share in the year-ago period but exceeded the Zacks Consensus Estimate by 9 cents. The quarter highlights a 64% increase in marketing investment, consistent with the company’s Accelerated Growth Plan and a decline in the top-line growth, thus offsetting savings from productivity initiatives.
However, a positive top-line growth, improvement in costs, partially offset by a 54% rise in marketing investment, increased earnings by 60.8% to $1.19 in fiscal 2010 from 74 cents in fiscal 2009. The year’s results fall short of the Zacks Consensus Estimate of $1.30. Consistent with Del Monte’s annual long-term earnings growth target of 7% – 9%, it projects adjusted earnings of $1.38 to $1.42 per share for fiscal 2011.
For the quarter under review, Del Monte’s total sales dipped 9.8% to $954.0 million, compared with $1,057.4 million for its 14-week quarter ended May 3, 2009, reflecting a decrease in volume due to one extra week in the fourth quarter fiscal 2009. In contrast to the quarter’s results, total sales climbed 3.1% to $3,739.8 million for the fiscal 2010 compared with the $3,626.9 million in fiscal 2009, due to strong base unit volume gains across the portfolio, partially offset by one extra week in fiscal 2009 and increased trade spend. Del Monte expects to generate revenue of 3% – 4% year-over-year for fiscal 2011.
Consumer Products and Pet products, the two operating segments of Del Monte, delivered negative sales growth in the quarter but positive growth in fiscal 2010.
In keeping with the company’s strategy of returning incremental value to shareholders, Del Monte lifted its quarterly dividend by 80% to 9 cents from 5 cents a share together. The company also announced the authorization of a $350 million stock repurchase program for the next three years, which replaces the existing $200 million share repurchase authorization. In fiscal 2011, the company plans to buy back shares worth approximately $100 million-$140 million. At the end of the quarter, Del Monte has 199.2 million shares of common stock outstanding.
Del Monte exited the year with cash and cash equivalents of $53.7 million, and net debt to adjusted EBITDA ratio of 2. The company generated $251 million cash flow from operating activities, less cash used in investing activities, and projects cash flow from operating activities, less cash used in investing activities to be approximately $260 – $270 million. Capital expenditure for the year 2010 was $104.9 million.
Looking ahead, Del Monte remains optimistic about its long-term growth. However, the company continues to invest in key brands, together with productivity initiatives.
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