Del Monte Foods Company (NYSE: DLM):
Announcement Highlights
- Second quarter net sales declined 1.9%.
- Pet Products net sales grew ~3%.
- Consumer Products net sales declined
~5%.
- Diluted EPS from continuing operations
of $0.41 represents a $0.10 year over year increase from Q2 EPS of
$0.31 (which included $0.05 of debt refinancing costs) in fiscal
2010.
- Excluding the impact of the potential
transaction announced on November 25, 2010, fiscal 2011 guidance:
- Net sales growth is now expected to be
-1% to 1% compared to prior expectations of 1% to 3%.
- Diluted EPS from continuing operations
is maintained at $1.38-$1.42.
- Cash from operations less cash from
investing is now expected to be $280-$290 million, compared to
prior expectations of $260-$270 million.
Del Monte Foods Second Quarter
Results
Del Monte Foods today reported net sales for the second quarter
fiscal 2011 of $940.9 million compared to $958.9 million last year,
a decrease of 1.9%. Operating income was $148.0 million compared to
$140.6 million last year, an increase of 5.3%. Income from
continuing operations was $81.1 million compared to $62.6 million
last year, an increase of 29.6%. Earnings per share from continuing
operations (EPS) was $0.41 compared to $0.31 EPS last year. Results
for the second quarter fiscal 2010 included pretax costs of ~$17
million ($0.05 EPS) related to the Company’s 7 1/2% notes offering
and 8 5/8% notes tender offer.
Net sales for the second quarter fiscal 2011 declined 1.9% as
Consumer Products decreased 5.4% and Pet Products increased 2.6%.
Overall unit volume declines negatively impacted the topline by
1.1% (driven by Consumer Products, primarily in tomato and
vegetable). Net sales was also negatively impacted by the South
American sales primarily due to the devaluation of the Venezuelan
currency in January 2010. Positively contributing to net sales was
the impact of new products across the portfolio which contributed
1.3%.
Operating income for the second quarter increased 5.3%. The $7.4
million increase in operating income reflects lower costs
(primarily due to productivity savings and a benefit from a
settlement of a claim with a vendor), a benefit related to the
Company’s annual trade spend estimate evaluation related to prior
year activity (reflected in Q2 F11 versus Q3 F10), lower marketing
investment (driven by Consumer Products), and lower G&A
expense, which more than offset the negative impact of the
topline.
Operating margin was 15.7% for the second quarter compared to
14.7% last year, an increase of 100 basis points. Higher gross
margin (due to lower costs mentioned above) and lower SG&A as a
percentage of sales (due to lower marketing investment driven by
Consumer Products) positively impacted operating margins.
Income from continuing operations for the second quarter
increased $18.5 million to $81.1 million from $62.6 million last
year, which was primarily driven by lower interest expense (due to
the absence of the prior year refinancing costs) and higher
operating income. Second quarter EPS of $0.41 was up $0.10 from
second quarter fiscal 2010 EPS of $0.31 (which included $0.05 of
debt refinancing costs) primarily due to higher income from
continuing operations.
Second Quarter EPS
Q2A Fiscal 2011 $0.41 Q2A
Fiscal 2010 $0.31 Includes:
Costs related to 7 1/2%
notes offering and 8 5/8% tender offer
($0.05)
Reportable Segments – Second Quarter
Results
Pet Products
For the second quarter, Pet Products net sales were $433.2
million, an increase of 2.6% over net sales of $422.1 million in
the prior year period. The increase in Pet Products net sales was
primarily driven by strong unit volume growth (particularly in dry
pet food and pet snacks) and new product volume growth
(particularly in 9Lives). Higher trade spend (which supported dry
pet food and new products) negatively impacted net sales.
Pet Products operating income increased from $84.8 million in
second quarter fiscal 2010 to $92.7 million in second quarter
fiscal 2011, or 9.3%. The positive impact of the topline and lower
G&A expense more than offset higher marketing investment.
At 21.4% for the second quarter 2011, operating margin for Pet
Products was strong, increasing 130 basis points versus the prior
year period. Higher gross margin (due to favorable mix and
productivity savings) and lower SG&A as a percentage of sales
positively impacted operating margins.
Consumer Products
For the second quarter, Consumer Products net sales were $507.7
million, a decrease of 5.4% from net sales of $536.8 million in the
prior year period. The decrease in Consumer Products net sales was
driven mainly by lower unit volume (driven by tomato and
vegetable). South American sales also negatively impacted net sales
primarily due to the devaluation of the Venezuelan currency in
January 2010. Net sales was also impacted by decreased pricing in
government bids for fruit. Positively contributing to net sales was
new product volume (particularly from No Sugar Added Diced Pears in
plastic cups and Fruit Naturals Berries) and a benefit related to
the Company’s annual trade spend estimate evaluation related to
prior year activity (reflected in Q2 F11 versus Q3 F10).
Consumer Products operating income increased from $72.5 million
in the second quarter fiscal 2010 to $74.4 million in second
quarter fiscal 2011, or 2.6%. The positive impact of lower costs
(driven by productivity savings and a benefit from a settlement of
a claim with a vendor), the trade spend benefit mentioned above,
lower marketing investment, and lower G&A expense more than
offset the negative impact of the topline.
Operating margin for Consumer Products was 14.7% for the second
quarter fiscal 2011 compared to 13.5% last year, an increase of 120
basis points, driven by the factors mentioned above.
Del Monte Foods Six Months Ended
October 31, 2010
The Company reported net sales for the first half fiscal 2011 of
$1,745.5 million compared to $1,772.6 million last year, a decrease
of 1.5%. Income from continuing operations was $141.0 million, or
$0.70 EPS, compared to $121.5 million, or $0.61 EPS in the previous
year. Results for the six months ended November 1, 2009 included
pre-tax costs of ~$17 million ($0.05 EPS) relating to the Company’s
7 1/2% notes offering and 8 5/8% notes tender offer.
Net sales for the first half fiscal 2011 declined 1.5% as
Consumer Products decreased 5.7% and Pet Products increased 3.1%.
Overall unit volume declines negatively impacted the topline by
1.3% driven by retail volume declines in Consumer Products. Net
sales was also negatively impacted by the South American sales
primarily due to the devaluation of the Venezuelan currency in
January 2010. Higher trade spend (primarily in dry pet food)
reduced net sales by 0.7%. Positively contributing to net sales was
the impact of new products across the portfolio which contributed
1.3%.
Operating income for the first half fiscal 2011 increased 2.3%.
The $5.9 million increase in operating income reflects lower costs
(primarily due to productivity savings) which more than offset the
negative impact of the topline.
Operating margin was 15.3% for the first half fiscal 2011
compared to 14.8% last year, an increase of 50 basis points. Higher
gross margin was primarily driven by productivity savings.
Income from continuing operations for the first half fiscal 2011
increased $19.5 million to $141.0 million from $121.5 million last
year primarily driven by lower interest expense (primarily due to
the absence of prior year refinancing costs) and higher operating
income. First half EPS of $0.70 was up $0.09 from first half fiscal
2010 EPS of $0.61 (which included $0.05 of debt refinancing costs)
primarily due to higher income from continuing operations.
Cash provided by operating activities, less cash used in
investing activities was ($122.1) million in the first half fiscal
2011 compared to ($133.1) million in the prior year period
primarily due to lower capital expenditures.
First Half EPS
Q1 + Q2A Fiscal 2011 $0.70 Q1
+ Q2A Fiscal 2010 $0.61 Includes:
Costs related to 7 1/2%
notes offering and 8 5/8% tender offer
($0.05)
Outlook
Fiscal 2011
Excluding the impact of the potential transaction announced on
November 25, 2010 with a consortium of private equity funds
affiliated with Kohlberg Kravis Roberts & Co. L.P., Vestar
Capital Partners, and Centerview Partners, the Company now expects
for fiscal 2011, net sales growth of -1% to 1% over fiscal 2010 net
sales of $3,739.8 million, compared to previous expectations of 1%
to 3%.
The Company continues to expect fiscal 2011 diluted EPS from
continuing operations of $1.38 to $1.42, excluding the impact of
the potential transaction. EPS guidance was maintained despite
lower expected volume (primarily in lower margin products) due to
reduced levels of planned promotional activity. In fiscal 2010, the
Company generated $1.19 GAAP EPS from continuing operations (which
included ~$0.11 EPS relating to the closed notes and tender offer
as well as the refinancing of the Senior Credit Facility).
Fiscal 2011 EPS Guidance
Full Year
F11 Guidance
F10 GAAP EPS
$1.38-1.42
$1.19
Includes: Costs related to 7 1/2% notes offering and 8 5/8% notes
tender offer - ($0.05) Costs related to refinancing of Senior
Credit Facility - ($0.06) Excludes: Impact of potential transaction
announced on November 25, 2010
Excluded
-
In fiscal 2011, excluding the impact of the potential
transaction, the Company now expects cash provided by operating
activities, less cash used in investing activities to be
approximately $280-$290 million, compared to previous expectations
of $260-$270 million, due to improved working capital
management.
About Del Monte Foods
Del Monte Foods is one of the country’s largest and most
well-known producers, distributors and marketers of premium
quality, branded pet products and food products for the U.S. retail
market, generating approximately $3.7 billion in net sales in
fiscal 2010. With a powerful portfolio of brands, Del Monte
products are found in eight out of ten U.S. households. Pet food
and pet snacks brands include Meow Mix®, Kibbles 'n Bits®,
Milk-Bone®, 9Lives®, Pup-Peroni®, Gravy Train®, Nature’s Recipe®,
Canine Carry-Outs® and other brand names. Food product brands
include Del Monte®, Contadina®, S&W®, College Inn® and other
brand names. The Company also produces and distributes private
label pet products and food products. For more information on Del
Monte Foods Company (NYSE: DLM) visit the Company’s website at
www.delmonte.com.
Del Monte. Nourishing Families. Enriching Lives. Every
Day.TM
Forward-Looking
Statements
This press release contains forward-looking statements conveying
management’s expectations as to the future based on plans,
estimates and projections at the time the Company makes the
statements. Forward-looking statements involve inherent risks and
uncertainties and the Company cautions you that a number of
important factors could cause actual results to differ materially
from those contained in any such forward-looking statement. The
forward-looking statements contained in this press release may
include statements related to fiscal 2011 or other future financial
operating results and related matters.
Factors that could cause actual results to differ materially
from those described in this press release include, among others:
competition, including pricing and promotional spending levels by
competitors; our ability to maintain or increase prices and
persuade consumers to purchase our branded products versus
lower-priced branded and private label offerings; shifts in
consumer purchases to lower-priced or other value offerings,
particularly during economic downturns; our ability to implement
productivity initiatives to control or reduce costs; cost and
availability of inputs, commodities, ingredients and other raw
materials, including without limitation, energy (including natural
gas), fuel, packaging, fruits, vegetables, tomatoes, grains
(including corn), sugar, spices, meats, meat by-products, soybean
meal, water, fats, oils and chemicals; logistics and other
transportation-related costs; sufficiency and effectiveness of
marketing and trade promotion programs; our ability to launch new
products and anticipate changing pet and consumer preferences;
performance of our pet products business and packaged produce
sales; our debt levels and ability to service our debt and comply
with covenants; the failure of the financial institutions that are
part of the syndicate of our revolving credit facility to extend
credit to us; product distribution; the loss of significant
customers or a substantial reduction in orders from these customers
or the financial difficulties, bankruptcy or other business
disruption of any such customer; industry trends, including changes
in buying, inventory and other business practices by customers;
hedging practices and the financial health of the counterparties to
our hedging programs; currency and interest rate fluctuations;
changes in, or the failure or inability to comply with U.S.,
foreign and local governmental regulations, including packaging and
labeling regulations, environmental regulations and import/export
regulations or duties; impairments in the book value of goodwill or
other intangible assets; strategic transaction endeavors, if any,
including identification of appropriate targets and successful
implementation; adverse weather conditions, natural disasters,
pestilences and other natural conditions that affect crop yields or
other inputs or otherwise disrupt operations; contaminated
ingredients; allegations that our products cause injury or illness,
product recalls and product liability claims and other litigation;
reliance on certain third parties, including co-packers, our
broker, and third-party distribution centers or managers; any
disruption to our manufacturing or supply chain, particularly any
disruption in or shortage of seasonal pack; pension costs and
funding requirements; risks associated with foreign operations;
protecting our intellectual property rights or intellectual
property infringement or violation claims; failure of information
technology systems; transformative plans; general economic and
business conditions; the timing of the potential transaction with a
consortium of private equity funds affiliated with Kohlberg Kravis
Roberts & Co. L.P., Vestar Capital Partners, and Centerview
Partners announced on November 25, 2010 (the “Transaction”); the
possibility that competing offers for the Company will be made; the
possibility that various closing conditions for the Transaction may
not be satisfied or waived, including that a governmental entity
may prohibit or refuse to grant approval for the consummation of
the Transaction; and other factors.
Generally, these factors and other risks and uncertainties are
described in more detail, from time to time, in the Company’s
filings with the Securities and Exchange Commission, including its
annual report on Form 10-K and quarterly reports on Form 10-Q.
There can be no assurance that dividends will be declared or
paid in the future. The actual declaration and payment of future
dividends and the establishment of record and payment dates, if
any, are subject to determination by the Company’s Board of
Directors each quarter after its review of the Company’s
then-current strategy, applicable debt covenants and financial
performance and position, among other things. The Company’s
declaration and payment of future dividends is subject to risks and
uncertainties, including: deterioration of the Company’s financial
performance or position; inability to declare a dividend in
compliance with applicable laws or debt covenants; an increase in
the Company’s cash needs or decrease in available cash; and the
business judgment of the Board of Directors that a declaration of a
dividend is not in Del Monte Foods Company’s best interests, as
well as other risks that may be detailed, from time to time, in the
Company’s filings with the Securities and Exchange Commission. The
agreement relating to the Transaction also contains restrictions
regarding the payment of dividends (other than ordinary quarterly
cash dividends in an amount not to exceed $0.09 per share with
record dates consistent with the record dates for comparable
quarterly periods of 2010). Factors that could affect the Company’s
financial performance or position, compliance with applicable debt
covenants, or cash flow include those risks and uncertainties
listed above and other risks and uncertainties that may be
described from time to time in the Company’s filings with the
Securities and Exchange Commission, including its annual report on
Form 10-K and quarterly reports on Form 10-Q.
DEL MONTE FOODS COMPANY AND SUBSIDIARIES Condensed
Consolidated Statements of Income (in millions, except per share
data)
Three Months
Ended Six Months Ended October 31,
November 1, October 31, November 1,
2010 2009
2010 2009 (unaudited) Net
sales $ 940.9 $ 958.9 $ 1,745.5 $ 1,772.6 Cost of products sold
631.4 649.7 1,169.3
1,203.5 Gross profit 309.5 309.2 576.2 569.1 Selling,
general and administrative expense 161.5 168.6
308.8 307.6 Operating income
148.0 140.6 267.4 261.5 Interest expense 20.0 41.0 39.7 65.2 Other
(income) expense (2.0 ) 0.8 1.6
2.7 Income from continuing operations before income
taxes 130.0 98.8 226.1 193.6 Provision for income taxes 48.9
36.2 85.1 72.1
Income from continuing operations 81.1 62.6 141.0 121.5 Loss
from discontinued operations before income taxes - (0.1 ) (0.2 )
(0.5 ) Provision (benefit) for income taxes -
(0.1 ) 0.3 (0.2 ) Loss from discontinued
operations - - (0.5 ) (0.3 ) Net income
$ 81.1 $ 62.6 $ 140.5 $ 121.2
Earnings (loss) per common share Basic: Basic Average Shares 195.0
198.8 196.3 198.6 EPS - Continuing Operations $ 0.42 $ 0.31 $ 0.72
$ 0.61 EPS - Discontinued Operations - -
- - EPS - Total $ 0.42 $
0.31 $ 0.72 $ 0.61 Diluted: Diluted
Average Shares 199.8 202.2 201.5 200.6 EPS - Continuing Operations
$ 0.41 $ 0.31 $ 0.70 $ 0.61 EPS - Discontinued Operations -
- - (0.01 ) EPS - Total $
0.41 $ 0.31 $ 0.70 $ 0.60
Del Monte Foods Company - Selected Financial Information
Net Sales by Segment (in millions)
Three Months Ended Six Months
Ended October 31, November 1, October
31, November 1, Net Sales:
2010 2009 2010
2009 (unaudited)
(unaudited) Pet Products $ 433.2 $ 422.1 $ 860.5 $ 834.4
Consumer Products 507.7 536.8
885.0 938.2 Total Company $ 940.9 $
958.9 $ 1,745.5 $ 1,772.6
Operating Income by Segment (in millions)
Three
Months Ended Six Months Ended October 31,
November 1, October 31, November 1,
Operating Income: 2010
2009 2010 2009
(unaudited) (unaudited) Pet Products $ 92.7 $
84.8 $ 191.4 $ 187.6 Consumer Products 74.4 72.5 108.7 104.6
Corporate (a) (19.1 ) (16.7 ) (32.7 )
(30.7 ) Total Company $ 148.0 $ 140.6 $ 267.4
$ 261.5 (a) Corporate represents expenses not
directly attributable to reportable segments.
DEL
MONTE FOODS COMPANY AND SUBSIDIARIES Condensed Consolidated
Balance Sheets (in millions, except per share data)
October 31, May 2,
2010 2010 (derived from
audited financial (unaudited) statements)
ASSETS Cash and cash equivalents $ 20.2 $ 53.7 Trade
accounts receivable, net of allowance 257.3 187.0 Inventories
1,067.5 726.4 Prepaid expenses and other current assets
135.9 128.5 TOTAL CURRENT ASSETS 1,480.9
1,095.6 Property, plant and equipment, net 643.9 658.8
Goodwill 1,337.9 1,337.7 Intangible assets, net 1,159.3 1,162.4
Other assets, net 30.3 34.4 TOTAL
ASSETS $ 4,652.3 $ 4,288.9
LIABILITIES AND
STOCKHOLDERS' EQUITY Accounts payable and accrued
expenses $ 571.6 $ 469.5 Short-term borrowings 221.9 5.6 Current
portion of long-term debt 30.0 30.0
TOTAL CURRENT LIABILITIES 823.5 505.1 Long-term debt 1,240.6
1,255.2 Deferred tax liabilities 455.2 441.0 Other non-current
liabilities 275.8 260.2 TOTAL
LIABILITIES 2,795.1 2,461.5
Stockholders' equity: Common stock ($0.01 par value per share,
shares authorized:
500.0; 219.2 issued and 194.7 outstanding
at October 31,2010 and 216.6 issued and 199.2 outstanding at May
2,2010)
$ 2.2 $ 2.2 Additional paid-in capital 1,107.8 1,085.0 Treasury
stock, at cost (283.1 ) (183.1 ) Accumulated other comprehensive
income (loss) (58.2 ) (59.8 ) Retained earnings 1,088.5
983.1 TOTAL STOCKHOLDERS' EQUITY 1,857.2
1,827.4 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $
4,652.3 $ 4,288.9
DEL MONTE FOODS
COMPANY AND SUBSIDIARIES Condensed Consolidated Statements of
Cash Flows (in millions)
Six Months Ended October 31,
November 1, 2010 2009
(unaudited) OPERATING ACTIVITIES: Net income $ 140.5
$ 121.2 Adjustments to reconcile net income to net cash used in
operating activities: Depreciation and amortization 47.7 49.4
Deferred taxes 27.3 24.3 Write off of debt issuance cost and loss
on debt refinancing - 16.6 Loss on asset disposals 1.0 0.6 Stock
compensation expense 6.9 7.1 Excess tax benefits from stock-based
compensation (3.8 ) - Other non-cash items, net 4.6 4.5 Changes in
operating assets and liabilities (312.7 ) (311.1 )
NET CASH USED IN OPERATING ACTIVITIES (88.5 ) (87.4 )
INVESTING ACTIVITIES: Capital expenditures (33.6 )
(45.7 ) NET CASH USED IN INVESTING ACTIVITIES (33.6 )
(45.7 ) FINANCING ACTIVITIES: Proceeds from
short-term borrowings 389.8 143.0 Payments on short-term borrowings
(173.5 ) (81.0 ) Proceeds from long-term borrowings - 442.3
Principal payments on long-term debt (15.0 ) (456.7 ) Payments of
debt-related costs - (24.4 ) Dividends paid (27.5 ) (17.8 )
Issuance of common stock 17.2 2.8 Purchase of treasury stock (100.0
) - Taxes remitted on behalf of employees for net share settlement
of stock awards (5.9 ) - Excess tax benefits from stock-based
compensation 3.8 0.6 NET CASH PROVIDED
BY FINANCING ACTIVITIES 88.9 8.8 Effect
of exchange rate changes on cash and cash equivalents (0.3 ) 0.5
NET CHANGE IN CASH AND CASH EQUIVALENTS (33.5 ) (123.8 ) CASH AND
CASH EQUIVALENTS AT BEGINNING OF PERIOD 53.7
142.7 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20.2
$ 18.9
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