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Del Monte Foods (NYSE: DLM) makes foods for both people and their pets, selling its products primarily through U.S. grocery stores. Accounting for more than a third of fiscal 2007 sales, Del Monte's pet products division has been the major stimulant of growth in recent years. Roughly 95% of fiscal 2007 net sales came from the U.S. retail market, while just 5% came from foreign exports [1].
As with many consumer goods manufacturers, Del Monte depends heavily on Wal-Mart. The world's largest retailer is by far the company's primary customer, generating 31% of the food maker's sales in fiscal 2007. Overall, Del Monte generated $3.41 billion in revenue during fiscal 2007, a 14% increase from the previous year.
Aside from the Wal-Mart Effect, Del Monte has faced pressure to lower its prices from an increasingly consolidating supermarket industry (fewer customers means less leverage for Del Monte). End consumers are also increasing the consumption of private label goods as a substitute for the kinds of branded that Del Monte makes.
The company has faced increasing prices for key inputs, including aluminum for cans, tuna, and corn. Grain prices in general have increased as farmers are using land to grow corn for ethanol.
[edit] Company Overview
Founded in 1916 under the name California Packing Corporation and headquartered in San Francisco, California, Del Monte Foods Company produces, distributes and markets processed food and pet products for the United States retail market. Roughly 95% of fiscal 2007 net sales came from the U.S. retail market, while just 5% came from foreign exports [2]. With almost 8,200 full time employees and 10,000 seasonal employees [3] , the firm has generated steady revenue growth from fiscal 2005 - 2007, while maintaining a consistent, but positive, net income. This growth can be attributed to strong performance in the Pet Products sector, which experienced 50% growth in sales and 47% growth in volume in fiscal 2007. Del Monte brands include:
- Food Brands: Del Monte canned fruits, vegetables and sauces, StarKist tuna, S&W beans, Contadina processed tomato products, College Inn broths
- Pet Food Brands: Meow Mix, Kibbles ‘n Bits, 9Lives, Milk-Bone, Pup-Peroni, Meaty Bone, Snausages, Pounce
| 2005 | 2006 | 2007 | ||
|---|---|---|---|---|
| Net Sales ($M) | 2,899 | 2,999 | 3,415 | |
| Net Income ($M) | 118 | 170 | 113 | |
| Change (%) in Volume of Pet Products Sold | - | 1.1% | 47.3% | |
[edit] Key Customers
In fiscal 2007, Del Monte's top 10 customers accounted for almost 62% of sales. Of these 10 customers, Wal-Mart Stores (WMT) is the firm's single largest customer, accounting for 31% of sales. Wal-Mart's demand for lower prices can pose a serious threat to Del Monte's earnings.
[edit] Trends & Forces
[edit] Rising Raw Materials Prices Hurt Earnings
The primary raw materials used by Del Monte are energy (including natural gas), aluminum cans, fruits, vegetables, tomatoes, tuna, grains (including corn), sugar, spices, meats, meat by-products, soybean meal, and fats. The rising demand for ethanol has pushed corn prices higher in 2007, resulting in a dampened growth for the firm. Corn is by far the primary feestock for this fuel.
[edit] Increase in Private Label Popularity Hurts Del Monte
Del Monte's brand name products compete against private label or "store brand" products, which are often thought as less expensive imitations of brand name products (ex. CVS-brand pain medicine, instead of Tylenol or Advil). This negative stigma of private labels is fading, posing a serious threat to Del Monte's market share in processed food.
[edit] Supermarket Consolidation Limits Del Monte's Bargaining Power
Supermarkets are consolidating and as behemoths such as Wal-Mart Stores (WMT), replace smaller, local supermarkets, Del Monte's customers become fewer and fewer. Wal-Mart already accounted for 31% of sales in fiscal 2007 [6] , but as this ratio grows, so will Del-Monte's reliance on Wal-Mart. As the supermarket industry becomes increasingly consolidated and a few big players demand ever lower prices, the firm will be forced to agree to more price cuts in their products, or else risk losing a significant portion of its business.
[edit] U.S. Pet Owners Are Spending More on their Pets, Creating Growth Potential
From fiscal 2006 - 2007, Del Monte has seen impressive growth in its Pet Products sector, culminating in a 50% growth in sales in fiscal 2007. This can be attributed to U.S. pet owners increased spend on their pets. As the firm faces volatile raw materials prices and a fairly saturated U.S. food market, the company has depended on its Pet Products segment to stimulate firm-wide growth.
[edit] Competition
Del Monte faces fierce competition from cheaper private labels as well as increasing pressure to lower prices from supermarket giants like Wal-Mart Stores (WMT). These competitive pressures are compounded by volatile prices in key inputs like corn and tuna.
The firm is somewhat unique in that it makes pet food along side brand name processed foods. Nonetheless, many of Del Monte's competitors have larger revenues and market capitalization, giving them greater financial resources than Del Monte.
| Company | 2007 Revenue ($B) | 2007 Net Income ($B) | Employees | 2007 Market Capitalization (B) |
| General Mills (GIS) | 12.65 | 1.16 | 28,500 | 19.08 |
| ConAgra Foods (CAG) | 12.3 | 0.75 | 24,500 | 12.26 |
| Campbell Soup Company (CPB) | 8.01 | 0.82 | 22,500 | 13.85 |
| Dole Food Company (private) | 6.17 | 0.89 | 47,000 | N/A |
| Del Monte | 3.41 | 0.112 | 8,200 | 1.75 |
[edit] Market Share
As of 2007, Del Monte has either the #1 or #2 grocery market share position in the Fruit, Vegetables, Tomato, Broth, and Tuna categories. Dole Food Company, General Mills (GIS), ConAgra Foods (CAG), Campbell Soup Company (CPB), and Connor Brothers are the firm's greatest competitors in Fruit, Vegetables, Tomato, Broth, and Tuna, respectively. With the recent acquisitions of Meow Mix and Milk-Bone, Del Monte also has the #2 market share in Pet Products (Pet Food plus Pet Snacks). Nestle (#1 market share) and Mars (#3 market share) represent the firm's major competitors within Pet Products [8].
[edit] Fruit
[edit] Vegetables
[edit] Tomato
[edit] Broth
[edit] Tuna
[edit] Notes
- ↑ http://media.corporate-ir.net/media_files/irol/86/86259/FactSheet_Q2F08.pdf
- ↑ http://media.corporate-ir.net/media_files/irol/86/86259/FactSheet_Q2F08.pdf
- ↑ Del Monte Foods (DLM) Form 10-K, Fiscal year 2007, "Business", pg. 17
- ↑ http://stocks.us.reuters.com/stocks/incomeStatement.asp?period=A
- ↑ Del Monte Foods (DLM) Form 10-K, Fiscal year 2007, "Business", pg. 7
- ↑ Del Monte Foods (DLM) Form 10-K, Fiscal year 2007, "Business", pg. 10
- ↑ http://finance.yahoo.com/q/co?s=DLM
- ↑ http://media.corporate-ir.net/media_files/irol/86/86259/FactSheet_Q2F08.pdf
- ↑ http://media.corporate-ir.net/media_files/irol/86/86259/FactSheet_Q2F08.pdf
- ↑ http://media.corporate-ir.net/media_files/irol/86/86259/FactSheet_Q2F08.pdf
- ↑ http://media.corporate-ir.net/media_files/irol/86/86259/FactSheet_Q2F08.pdf
- ↑ http://media.corporate-ir.net/media_files/irol/86/86259/FactSheet_Q2F08.pdf
- ↑ http://media.corporate-ir.net/media_files/irol/86/86259/FactSheet_Q2F08.pdf
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