QUOTE AND NEWS
The Globe and Mail  Oct 12  Comment 
Company to focus on pet food after $1.68-billion deal
New York Times  Oct 11  Comment 
Del Monte Foods said that it planned to rename itself to reflect its focus on pet food brands like Meow Mix and Kibbles 'n Bits.
Wall Street Journal  Oct 11  Comment 
Philippines-based Del Monte Pacific, majority-owned by the country's wealthy Campos family, will acquire the canned-food business of U.S. Del Monte Foods in a $1.68 billion deal.
Reuters  Jul 9  Comment 
Pinnacle Foods and Fresh Del Monte are among the companies considering offers for Del Monte Foods' canned foods business, a deal that could be worth more than $1.5 billion,...
Cloud Computing  Feb 26  Comment 
Transplace, a leading provider of transportation management services and logistics technology, today announced the speakers and topics for its 11th annual Shipper Symposium. The event will bring together Transplace...
StreetInsider.com  Apr 9  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/Fresh+Del+Monte+%28FDP%29+Gets+Favorable+Ruling+in+Del+Monte+Foods+Case/7332138.html for the full story.
Benzinga  Apr 9  Comment 
Fresh Del Monte Produce Inc. (NYSE: FDP) today announced that it secured a sweeping jury verdict in a lawsuit against Del Monte Foods Company and Del Monte Corporation (‘Del Monte Foods') in the U.S. District Court for the Southern District of...
New York Times  Apr 6  Comment 
Fresh Del Monte and Del Monte Foods are in a legal struggle over whether some fruit sold in refrigerated plastic containers is fresh or processed.
New York Times  Jan 17  Comment 
The British private equity firm Pamplona Capital Management has hired Brian K. Ratzan from Vestar Capital Partners to spearhead its expansion in the United States.




 

Del Monte Foods (NYSE: DLM) makes foods for both people and their pets, selling its products primarily through U.S. grocery stores. The Company’s 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 and its food brands include Del Monte, Contadina, S&W, College Inn and other brand names. Its facilities consist of 17 production facilities and 10 distribution centers in the United States, as well as two production facilities in Mexico and one production facility in Venezuela.

As with many consumer goods manufacturers, Del Monte depends heavily on Walmart. The world's largest retailer, Walmart is by far the company's primary customer, generating 31% of the food maker's sales.

Aside from the Walmart 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 Del Monte.

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.

Company Overview

Del Monte Foods Company produces, distributes and markets processed food and pet products for the United States retail market. Roughly 95% of net sales come from the U.S. retail market, while just 5% came from foreign exports [1].

Business and Financial Metrics

Fourth Quarter Fiscal 2010 Results (ended May 2, 2010)[2]

Del Monte Foods reported net sales of $954.0 million for the quarter, compared to $1,057.4 million in the year-ago quarter, a decrease of 9.8%. Income from continuing operations for the quarter was $63.3 million, or $0.31 diluted earnings per share from continuing operations (EPS), compared to $68.8 million, or $0.35 EPS in the previous year.

The 9.8% decrease in net sales for the quarter largely reflects lower volume due to one extra week in the fourth quarter fiscal 2009 (~6.1%). Aside from 14th week, unit volume was lower in Consumer Products and Pet Products. In fiscal 2010, Consumer Products shifted the focus of its Vegetable promotion to the second and third quarters, compared to the fourth quarter a year ago. In Pet Products, a year ago, Dry Pet Food benefitted from competitive pricing and supply issues. The fourth quarter results also reflected a 64% increase in marketing investment.

Business Segments

Consumer Products[3]

Del Monte's Consumer Products participate in a market of approximately $7 billion of retail sales annually. The fruit category grew by over 4% in fiscal 2009 as compared to fiscal 2008 driven by pricing. The vegetable category increased by approximately 10% driven by pricing. The tomato category grew approximately 11% driven by pricing. Broth category sales are up approximately 11% driven by pricing and new product innovation. Vegetable, tomato and broth categories also benefitted from the trend to more in-home meal preparation. Branded food manufacturers typically establish pricing and lead innovation in the processed food categories in which our products compete. Private label products as a group represented 32.3%, 44.5% and 40.6% of processed fruit, vegetable and tomato sales, respectively, in fiscal 2009.

Pet Products[3]

Del Monte's Pet Products participate in a market of approximately $19 billion of retail sales annually. This market experienced an increase of approximately 15% from fiscal 2008 to fiscal 2009. The categories are dry and wet dog food, dry and wet cat food, and pet snacks. Growth in these categories will continue to be fueled by higher spending due to the growing importance of pets as part of the family, increased rates of value-added new pet product entries, and pricing. Over half of all American households own a dog or a cat. In fiscal 2009, private label products accounted for 12.6% of the total market share in the Pet Products market, with the rest of the market divided primarily among a small number of large, multi-national manufacturers.

Trends and Forces

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, resulting in a dampened growth for the firm. Corn is by far the primary feestock for this fuel.

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.

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. Walmart already accounted for 31% of sales in fiscal 2007 [4] , 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.

U.S. Pet Owners Are Spending More on their Pets, Creating Growth Potential

Del Monte has seen impressive growth in its Pet Products sector. This can be attributed to U.S. pet owners increased spending 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.

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.



References

  1. [1]
  2. "Del Monte Foods Company Reports Fiscal 2010 Fourth Quarter and Full Year Results" June 10, 2010
  3. 3.0 3.1 Del Monte: Annual Report 2009
  4. Del Monte Foods (DLM) Form 10-K, Fiscal year 2007, "Business", pg. 10
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