This summary is based on the third quarter fiscal 2008 earnings call conducted by Del Monte Foods Co. (DLM: chart) on February 28, 2008.
Chairman and CEO: Rick Wolford
CFO: Dave Meyers
SVP Finance and IR: Larry Bodner
Key Investors Issues
- Earnings per share rose from 23 cents in prior year to 26 cents in the quarter.
- Quarterly revenue of $1 billion represents an increase of 10% over last year.
- The Q4 EPS is expected to be in the range of 23 cents to 27 cents, on sales growth of 6% to 8%.
Third Quarter Fiscal 2008 Financial Highlights
The company delivered GAAP EPS of 26 cents for the quarter.
This is in the upper end of the guidance range of 22 cents to 26 cents, as very strong volume tampered the impact of higher cost.
The firm delivered very strong top-line growth of 10.4%, which exceeded its expected range.
This quarter''s top-line growth was driven by three contributing factors.
- The positive revenue trends reflect continued share strength even with the pricing actions that the firm has taken across the portfolio.
- In Q3, the firm saw strong all-outlet shares gains in pet, vegetables, fruits and seafood, which collectively represents approximately 90% of its business. As well, the firm is pleased with its merchandising and promotional results during the quarter, which contributed to its top-line sales.
- The new consumer and pet product innovations primarily focused on higher growth categories also contributed to Q3 top-line and share strength performance.
Looking at the 10.4% increase in year-over-year net sales, base unit volume growth driven by fruit, vegetables, pet food and seafood contributed 9.5 points. Volume growth in new products particularly in pet food and fruit, as well as price increases contributed 1.9 and 1.4 points respectively, which was partially offset by 2.4 points of pricing related volume elasticity and other spending.
Gross margin for the quarter was 25.3%, a decrease of 2.6 points versus last year.
Cost increases drove a 3-point reduction in gross margins with increases in grains, fats, and oil as well as fish accounting for 2.5 points of the total. Net pricing reflects a negative 0.3 points, which includes an increase in trade spending of 1.3 points and pricing actions of 1 point. Volume mix drove a 0.7 point margin improvement.
Looking at nine months to-date, gross margin is down 1.8 points versus last year, cost increases impacted gross margin by 2.5 points, net pricing reflects a positive 0.4 points, which includes an increase in trade spending of 1 point and pricing actions of 1.4 points. Volume mix contributed 0.3 points.
The operating income increased 8%, while operating margins decreased by 0.3 points.
Gross profit was flat with lowered SG&A, driving the increase in operating income. The $8 million SG&A reduction was driven by the $10 million gain on the sale of the S&W trademark for the Eastern Hemisphere and absence of integration expenses, partially offset by higher energy driven customer deliver cost.
- Marketing spending was flat year-over-year, as the firm shifted funds to tactical trade programs.
- Interest expense in the quarter decreased $3 million, primarily due to lower rates versus last year.
- GAAP EPS from continuing operations of 26 cents included 2 cents of transformation, compared to 22 cents a year ago, which included 4 cents of transformation, integration and purchase accounting.
During the third quarter, the firm spent $21 million on capital projects versus $17 million a year ago.
The company incurred $27 million in depreciation and amortization costs, which included $1 million of fee amortization included in interest expense.
