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Del Monte Profits Tumble Amid Competition, Costs

By Reuters
Published | Updated

CHICAGO – Del Monte Foods Co. (DLM) Thursday said quarterly profit fell sharply, hurt by increased competition in pet product sales and rising costs, and said it may drop some products and take other cost-cutting measures to offset inflation.

Pet products accounted for 26 percent of the company's total sales in fiscal 2005, and an analyst said the competition in pet food is coming from Mars Inc.

In addition, Del Monte, the maker of StarKist tuna (search), Del Monte fruits and vegetables and Snausages pet snacks (search), was hit by higher costs for fish, steel and energy.

Some analysts questioned the company's strategy.

"We personally have been suspicious of Del Monte's abilities to execute for some time," said Timothy Ramey, food industry analyst at D.A. Davidson. He has a "neutral" rating on the stock.

Shares of Del Monte fell about 3 percent to $10.47 on the New York Stock Exchange (search).

Del Monte said it had a profit of $19.3 million, or 9 cents a share in the fiscal fourth-quarter ended May 1, compared with $56.6 million, or 27 cents a share, a year earlier.

Excluding 10 cents a share in costs for debt refinancing, 3 cents a share in acquisition integration costs and 1 cent a share in litigation costs, earnings were 23 cents a share, well below the 31 cents analysts forecast on that basis, according to Reuters Estimates.

Sales fell 7.5 percent, to $847 million but were flat when an extra week in the prior year's quarter is removed, the company said.

Del Monte said it will cut the number of items it sells by 20 percent over the next two years and plans to cut $100 million in costs over the next three years.

The company has hired Bank of America Corp. to help divest product lines such as its Nature's Goodness baby foods and private-label soups, a source familiar with the situation said Wednesday.

"We intend to sharpen this branded focus and simplify our business," said Del Monte Chairman and Chief Executive Richard Wolford.

For 2006, the company said it expects earnings of 75 cents to 80 cents a share on a 1 percent to 3 percent sales increase. Analysts on average forecast 85 cents a share, according to Reuters Estimates.