Del Monte's 1Q Sales Drop

September 8/Travel & Leisure Close-Up -- Del Monte Foods has reported net sales for the first quarter fiscal 2011 of $804.6 million compared to $813.7 million last year, a decrease of 1.1%.

According to a release on September 2, the company reports that operating income was $119.4 million compared to $120.9 million last year, a decrease of 1.2%. Income from continuing operations was $59.9 million compared to $58.9 million last year, an increase of 1.7%. Earnings per share from continuing operations (EPS) was $0.29 compared to $0.30 EPS last year.

"Del Monte's first quarter EPS results of $0.29 reflect the solid earnings base we established," said Richard G. Wolford, chairman and CEO of Del Monte Foods. "Our 1.1% topline decline reflects lower revenue from our Consumer business with continued healthy topline performance in the Pet business. We are not satisfied with our first quarter Consumer sales, but expect performance will strengthen in the second half as competitive and category performance return to historical levels and as we deliver growth through the key holiday seasons. Our margins were strong in Q1, as we delivered on our productivity savings and improved our overall product mix, while we continued to invest in key brands.

"For fiscal 2011, we are maintaining our EPS and cash flow targets, reflecting the successful margin and working capital management capabilities. We remain confident in our competitive, long-term growth model, driven by brand-based fundamentals, our growth strategy, and the strong margin structure we have established."

Net sales for the first quarter fiscal 2011 declined 1.1%, as Consumer Products decreased 6.0 % and Pet Products increased 3.6%. Overall unit volume declines negatively impacted the topline by 1.6% driven by non-retail and retail volume decline. Non-retail unit volume decreased net sales by 1.1%, while retail unit volume decreased net sales by 0.5% (driven by Consumer Products, primarily in vegetable, partially offset by Pet Products). Higher trade spend (primarily in dry pet food) and pricing elasticity reduced net sales by 1.7%. Positively contributing to net sales was the impact of new products across the portfolio which contributed 1.4%, and the impact of Pet Products pricing (driven by the previously implemented package resizing) which contributed 0.8%.

Operating income for the first quarter declined 1.2%. The $1.5 million decline in operating income reflects the negative impact of the topline, partially offset by lower costs (primarily due to productivity savings) as well as favorable mix. Higher G&A expense and higher marketing investment (in Pet Products) negatively impacted operating income.

Operating margin was 14.8%t for the first quarter fiscal 2011, compared to 14.9% last year, a decrease of 10 basis points. Higher gross margin (due to productivity savings and favorable mix) was offset by higher SG&A as a percentage of sales (driven primarily by higher marketing investment in Pet Products compared to a year ago).

Income from continuing operations for the first quarter increased $1.0 million to $59.9 from $58.9 million last year primarily driven by lower interest expense (due to lower debt levels and more favorable rates), partially offset by lower operating income. First quarter EPS of $0.29 was down $0.01 from first quarter fiscal 2010 EPS of $0.30 primarily due to higher share count.

Cash provided by operating activities, less cash used in investing activities was $31.3 million in the first quarter fiscal 2011 compared to negative $0.3 million in the prior year period primarily due to lower working capital and lower capital expenditures.

In the first quarter fiscal 2011, the company announced that its board of directors approved an 80% increase in the quarterly dividend from $0.05 to $0.09 per common share. During the first quarter, the company also announced a three-year, $350 million share repurchase authorization. Subsequently, the company repurchased a total of 7.1 million shares via an accelerated share buyback program of $100 million.

Outlook for Fiscal 2011
For fiscal 2011, the company now expects net sales growth of 1-3% over fiscal 2010 net sales of $3,739.8 million, compared to previous expectations of 2-4%.

The company continues to expect fiscal 2011 diluted EPS from continuing operations target of $1.38 to $1.42, consistent with the company's long-term EPS annual growth target of 7-9%. Reduced cost inflation expectations net of productivity savings are anticipated to offset the reduction in net sales growth expectations. In fiscal 2010, the company generated $1.30 Adjusted EPS from continuing operations (which excluded the ~$0.11 EPS relating to the closed notes and tender offer, as well as the refinancing of the Senior Credit Facility).

In fiscal 2011, the company continues to expect cash provided by operating activities, less cash used in investing activities to be approximately $260 to $270 million. This compares to $251 million in fiscal 2010.

From the September 9, 2010, Prepared Foods' Daily News
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