Del Monte Has Taste for Deals
With one big meal nearly digested, Del Monte Foods Co. is starting to think about what’s next on the menu.
Richard Wolford, chief executive of the San Francisco-based food processor, said Thursday that last year’s acquisition of StarKist tuna, pet food brands, a line of baby food and a soup label from H.J. Heinz Co. has gone so well that the company now is poised to absorb more businesses.
No new acquisitions were planned anytime soon, Wolford said. But analysts say that when he goes on the hunt, they expect him to look for other “neglected” brands similar to the type Del Monte obtained from Heinz.
That’s because Del Monte has the distribution clout and marketing expertise that makes it easy to bolster new lines, Wolford said. Del Monte’s products are in stores nationwide -- from wholesale clubs to major supermarkets to convenience stores.
“The strategy has been to leverage this platform to bring in additional business,” Wolford said.
Net income in its fiscal second quarter ended Oct. 26 fell 23% to $40.2 million, or 19 cents a share, from $52.4 million, or 33 cents, a year ago. However, after adjustments to reflect the merger of the Heinz businesses, earnings rose slightly to $44.5 million from $43.0 million, the company said.
Revenue edged up 1% to $811.6 million after adjusting for the merger. Del Monte’s accounting will continue to require special adjustments for two more quarters for tax reasons; the $1.8-billion transaction was a reverse merger in which Heinz companies became the surviving business.
Wolford said Del Monte was as much as six months ahead of schedule in integrating the former Heinz brands into its business, including creating one information technology system and melding the sales team -- tasks that have tripped up other mergers.
But he said it would take six more months of smooth operations before he would be prepared to declare the merger a success, and warned that sales and earnings would be relatively flat in the firm’s fiscal third quarter before starting to grow in the fourth.
Analysts gave Del Monte good marks for quickly tackling the logistics of combining the different business lines but said they still were looking for a jump in profit.
“I think by the fourth quarter of their fiscal year it will be apparent if they have got this right,” said Leonard Teitelbaum, an analyst with Merrill Lynch Global Securities in New York. “But I would like to see some more money coming out of the business to know that everything is firmly on track before seeing more acquisitions.”
Del Monte’s consumer products division, which includes the fruit, vegetable, seafood and baby food businesses, saw operating earnings rise 21% to $72 million in the latest quarter from a year ago. Sales rose 4% to $600 million.
Wolford said the improvements in the firm’s consumer products division were due primarily to the strong sales of canned tomatoes, single-serve fruit and produce fruit, as well as continued growth in tuna pouch products, especially its Tuna Creations line.
The pet foods division saw sales decline 7% to $212 million. Operating income fell to $35 million from $46 million.
After the earnings report, Del Monte shares rose 25 cents, or 3%, to $9.75 on the New York Stock Exchange.
