Del Monte Digests Heinz Brands

While other businesses slow down for the holidays, Del Monte Foods Co. is gearing up to try to capitalize on its biggest acquisition in more than a decade of deal making.

This week Del Monte began running a greatly expanded product line that has doubled the company’s size. The additions include StarKist tuna and top-selling brands of pet food.

The new products, picked up in a $2.3-billion spinoff from Pittsburgh-based H.J. Heinz Co., herald the latest incarnation of San Francisco-based Del Monte and its 110-year-old brand.

The company has undergone several makeovers since investors extracted the nation’s largest canned vegetable and fruit business from RJR Nabisco in a $1.5-billion leveraged buyout in 1990.

None of the previous deals has been as big as its takeover of Heinz’s tuna, pet food, baby food and private-label soup brands.

“There is a lot of hard work ahead of us, but it should be a lot of fun, too,” Del Monte Chief Executive Richard G. Wolford said.

With the newly acquired Heinz brands, Del Monte expects its annual sales to rise above $3 billion, up from $1.3 billion in the company’s last fiscal year ending in June.

Del Monte’s workforce is swelling to 8,500 from 2,800 year-round employees to handle the heavier sales volume. The company also hires 9,800 temporary employees each year to handle seasonal fluctuations in production.

The Heinz brands will add more variety to a Del Monte product mix that has been dominated by fruits and vegetables. Besides StarKist tuna, Del Monte is picking up several other well-known brands, including 9-Lives cat food and Kibbles ‘n Bits dog food.

Wolford said Del Monte isn’t planning any immediate changes among the newly acquired brands except in the baby food line, where the name of Heinz Nature’s Goodness will be switched to the Del Monte label.

“We think the Del Monte name will work much better with [baby food] because consumers think of the brand as dependable, trustworthy and wholesome,” Wolford said.

Del Monte also hopes to introduce products under the market-leading StarKist tuna brand, which has been experimenting with several new flavors contained in pouches instead of cans.

The company will finance its new ideas from the $50 million in annual savings it expects in three to four years by combining some operations with the newly acquired Heinz factories.

Wolford, a former Dole Foods Co. executive, has been reshaping Del Monte since he became CEO in 1997, when the investment firm Texas Pacific Group bought a majority stake in the privately held company.

Since Wolford’s arrival, Del Monte has bought the Contadina, SunFresh and S&W; canned food brands. Those deals helped boost annual sales by about 20%, or $200 million, in the last four years. During the same period, Del Monte’s earnings climbed from $5.5 million in its fiscal 1998 to $38.5 million last year.

The performance hasn’t inspired much enthusiasm for Del Monte’s stock since the company’s February 1999 initial public offering at $15 a share. The shares closed down 25 cents at $7.96 Tuesday on the New York Stock Exchange.

Investors apparently aren’t excited about Del Monte’s prospects with the Heinz brands either. Del Monte’s stock has plummeted 30% since the June announcement of the spinoff.