Del Monte profits up, sales down, debt high

Del Monte profits up, sales down, debt high

Pet product launches drove sales in that segment, while consumer sales dipped 8.6 percent.

Announcement highlights

For the fourth quarter fiscal 2012:

  • Net sales declined 1.7%

     --Pet Products sales increased 5.4% due to new product volume growth and list pricing actions net of trade spend

     --Consumer Products sales declined 8.6% due to unit volume declines

  • Operating income/(loss) increased from a loss of ($73.5) million in the prior year to income of $89.3 million mainly due to the absence of transaction costs related to the Merger
  • Adjusted EBITDA1 increased 10.4% to $166.0 million from $150.4 million

     --Total net debt was $3,580.3 million as of April 29, 2012

Del Monte Foods three months ended April 29, 2012
Del Monte Foods reported net sales for the fourth quarter fiscal 2012 of $934.6 million compared to $951.2 million for the three months ended May 1, 2011, a decline of 1.7%. Existing product unit volume declines drove the decrease. List pricing actions net of trade spend and new product growth, primarily in Pet Products, positively contributed to net sales for the quarter.

Operating income/(loss) increased from a loss of ($73.5) million in the prior year period to income of $89.3 million. The increase in operating income reflects the absence of transaction costs of $144.0 million in the prior year and list pricing actions net of trade spend, partially offset by the negative impact of unit volume declines (primarily in Consumer Products).

Adjusted EBITDA increased 10.4% to $166.0 million compared to $150.4 million in the prior year period. List pricing actions net of trade spend and lower SG&A were partially offset by higher operating costs and the negative impact of unit volume declines. In calculating Adjusted EBITDA, SG&A is favorable year-over-year because it does not include unusual litigation costs, amortization of intangibles, severance-related expenses and other expenses related to the Merger.

“Our fourth quarter results reflect solid performance from our new Pet Product launches and savings from productivity initiatives and we are optimistic about our business momentum,” said Dave West, CEO of Del Monte Foods. “Our recent innovation launches of Meow Mix Tender Centers, Meow Mix Paté Toppers and Nature’s Recipe Grain Free had strong distribution gains. While we continue to face cost inflation and center store category headwinds similar to the rest of the industry, we are making strategic progress within Consumer Products. We also initiated several company-wide transformational initiatives to strengthen our go-to-market capabilities and drive further growth.”

Reportable segments – results for three months ended April 29, 2012

Pet Products
Pet Products net sales were $490.4 million, an increase of 5.4% from net sales of $465.2 million in the prior year period. The increase in Pet Products net sales was primarily driven by new product volume growth and list pricing actions net of trade spend. The increase was partially offset by unit volume declines in existing products.

Pet Products operating income increased 24.3% from $74.2 million for the three months ended May 1, 2011 to $92.2 million in the fourth quarter fiscal 2012. The increase was primarily due to list pricing actions net of trade spend.

Pet Products Adjusted EBITDA increased from $107.3 million for the three months ended May 1, 2011 to $113.6 million in the fourth quarter fiscal 2012, or 5.9%. The increase was primarily due to list pricing actions net of trade spend and lower SG&A. In calculating Adjusted EBITDA, SG&A is more favorable year-over-year because it does not include amortization of intangibles and severance-related expenses.

Consumer Products
Consumer Products net sales were $444.2 million, a decrease of 8.6% from net sales of $486.0 million in the prior year period. The decline in Consumer Products net sales was primarily due to unit volume declines in existing products, partially offset by list pricing actions net of trade spend.

Consumer Products operating income declined 29.3% from $14.7 million for the three months ended May 1, 2011 to $10.4 million in the fourth quarter fiscal 2012. The decline was primarily driven by the negative impact of the topline and higher SG&A expenses due to unusual litigation costs, partially offset by net pricing.

Consumer Products Adjusted EBITDA increased from $44.4 million for the three months ended May 1, 2011 to $52.0 million in the fourth quarter fiscal 2012, or 17.1%. The increase was primarily driven by list pricing actions net of trade spend and lower SG&A, partially offset by unit volume declines. In calculating Adjusted EBITDA, SG&A is favorable year-over-year because it does not include unusual litigation costs.

Del Monte Foods fiscal year ended April 29, 2012
Net sales for the fiscal year ended April 29, 2012 were $3,676.2 million compared to $3,666.1 million for the prior year period, an increase of 0.3%. The increase was driven by new product volume growth primarily in Pet Products and list pricing actions net of trade spend. The increase was almost entirely offset by unit volume declines in existing products in both Pet Products and Consumer Products.

Operating income increased 9.1% from $339.3 million in the prior year period to $370.2 million. The increase was primarily driven by the absence of transaction costs included in the prior year period and list pricing actions net of trade spend. Higher operating costs largely offset the increase.

Adjusted EBITDA declined 10.6% to $590.7 million compared to $661.0 million in the prior year period. The decline was primarily driven by higher operating costs. List pricing actions net of trade spend and lower SG&A partially offset the decline. In calculating Adjusted EBITDA, SG&A is favorable year-over-year because it does not include amortization of intangibles, unusual litigation costs, severance-related expenses and other expenses related to the Merger.

Select liquidity data
At April 29, 2012, total debt was $3,983.1 million and cash and cash equivalents were $402.8 million. As of April 29, 2012, there were no outstanding borrowings under the Company’s $750.0 million ABL Facility. For the fiscal year ended April 29, 2012, capital expenditures totaled $81.8 million.

Free Cash Flow for the fiscal year ended April 29, 2012 was $281.5 million, compared to $333.8 million for the twelve months ended May 1, 2011. The decline was primarily due to higher cash interest payments and lower Adjusted EBITDA. Favorable working capital, lower cash taxes and lower capital expenditures positively impacted cash flow.

Merger
On March 8, 2011, Del Monte Foods Company was acquired by an investor group led by funds affiliated with Kohlberg Kravis Roberts & Co. L.P., Vestar Capital Partners and Centerview Capital, L.P. (collectively, the “Sponsors”). The acquisition is referred to as the “Merger.” As a result of the Merger, the Company applied the acquisition method of accounting and established a new basis of accounting on March 8, 2011. Periods presented prior to March 8, 2011 represent the operations of the predecessor company (“Predecessor”) and periods presented after March 8, 2011 represent the operations of the successor company (“Successor”). The comparability of the financial statements of the Predecessor and Successor periods has been impacted by the application of acquisition accounting and changes in the Company’s capital structure resulting from the Merger.

 

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