Del Monte reports slight sales decrease in Q4

Del Monte reports slight sales decrease in Q4

Del Monte Foods reported net sales for the three months ended May 1, 2011 of $951.2 million compared to $954.0 million in the fourth quarter fiscal 2010, a decrease of 0.3%.

Del Monte Foods Results for Three Months Ended May 1, 2011

Del Monte Foods reported net sales for the three months ended May 1, 2011 of $951.2 million compared to $954.0 million in the fourth quarter fiscal 2010, a decrease of 0.3%. This decline was driven by increased promotional spending and Consumer Products unit volume declines, partially offset by new product volume growth in Pet Products.

Operating income/(loss) declined from $108.1 million in the prior year period to ($73.5) million, which included transaction expenses of $144.0 million and expenses of $39.8 million related to purchase accounting impact from the Merger (defined below).

Adjusted EBITDA grew 6.2% to $150.4 million compared to $141.6 million in the prior year. The increase in Adjusted EBITDA reflects lower marketing investment (which was offset by the increased promotional spend mentioned above), lower G&A expenses and new product volume growth in Pet Products.

Reportable Segments – Results for Three Months Ended May 1, 2011

Pet Products

Pet Products net sales were $465.2 million, an increase of 4.1% over net sales of $446.8 million in the prior year period. The increase in Pet Products net sales was primarily driven by new product volume growth, which was partially offset by increased promotional spend.

Pet Products operating income decreased from $76.4 million in fourth quarter fiscal 2010 to $74.2 million (which included expenses of $20.6 million related to purchase accounting impact from the Merger) in the three months ended May 1, 2011, or 2.9%.

Pet Products Adjusted EBITDA increased from $90.3 million in fourth quarter fiscal 2010 to $107.3 million in the three months ended May 1, 2011, or 18.8%. The increase was primarily driven by lower marketing investment (which was offset by the increased promotional spend mentioned above) and the positive impact of the topline.

Consumer Products

Consumer Products net sales were $486.0 million, a decrease of 4.2% from net sales of $507.2 million in the fourth quarter fiscal 2010. The decrease in Consumer Products net sales was driven mainly by lower unit volumes and higher promotional spend.

Consumer Products operating income declined from $48.7 million in fourth quarter fiscal 2010 to $14.7 million (which included expenses of $19.2 million related to purchase accounting impact from the Merger) in the three months ended May 1, 2011, or 69.8%.

Consumer Products Adjusted EBITDA declined from $58.0 million in the fourth quarter fiscal 2010 to $44.4 million in the three months ended May 1, 2011, or 23.4%. This decline was primarily driven by increased operational costs and the negative impact of the topline.

Del Monte Foods Results for Twelve Months Ended May 1, 2011

The Company reported net sales for the twelve months ended May 1, 2011 of $3,666.1 million compared to $3,739.8 million for full year fiscal 2010, a decrease of 2.0%. The decrease was primarily driven by unit volume declines in Consumer Products and increased promotional spend in both Pet and Consumer Products.

Operating income declined from $508.0 million in fiscal 2010 to $339.3 million (which included transaction expenses of $151.6 million and expenses of $39.8 million related to purchase accounting impact from the Merger) in the twelve months ended May 1, 2011, or 33.2%.

Adjusted EBITDA increased 5.4% to $661.0 million from $626.9 million in the prior year. The increase was driven by lower marketing investment (which was partially offset by the increased promotional spend mentioned above) and G&A expenses.

Select Liquidity Data

At May 1, 2011 total debt was $4,008.6 million and cash and cash equivalents were $205.2 million. As of May 1, 2011 there were no outstanding borrowings under the Company’s ABL facility. For the twelve months ended May 1, 2011, capital expenditures totaled $91.9 million.

Free Cash Flow for the twelve months ended May 1, 2011 was $333.8 million, compared to $251.0 million in fiscal 2010, an increase of 33%. The increase was primarily due to lower inventories, lower cash interest payments, lower cash taxes, increased Adjusted EBITDA, and lower capital expenditures.

Conference Call/Webcast Information

Del Monte Foods will host a live audio webcast, accompanied by a slide presentation, to discuss the three months ended May 1, 2011 results at 8:00 a.m. PT (11:00 a.m. ET) today. To access the live webcast and slides, go to http://investors.delmonte.com. Under Events, click Q4 F11 4 Del Monte Foods Earnings Conference Call. Printable slides are expected to be available in advance of the call. Historical quarterly results can be accessed at http://investors.delmonte.com. The audio portion of the webcast may also be accessed during the call (listen-only mode) as follows: 1-888-788-9432 (1-210-795-9068 outside the U.S. and Canada), verbal code: Del Monte Foods. The webcast and slide presentation will be available online following the presentation.

Merger

On March 8, 2011, Del Monte Foods 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. 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. Accordingly, the fiscal 2011 and fourth quarter 2011 periods presented in the tables included at the end of this press release include a 44-week Predecessor period from May 3, 2010 through March 7, 2011 and an 8-week Successor period, reflecting the Merger, from March 8, 2011 through May 1, 2011, and a Predecessor period from January 31, 2011 through March 7, 2011 and a Successor period from March 8, 2011 through May 1, 2011, respectively. For comparison purposes, the discussion of operating results above is based on the mathematical combination of the Successor and Predecessor periods in the three and twelve months ended May 1, 2011 compared to the Predecessor fourth quarter and fiscal year 2010, respectively, which we believe provides a meaningful understanding of the underlying business.

About Del Monte Foods

Del Monte Foods is one of the country’s largest and most well-known producers, distributors and marketers of premium quality, branded pet products and food products for the U.S. retail market, generating approximately $3.7 billion in net sales in fiscal 2011. With a powerful portfolio of brands, Del Monte products are found in eight out of ten U.S. households. Pet food and pet snacks brands include Meow Mix®, Kibbles 'n Bits®, Milk-Bone®, 9Lives®, Milo’s Kitchen™, Pup-Peroni®, Gravy Train®, Nature’s Recipe®, Canine Carry Outs ® and other brand names. Food product brands include Del Monte®, Contadina®, S&W®, College Inn® and other brand names. The Company also produces and distributes private label pet products and food products. For more information on Del Monte Foods, visit the Company’s website at www.delmonte.com

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