Del Monte Foods Sales Drop in Q1

Unit volume declines in both Pet and Consumer drove the decrease and were partially offset by new product volume growth in Pet and the impact of pricing actions.

Sep 12 2011 --- Del Monte Foods has reported net sales for the three months ended July 31, 2011 of $776.2 million compared to $804.6 million in the first quarter fiscal 2011, a decrease of 3.5%. Unit volume declines in both Pet and Consumer drove the decrease and were partially offset by new product volume growth in Pet and the impact of pricing actions.

Operating income declined from $119.4 million in the prior year period to $49.3 million. The decrease in operating income reflects the impact of higher Pet ingredient costs, increased G&A (primarily due to amortization of intangibles and other expenses related to the merger), lower unit volumes, higher trade spend, and increased Pet marketing investment to support new product launches. Pricing actions contributed positively to operating income. 2

Adjusted EBITDA declined 31.5% to $101.2 million compared to $147.8 million in the prior year. The drivers of the decline in Adjusted EBITDA are similar to operating income, except for G&A, which in the calculation of Adjusted EBITDA does not include amortization of intangibles and other expenses related to the merger and consequently contributed positively to Adjusted EBITDA.

“Despite the challenging first quarter results, my initial assessment of the Company is that our portfolio of brands is strong and well-positioned in on-trend categories,” said Dave West, who became CEO of Del Monte Foods on August 15th. “While we took pricing actions to mitigate input cost inflation, the historical lag of price realization was exacerbated by the heavy competitive promotional activity in the quarter. In the short-term, we expect the marketplace will continue to reflect high input cost inflation, a challenging consumer sentiment, a price-seeking consumer and heightened manufacturer promotional activity. Longer-term, we expect to benefit as we neutralize input cost inflation with price realization and productivity savings as well as through the benefit of new product introductions. While current challenges exist, we are focused on the long-term health and growth of the Company by continuing to invest in marketing and innovation. Del Monte has a solid foundation on which to grow, and I look forward to being a part of Del Monte’s next stage of growth.”

Pet Products net sales were $422.0 million, a decrease of 1.2% from net sales of $427.3 million in the prior year period. The decrease in Pet Products net sales was primarily driven by unit volume declines, which was partially offset by new product growth and pricing.

Pet Products operating income decreased from $98.7 million in first quarter fiscal 2011 to $56.2 million in the three months ended July 31, 2011, or 43.1%. The decrease was primarily driven by higher ingredient costs, increased G&A (primarily due to amortization of intangibles), increased marketing investment to support new product launches, and lower unit volumes. These were partially offset by pricing actions.

Pet Products Adjusted EBITDA decreased from $107.1 million in first quarter fiscal 2011 to $74.1 million in the three months ended July 31, 2011, or 30.8%. The drivers of the decline in Adjusted EBITDA are similar to Pet operating income, except for G&A, which in the calculation of Adjusted EBITDA does not include amortization of intangibles and consequently had a slightly positive impact to Adjusted EBITDA.

Consumer Products net sales were $354.2 million, a decrease of 6.1% from net sales of $377.3 million in the first quarter fiscal 2011. The decrease in Consumer Products net sales was primarily driven by lower unit volumes.

Consumer Products operating income declined from $34.3 million in first quarter fiscal 2011 to $14.4 million in the three months ended July 31, 2011, or 58.0%. The decline was primarily driven by higher operating costs and the negative impact of the topline.

Consumer Products Adjusted EBITDA declined from $44.4 million in the first quarter fiscal 2011 to $27.8 million in the three months ended July 31, 2011, or 37.4%. The drivers were the same as Consumer operating income.