Del Monte Net Boosted by Pet Products Demand

Operating income declined 1.8% from $107.1 million in the prior year period to $105.2 million. The decrease was primarily driven by increased marketing and operating costs. This was partially offset by list pricing actions net of trade spend and lower G&A.

 

Adjusted EBITDA increased 1.1% to $160.7 million compared to $158.9 million in the prior year period. The drivers of Adjusted EBITDA were similar to those of operating income noted above. In addition, the cash impact of hedging activity drove the increase in Adjusted EBITDA. Gains and losses on economic hedging positions are recorded as other (income) expense. For cash flow hedges, the effective portion of gains and losses is deferred in equity and recognized as part of cost of products sold in the appropriate period. The cash impact of all hedging activities is reflected in Corporate Adjusted EBITDA. In calculating Adjusted EBITDA, the adjustment for cash benefits from economic hedge positions is calculated pursuant to the Company's 7.625% Notes Indenture and credit agreements.

 

The Company remains committed to long-term brand building in both Pet and Consumer, said Dave West, CEO of Del Monte Foods. In November, the Company launched a national integrated marketing campaign to support the iconic Del Monte brand, highlighting the brands vitality and nutritional appeal. Also, we continue to support new Pet Products such as Meow Mix Tender Centers, Pup-Peroni Mix-Stix, and Milo's Kitchen Chicken Grillers Chicken Recipe through increased marketing investment.

 

Pet Products net sales were $497.0 million, an increase of 5.8% from net sales of $469.6 million in the prior year period. The increase in Pet Products net sales was driven by new product volume growth, primarily in dry cat food and pet snacks. List pricing actions net of trade spend also positively contributed to net sales.

 

Pet Products operating income increased 3.4% from $79.5 million in the second quarter fiscal 2012 to $82.2 million in the second quarter fiscal 2013. The increase was primarily due to list pricing actions net of trade spend partially offset by higher marketing and operating costs. Pet Products Adjusted EBITDA declined from $100.5 million in the second quarter fiscal 2012 to $99.9 million in the second quarter fiscal 2013, or 0.6%.

 

Consumer Products net sales were $512.7 million, a decline of 2.3% from net sales of $524.7 million in the prior year period. The decline in Consumer Products net sales was driven by unit volume declines in existing products (retail Tomato) due to a planned shift in promotional activities and category softness.

 

Consumer Products operating income declined 18.0% from $51.6 million in the second quarter fiscal 2012 to $42.3 million in the second quarter fiscal 2013. The decline was primarily driven by the negative impact of the topline and higher marketing costs to support the Del Monte brand revitalization.