Del Monte Points to Rising Operating Costs for 1Q09 Losses

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Researched by Industrial Info Resources (Sugar Land, Texas)--For the 13 weeks ending July 28, Del Monte Foods Company's (NYSE:DLM) (San Francisco, California) gross profits were 5.9% lower than their profits from the same period last year. This loss occurred despite the fact that net sales were up 15.9% on a year-over-year basis, from $627 million in 1Q08 to $726 million this quarter. In a conference call regarding the quarter's earnings, Chief Financial Officer Dave Meyers blamed across-the-board cost increases for lowering the company's overall profits. "The incremental headwinds are primarily driven by the pervasive impact of our country's shift in agricultural production to ethanol and dramatic rise in diesel and other energy inputs, all of which are industry-wide issues," stated Meyers, noting that Del Monte had hedged corn and other commodities for much of the remaining fiscal year in order to control cost fluctuations.

Del Monte plans to increase the prices of its goods in order to mitigate expected continued cost increases. "For the overall company, a key factor in Q2 will be the continued higher cost inputs on a year-over-year basis in the form of ingredients, raw products, energy and packaging," said Meyers, who went on to say that the "acute inflationary pressure will largely be offset by our pricing." Consumers should expect to see an increase in the company's food and pet products soon.

Industrial Info, as part of its North American Industrial Database is currently tracking a $26 million expansion of a Del Monte pet food plant in Topeka, Kansas, which is under construction and expected to be completed in the first quarter of 2009, creating over 80 new jobs for the area. For more information, see related news article from July 8, 2008 - Del Monte Distribution Center Nears Completion in Topeka.

While increased costs seem to have taken Del Monte by surprise this quarter, Meyers seems optimistic, expecting the remainder of the fiscal year to follow the growth trends of the 2008 fiscal year, in which the company made gross profits of $924.3 million and a net income of $133.1 million.

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