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Del Monte Earnings Drop 57%

September 05, 2003|Jerry Hirsch | Times Staff Writer

A reduction in pet food orders from a large customer and an underestimation of demand for canned tomatoes and vegetables ate into Del Monte Foods Co.'s profit in the latest quarter.

The San Francisco-based owner of such brands as Contadina, StarKist and 9Lives said Thursday that earnings in its first fiscal quarter fell 57% to $14.3 million, or 7 cents a share, from $33.2 million, or 21 cents, in the same period a year earlier.

Sales soared 73% to $631.3 million in the period ended July 27, a reflection of its acquisition of StarKist tuna, pet food brands, a line of baby food and two soup companies from H.J. Heinz Co. in December.

More than a quarter of Del Monte's sales now come from pet food, making the company vulnerable to changes in the pet industry, including a trend toward smaller inventories on store shelves.

Del Monte Chief Executive Richard Wolford said during a conference call with investors that the company took a hit from a "significant" customer that reduced its orders to carry a smaller inventory.

"When someone makes a major reduction in their inventory, it obviously shows up in our sales," said Bill Spain, a Del Monte spokesman.

But Wolford described the reduction as one-time event "that won't be a major factor going forward."

The food company also was hurt by a shortage of canned tomatoes and vegetables to sell during the latest quarter.

Spain said Del Monte typically estimates demand for its canned tomatoes and vegetables before the harvest and then purchases and processes what it needs based on those estimates. Because of the seasonal nature of the produce, Del Monte doesn't have a lot of wriggle room if it misjudges the market.

"We had an exceptionally strong fourth quarter and that depleted the inventory available for the first quarter," Spain said.

Del Monte expects another weak quarter before rebounding in the second half of its fiscal year. Chief Financial Officer David Meyers told investors to expect earnings of 16 cents to 20 cents a share in its fiscal second quarter, excluding integration and restructuring expenses. Del Monte had not previously given a second-quarter forecast, but analysts surveyed by Thomson First Call had estimated earnings would be 28 cents a share.

The company is in the middle of a reorganization to absorb the former Heinz businesses and expects to combine administrative operations in a move that would save about $17 million annually. As part of the consolidation, Del Monte said it was eliminating about 40 to 50 positions at its San Francisco headquarters -- by transferring the work to its offices in Pittsburgh.

After the earnings report, Del Monte shares fell 1 cent to $9 on the New York Stock Exchange.

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