Del Monte Pacific booked $8.5M profit in fiscal Q3

Del Monte Pacific Limited (DMPL) listed both in Singapore and the Philippines reported a net income of $8.5 million for its third quarter fiscal year ending January, a turnaround from the net loss of $4.8 million in the third quarter last year. 

Without the one-off items, the group delivered a recurring net income of $11.6 million, more than five times higher than last year’s recurring net income of $2.1 million.

It achieved sales of $604 million, which was slightly higher than a year ago as strong sales in Asia offset lower sales in the United States.

DMPL is also earmarking $70 million in capital expenditures (capex) for its fiscal year 2018 starting May, as it expands in the Chinese market to increase footprint in Asia.

DMPL Chief Financial Officer Parag Sachdeva told reporters next fiscal year’s capex will finance new product offerings and expansion projects in Asia and the United States. It spent $50 million this fiscal year ending next month.

“We are looking at up to $40 million in the Asian side and similar amount on the US mainly to drive supply chain optimization and accelerate our margin to the US, and for new products,” he said.

DMPL Chief Operating Officer Luis Alejandro said the company aims to accelerate its business both in the US and Asia over the next five years to at least maintain its low-teen annual growth.

“Asia Pacific, Middle East and Americas I think we should be very busy,” he said. “We will grow everything. China should be a big part of our business. It should cover at least hopefully one-third we get outside of the US,” he said.

Alejandro said the US market currently comprises 80 percent of its total business, while the international business cornering the remaining 20 percent with China accounting for less than 10 percent.

“Later on, we expect it to be 60 percent (for) US and 40 percent international. That will be a better balance, we will grow the total business probably in five years,” he added.

Alejandro further said it is focusing on its core business of selling fresh pineapple under the S&W trademark in China.

DMPL is issuing from March 22 to 28 an initial tranche of up to $250 million worth of dollar-denominated preferred shares, the first product offering under the Philippine Stock Exchange’s (PSE) dollar-denominated securities (DDS) program.

Parag said the company planned to offer the balance of the total $360 million worth of dollar-denominated preferred shares within three years.

The group’s US subsidiary, Del Monte Foods Inc (DMFI) contributed $450.6 million or 75 percent of group sales.

Sales declined by three percent versus the same period last year driven by the continued weakness in the canned fruit industry, lower sales of regional brands in the packaged vegetable category across retail and foodservice due to supply-related issues, and lower sales of private label.

However, amidst industry contraction, DMFI increased its market share in two of the four major categories in retail, which are packaged vegetable and broth, that was further supported by the growth of the branded business among major retail customers.

The Philippine market’s sales grew as the group optimized growth and consumption opportunities during the Christmas peak consumption occasions.

Expanded juice dispenser coverage and strategic meal pairing tie-ups in major convenience stores and fast food chains also helped drive foodservice growth.

Sales of its S&W brand in Asia and the Middle East sustained its strong momentum, growing double digit driven by both the fresh and packaged segments.

Sales grew significantly in North Asia as S&W expanded its fresh fruit distribution in China and raised brand awareness through in-store sampling.

In the packaged segment, sales increased from strong sales of canned fruit to North Asia supported by improved supply, higher shipment into Indonesia and improved juice sales to Israel.

The group’s gross margin for the third quarter increased to 20.8 percent from 19.8 percent in the same period last year partly due to higher productivity in the cannery and lower commodity costs particularly packaging.

The group generated an earnings before income tax, depreciation and amortization (EBITDA) of $43.5 million, 28 percent higher than last year’s EBITDA of $34.1 million.

Third quarter EBITDA included $5.4 million of one-off expenses from severance and closure of the North Carolina plant, while prior year period’s EBITDA included one-off expenses of $12.4 million related to the Sager Creek acquisition, SAP implementation and restructuring.

Without these one-off expenses, the group’s recurring EBITDA would have been $49 million, 5 percent higher versus prior year quarter’s recurring EBITDA of $46.5 million.

“Our significantly higher profit was driven by strong sales in the Philippines and S&W Asian markets as well as operational efficiency improvements resulting in cost reduction. We continue to build on the consumption driven growth in Asia as our team optimises opportunities in both the retail and foodservice sectors,” said Joselito D Campos, Jr, Managing Director and Group CEO of DMPL.

“Meanwhile, our US business continues to be impacted by shifting consumer preferences, and our performance in the foodservice and private label sectors. We are implementing a strategy based on innovation and differentiation in existing categories, while seizing opportunities in other categories and channels to address consumer demands,” he added.

DMFI increasingly offers differentiated value propositions through meaningful product improvements including the use of natural sea salt and the transition to BPA-free internal can coatings and non-GMO.

Its new product, Del Monte Fruit Refreshers, the first ever Fruit Cup® snack made just for adults, has been named Product of the Year for 2017.

Product of the Year is the world’s largest consumer-voted award for product innovation where winners are backed by the votes of 40,000 consumers in a national representative survey conducted by research firm Kantar TNS, a global leader in consumer research.

For the first nine months of its 2017 fiscal year, the group generated sales of $1.7 billion, down two percent versus prior year period on lower US sales partly offset by robust sales in Asia.

The group achieved a net income of $19.9 million, lower than prior year period’s $32.3 million as the current year included one-off expenses of $6.8 million while last year included a net one-time gain of $23.3 million mainly from DMFI’s retirement plan amendment.

Excluding the one-off items, the group’s recurring net income would have been $26.7 million in the period, a significant improvement from last year’s $9 million.

Barring unforeseen circumstances, the Group is expected to generate a higher profit in FY2017 than prior year on a recurring basis (without one-off items). RIZA LOZADA