DEL MONTE FOODS CO. $9.02 (New York symbol DLM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 197.7 million; Market cap: $1.8 billion; Price-to-sales ratio: 0.5; WSSF Rating: Average) makes a wide variety of canned fruits and vegetables, as well as sauces and soups. Del Monte also makes pet food under the 9Lives, Milk-Bone and Meow Mix brands.
In the fiscal year ended May 3, 2009, Del Monte’s earnings rose 25.5%, to $147.7 million, or $0.74 a share. In the prior year, it earned $117.7 million, or $0.58 a share. If you exclude an $0.08-a-share charge related to job cuts in the prior year, per-share earnings would have risen 12.1%. Sales rose 14.1%, to $3.6 billion from $3.2 billion.
Del Monte is raising the prices of its main brands, and spending more on marketing. It hopes these moves will make these products more profitable.
At the same time, Del Monte is selling its less-profitable businesses. Last October, it sold its StarKist subsidiary, which produces canned tuna, for $359 million. Del Monte put these proceeds toward its long-term debt, which now stands at $1.5 billion. This is still a high 83% of Del Monte’s market cap, but just $32.3 million is due this year. It also holds cash of $142.7 million, or $0.72 a share.
Del Monte will likely earn $0.78 a share in fiscal 2010, which gives the stock a p/e ratio of 11.6. The $0.20 dividend yields 2.2%.
Del Monte is a buy.
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