Branded and private label food producer Del Monte Foods has reported falls in fourth quarter and annual income.
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Income from continuing operations was $19.6m for the 13-week quarter ended May 1 2005, compared to income from continuing operations of $54.3m for the 14-week quarter ended May 2, 2004.
The company reported income from continuing operations of $118.6m for the 52-week fiscal year ended 1 May 2005, compared to $160.7m for the 53-week fiscal year ended 2 May 2004.
Fourth quarter net sales declined 7.5% from the prior year period to $847.0m, or were essentially flat when adjusting for the 14th week. The decline in quarter-over-quarter net sales was driven primarily by lower volume due to one extra week in the fourth quarter of fiscal 2004. Aside from the 14th week, fourth quarter net sales were positively impacted by increased pricing across the business, partially offset by volume loss associated with price increases , and increased volume from new products. Net sales were negatively impacted by volume decreases from shifts in promotional activities.
“In the quarter, we saw continuation of factors similar to those experienced throughout the year,” said chairman and CEO Richard G. Wolford. “Inflationary pressures persisted and we took pricing actions partially offsetting these inflationary and other costs. Results for the quarter were below guidance. We were negatively impacted by lower volume resulting from higher than expected competitive activity in our Pet Products segment and from our strategic decision to reduce certain less efficient promotional spending. Also, we incurred somewhat higher than expected oil cost increases and, due in part to an additional unfavourable decision in the Kal-Kan litigation, incurred higher than expected legal expenses.”
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By GlobalDataThe company also blamed increased inflationary costs in steel and energy, logistics and other transportation-related costs, unfavourable mix, increased trade spending and higher fish costs, partially offset by the positive impact of higher pricing, for the fall in income.
The year-over-year decline in earnings was driven by the factors referenced above, along with increased inflationary costs in steel and energy, logistics and other transportation-related costs, unfavourable mix, higher trade spending and higher fish costs, partially offset by increased pricing, volume from new and existing products, lower integration expense and the absence of the employee incentive plan expense. Additionally, the Company continued to invest in its business with a greater than 20% increase in marketing expense.
Net sales increased from $3,129.9m in fiscal 2004 to $3,180.9m in fiscal 2005. Net sales increased 3.6% when adjusting for the extra week in 2004. The increase in net sales was driven by increased pricing partially offset by elasticity and higher volume from new and existing products.
“There are two main drivers of our fiscal 2005 performance,” said Mr. Wolford. “First and foremost is the rapid and unprecedented cost escalation in steel and energy, logistics and other transportation-related costs which resulted in significant cost increases in fiscal 2005. Second, enabled by our strong brands, we took successful pricing actions across all four of our operating segments.”
“In addition to addressing the current cost environment, we continued to invest for the future of our business,” he said. “We increased support behind marketing and new products to strengthen our brand portfolio and position Del Monte for long term growth. We also made significant progress strengthening our pet food businesses that, until last year, had seen declining sales. We improved our financial flexibility by generating strong cash flow in excess of $200m. We also made structural changes to deal with the inflationary cost environment, including outsourcing transportation to a large logistics company to take advantage of their expertise and scale and introducing ‘Lean Manufacturing’ in our production operations to improve manufacturing efficiencies.”
