Del Monte Foods Company (NYSE: DLM – news) announced adjusted earnings per share of $0.33, for the fiscal 2002 second quarter, compared to $0.29 for the same period in fiscal 2001.
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Net sales for the quarter were $391.3 million, compared to $358.2 million for the second fiscal quarter of 2001. Adjusted net income for the quarter was $17.5 million compared to $15.2 million for the same quarter last year.
In order to provide comparability among all periods presented, the Company’s reported results, on a Generally Accepted Accounting Principles (GAAP) basis, have been adjusted to exclude special charges related to plant consolidations, acquisition-related expenses, gains and losses from the change in fair value of the interest rate swaps and income from the reversal of an accrual for a contingent liability, all of which are non-recurring or non-cash charges or credits. The amount of the adjustments for each period are detailed in the accompanying income statement data.
“We are very pleased with our second quarter performance,” said Richard G. Wolford, Chairman and Chief Executive Officer. “Our net sales were up more than 9%, as a result of the positive impact of our S&W acquisition as well as our July 1 price increase. We have also continued to make excellent progress on our objective of reducing debt. Our debt is more than $50 million lower than this time last year. These debt levels combined with reduced interest rates have resulted in lower interest expense this year.”
The increase in net sales for the quarter, when compared to the second quarter of fiscal 2001, was due primarily to the acquisition of S&W and the impact of a July 1 price increase. Adjusted earnings per share reflect these higher sales, partially offset by increased marketing investments in existing products and new products and increased fixed costs, as production volumes were reduced to decrease inventory levels in order to reduce debt and lower interest expense.
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By GlobalDataOn a GAAP basis, the Company announced net sales of $391.3 million and net income of $18.9 million, or $0.36 per share, for the second quarter ended December 31, 2001, compared to net sales of $358.2 million and net income of $8.5 million, or $0.16 per share, in the prior year period.
Restatement of Three Months Ended September 30, 2001
The terms of the Company’s revolving and term loan agreement require that it fix a portion of the variable interest rates the Company must pay under the loan agreement. To accomplish this, Del Monte entered into interest rate swaps during the Company’s fiscal 2002 first quarter. The fair value of the swaps was deemed to be zero at the close of that quarter. The Company determined that this accounting treatment was incorrect during the course of preparing its financial statements for the fiscal 2002 second quarter. The impact of the change in fair value of the swaps, as of September 30, 2001, was a GAAP loss of $6.3 million ($4.5 million net of tax), or $0.09 per share. This change in fair value represents the present value of the difference between the fixed interest rate to be paid by the Company under the swap agreements and the lower projected floating interest rates (as forecasted by the swap parties as of September 28, 2001) over the three-year term of the swap agreements. The restated GAAP net loss for the first quarter was $5.3 million, or $0.10 per share. This restatement has no impact on the Company’s net cash flows for the first quarter.
The change in fair value of the swaps for the second quarter of fiscal 2002 was a gain of $1.8 million ($1.3 million net of tax), or $0.02 per share, on GAAP net income. The Company expects to adopt hedge accounting treatment for these swap agreements during the third quarter. After adoption, changes in value of these swap agreements are not expected to materially impact earnings. First and second quarter, and six month adjusted net income and adjusted earnings per share exclude the impact of the change in fair value of the swaps.
The Company is filing a Form 10-Q/A to amend its Form 10-Q for the three-month period ended September 30, 2001.
Six Months Ended December 31, 2001
Adjusted earnings per share were $0.36 for the first six months of fiscal 2002 compared to $0.37 for the first six months of fiscal 2001. Adjusted net sales for the first six months of fiscal 2002 were $664.9 million compared to net sales of $621.2 million for the same period last year. Adjusted net income for the first six months was $18.9 million compared to $19.2 million for the first six months of last year.
On a GAAP basis, the Company reported net sales of $663.6 million and net income of $13.6 million, or $0.26 per share, for the first six months of fiscal 2002, compared to net sales of $621.2 million and net income of $14.9 million, or $0.28 per share, in the prior year period.
Outlook
Looking forward for the full fiscal year 2002, the Company continues to expect top line growth of 2 to 4% and adjusted earnings per share of approximately $0.83 to $0.87. Adjusted earnings per share are expected to reflect higher sales offset by increased marketing investments in existing products and new products and increased fixed costs, as production volumes were reduced to decrease inventory levels to reduce debt and lower interest expense.
Del Monte Foods Company, with net sales of approximately $1.3 billion in fiscal 2001 (reflecting the impact of EITF Issue Nos. 00-14 and 00-25), is the largest producer and distributor of premium quality, branded processed fruit, vegetable and tomato products in the United States. The Del Monte brand was introduced in 1892 and is one of the best known brands in the United States. Del Monte products are sold through national grocery chains, independent grocery stores, warehouse club stores, mass merchandisers, drug stores and convenience stores under the Del Monte, Contadina, S&W and SunFresh brands. The Company also sells its products to the U.S. military, certain export markets, the foodservice industry and food processors. The Company operates twelve production facilities and seven distribution centers in the U.S., has operations in Venezuela and owns Del Monte brand marketing rights in South America.
