Del Monte Lifts Foods Unit Outlook To $650 Million In Sales, $45 Million In EBITDA
The CFO raised the Del Monte Foods forecast on the earnings call, while an analyst pressed on prepared foods margins guided to 14% to 15%.
Del Monte, which grows and distributes fresh and prepared fruit and vegetables, raised its outlook for the Del Monte Foods unit to about $650 million in net sales and $45 million in adjusted EBITDA, CFO Monica Vicente said on the company's third-quarter earnings call Wednesday. The prior expectations were $625 million and $35 million.
Foods ahead of plan
Vicente said the raise reflects stronger-than-expected performance since the company bought Del Monte Foods, with the third quarter marking six full months of ownership. She said the company remains on track for about $9 million of annual margin expansion from pricing, portfolio and trade-spend initiatives.
Chairman and CEO Mohammad Abu-Ghazaleh said the integration "overshot" expectations and is "almost 60% or more" done. Customer fill rates rose to about 98% ahead of the holidays, from 87% a year earlier, he said. He also cited roughly 25% market share in canned vegetables.
The quarter's net sales were $1.1 billion, up 7%, with adjusted net sales up 14%. Gross profit rose 27% to $103 million, and gross margin was 9.4%. Adjusted EBITDA rose 5% to $61 million and adjusted earnings were 50 cents a share. The prepared foods segment posted a 17.5% gross margin, the highest of the company's reportable segments.
The fourth-quarter margin question
Full-year guidance for prepared foods gross margin stays at 14% to 15%. An analyst from Sturtevant noted the segment earned almost 19% in its first quarter of ownership and 17.5% last quarter, so the target implies a meaningful fall in the fourth quarter, and asked whether something was missing from that math.
Abu-Ghazaleh pointed to costs rising daily on steel and fuel. "We don't know what's going to happen even next week or next month," he said, adding he hoped results would beat expectations. Vicente said holiday sales climb significantly but so does trade spend, which dilutes margin a little.
On cash, Vicente said the foods business absorbed about $80 million of working capital in the quarter, less than the company had expected. Operating cash flow for the first nine months was $53 million.
Bananas squeezed, new products ahead
The company cut its full-year banana gross margin outlook to 2% to 3%, from 3% to 4%, citing weather-related volume, production costs, distribution and currency. It now expects inflationary pressure of about $55 million to $65 million, more than half of it in bananas. It reiterated adjusted net sales growth of 13% to 15% and adjusted EBITDA of about $230 million to $240 million.
Abu-Ghazaleh said 2027 should be a turning point for bananas and that the company will not sell them at a loss. He said first innovation launches are anticipated in the second half of 2027 and through 2028. Separately, he said pink and gold pineapple products for the foods line are coming soon, and Vicente said margins on those products should be in the mid to low 20% range.
The board declared a quarterly dividend of 30 cents a share, payable December 4 to holders of record November 11.
The fourth quarter, the foods unit's big holiday sales period, will show whether prepared foods margins settle at the guided 14% to 15% for the year.
Sources
- Del Monte Meets Q3 Earnings Estimates as Revenue Misses Forecasts Despite 7.2% Growth — Yahoo Finance
- Del Monte Non-GAAP EPS of $0.50 beats by $0.04, revenue of $1.1B misses by $60M — seekingalpha.com
- DMC Global Reports Third Quarter Financial Results — globenewswire.com
