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UPDATE 3-Del Monte profit tops view; company raises outlook
December 3, 2008 / 1:29 PM / 9 years ago

UPDATE 3-Del Monte profit tops view; company raises outlook

* Q2 EPS 14 cts tops Wall St view of 12 cts

* Sees 09 EPS at mid-point of range, not low end

* Sees 09 sales up 8-10 pct vs prior view of up 6-8 pct

* Shares jump 14 pct (Adds CEO and analyst comments, updates share movement)

By Sarah Coffey

NEW YORK, Dec 3 (Reuters) - Del Monte Foods Co DLM.N posted a better-than-expected quarterly profit on Wednesday and said full-year earnings could top its prior forecast, sending shares up 14 percent.

Margins at Del Monte, maker of Del Monte vegetables and Meow Mix cat food, are being helped by price increases put through to offset soaring commodity costs. Now that prices for many ingredients have fallen, the benefit is even greater.

Sales are also benefiting from financially pinched consumers trying to save money by cooking more at home. New products, such as a different flavor of Meow Mix, have also proved successful.

“People are eating more meals at home ... and pet families are continuing to treat their pets,” Chief Executive Richard Wolford told analysts on a conference call.

Earnings from continuing operations rose to $27.3 million, or 14 cents per share, in the fiscal second quarter ended on Oct. 26, from $25.7 million, or 13 cents per share, a year earlier.

Analysts had expected a profit of 12 cents per share, according to Reuters Estimates.

“They’re obviously taking actions to increase profitability,” said Morningstar analyst Ann Gilpin about the price increases.

PROFITS HELPED, SALES HURT

Despite the better-than-expected results, one analyst expressed concern that Del Monte’s price increases could hurt sales volume, especially as consumers become more price-conscious at the grocery store.

“They’ve raised prices and they’ve not been able to maintain volume with higher pricing increase. That tells you the strength of their brands is not sufficient to deal with higher input costs,” said D.A. Davidson analyst Timothy Ramey.

Quarterly sales rose 11.5 percent to $901 million.

To try to stem sales lost to price increases, Del Monte said it is increasing its marketing spending on packaged produce and high-margin pet snacks such as “Pupperoni” dog treats.

Del Monte said fiscal 2009 earnings should come in toward the midpoint of a range of 58 to 62 cents per share, rather than toward the lower end, as it previously expected. Analysts on average expect 57 cents for the year.

Del Monte said it expected fiscal 2009 net sales to rise 8 to 10 percent, up from a prior forecast of 6 to 8 percent growth.

The company said it expects a lower third-quarter profit than last year’s 26 cents per share. Analysts on average expect a third-quarter profit of 24 cents.

Del Monte shares rose 77 cents or 13.9 percent to $6.30, off an earlier high at $6.71, on the New York Stock Exchange at midday on Wednesday. The stock is down around 30 percent this year, compared with a 20 percent decline for the Standard & Poor’s packaged foods index .15GSPFOOD. (Reporting by Sarah Coffey and Jessica Wohl; Editing by Lisa Von Ahn, Dave Zimmerman and Matthew Lewis)

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