Release Date: March 14, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Del Monte Pacific Ltd (PHS:DELM, Financial) achieved a significant inventory reduction of $312 million, improving days inventory by 42 days.
- The company reported a substantial improvement in free cash flows, generating $145 million compared to a $90 million outflow in the previous year.
- Debt reduction efforts were successful, with a decrease of $104 million in external debt, aided by inventory management and free cash flow improvements.
- The sale of the Hanford plant generated $56 million in cash proceeds, contributing to future gross margin improvements through a co-pack arrangement.
- Del Monte Pacific Ltd (PHS:DELM) completed a strategic investment in Agro Tech Foods Limited, enhancing distribution capabilities in the Indian market.
Negative Points
- The company faces challenges with profit leaks due to waste, incremental trade, and sundry losses, impacting gross margins.
- Gross margin decreased from 17.6% to 13.4%, driven by inflation, under-absorption of overheads, and increased distribution costs.
- Excess inventory remains a concern, with 8 million cases still in excess, requiring further reduction efforts.
- Interest expenses increased by $17 million due to refinancing, adding financial pressure.
- Tariffs on products imported from China and Mexico, as well as increased costs of steel and tinplate, pose potential headwinds for pricing and demand.
Q & A Highlights
Q: How are you assessing the impact of tariffs on the US business?
A: Greg Longstreet, President and CEO of Del Monte Foods Inc, explained that they are closely monitoring US tariffs, particularly on products imported from China and Mexico. They have already adjusted pricing to offset tariffs on mandarin products from China and red grapefruit from Mexico. Additionally, tariffs on steel and tinplate may lead to mid-single-digit price increases on metal packaging products.
Q: Is Joyba produced in Mexico, and will it be impacted by tariffs?
A: Yes, Joyba is produced in Mexico and will be affected by tariffs. Greg Longstreet mentioned that they will manage price impacts to protect margins as they continue to evolve the portfolio and drive sales.
Q: Can you provide an update on warehouse costs and waste?
A: Greg Longstreet noted that as inventory levels decrease, warehousing expenses and related waste will also reduce, leading to improvements in fiscal '26. Parag Sachdeva added that while improvements will be seen in fiscal '26, full normalization in the P&L will occur in fiscal '27.
Q: Could you comment on pricing and the use of trade promotions compared to a year ago?
A: Greg Longstreet stated that while they have maintained efficient trade investments, they have had to increase trade spending to move surplus aging stocks. Parag Sachdeva added that in competitive categories like broth and tomatoes, they might need to increase promotions to regain market share.
Q: Is Del Monte Foods worth keeping given its ongoing challenges?
A: Cito Alejandro emphasized that their current focus is on fixing Del Monte Foods by reducing waste, overhead costs, and focusing on branded business to improve margins. He highlighted recent network optimizations and stated that the task is to turn the business around.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
