Del Monte Corporation Reports Fiscal 2013 Fourth Quarter Results

Del Monte Corporation Reports Fiscal 2013 Fourth Quarter Results

SAN FRANCISCO--(BUSINESS WIRE)-- Del Monte Corporation:

Announcement Highlights


For the fourth quarter fiscal 2013:

  • Net sales increased 2.8% for the quarter and 3.9% for the full fiscal year
  • Operating income increased $35.3 million mainly due to list pricing actions net of trade spend; the absence of prior year unusual litigation costs was more than offset by higher SG&A expense in the current year period
  • Adjusted EBITDA1 decreased 8.7% as higher operating income was more than offset by the negative cash impact of hedging versus a positive impact in the prior year and higher G&A
  • Total net debt was $3,390.9 million as of April 28, 2013

Del Monte Foods Three Months Ended April 28, 2013

Del Monte Foods today reported net sales for the fourth quarter fiscal 2013 of $960.4 million compared to $934.6 million for the fourth quarter fiscal 2012, an increase of 2.8%. The increase was primarily driven by list pricing actions net of trade spend and growth in new product sales, partially offset by volume declines for existing products (including pricing elasticity).

Operating income increased from $89.3 million in the prior year period to $124.6 million. The drivers of the increase in operating income are similar to the drivers of the net sales increase noted above. In addition, the prior year period was impacted by unusual litigation costs which did not recur in the current year. List pricing actions net of trade spend and productivity savings more than covered operational cost increases, benefitting operating income.

Adjusted EBITDA decreased 8.7% to $151.5 million compared to $166.0 million in the prior year. As compared to operating income, Adjusted EBITDA does not include unusual litigation costs. In addition, Adjusted EBITDA was negatively impacted by the cash impact of hedge positions and higher G&A. In calculating Adjusted EBITDA, the adjustment for the cash impact of hedge positions is calculated pursuant to the Company's 7.625% Notes Indenture and credit agreements.

"Our fourth quarter results reflect strong topline and margin performance in Pet Products driven by price realization," said Dave West, CEO of Del Monte Foods. "For the full year, we are pleased with sales growth of about 4% driven by growth in both segments, with especially strong growth of nearly 7% in Pet Products. The revitalization of our iconic Del Monte brand continues in the Consumer Products segment. New advertising, packaging, product reformulations, and refreshed pricing and promotion strategies are among the efforts deployed to recharge this 100-plus year old brand. Strong margins driven by price realization, coupled with moderating cost inflation and productivity savings, have allowed us to increase marketing investment to fuel future growth in both segments of our business. I am confident that the marketing investments and other go-to-market initiatives will pay off with long-term success in the marketplace."

Reportable Segments - Results for Three Months Ended April 28, 2013

Pet Products

Pet Products net sales were $506.7 million, an increase of 3.3% from net sales of $490.4 million in the prior year period. The increase in Pet Products net sales was primarily driven by list pricing actions net of trade spend. Growth in new products sales contributed to the increase as well. The increase was partially offset by unit volume declines in existing products (including pricing elasticity).

Pet Products operating income increased from $92.2 million in the fourth quarter fiscal 2012 to $108.6 million in the fourth quarter fiscal 2013, or 17.8%. The increase was primarily due to list pricing actions net of trade spend, partially offset by higher costs.

Pet Products Adjusted EBITDA increased from $113.6 million in the fourth quarter 2012 to $123.6 million in the fourth quarter fiscal 2013, or 8.8%. The drivers of the change in Adjusted EBITDA were similar to those of operating income, except that the impact of the voluntary recall of certain Milo's Kitchen chickendog treats, including expected insurance recoveries, is excluded from Adjusted EBITDA. In calculating Adjusted EBITDA, the expenses or benefit associated with the voluntary recall were excluded pursuant to the Company's 7.625% Notes Indenture and credit agreements.

Consumer Products

Consumer Products net sales were $453.7 million, an increase of 2.1% from net sales of $444.2 million in the prior year period. The increase in Consumer Products net sales was primarily due to strong vegetable sales, largely offset by unit volume declines in other existing products.

Consumer Products operating income increased from $10.4 million in the fourth quarter fiscal 2012 to $32.8 million in the fourth quarter fiscal 2013, or 215.4%. The increase was primarily driven by the absence of unusual litigation costs which occurred in the prior year period.

Consumer Products Adjusted EBITDA decreased from $52.0 million in the fourth quarter fiscal 2012 to $41.7 million in the fourth quarter fiscal 2013, or 19.8%. The decrease was primarily driven by higher G&A, the marketing initiatives noted above and higher raw product costs, partially offset by the positive impact of the topline, given strong mix. In calculating Adjusted EBITDA, unusual litigation costs are excluded pursuant to the Company's 7.625% Notes Indenture and credit agreements.

Del Monte Foods Fiscal Year Ended April 28, 2013

Net sales for the fiscal year ended April 28, 2013 were $3,819.4 million compared to $3,676.2 million for the prior year period, an increase of 3.9%. The increase was driven by list pricing actions net of trade spend and new product volume growth, primarily in Pet Products. The increase was partially offset by unit volume declines in existing products in both Consumer Products and Pet Products (including pricing elasticity).

Operating income increased from $370.2 million in the prior year period to $384.5 million, or 3.9%. The increase was primarily driven by list pricing actions net of trade spend. Higher marketing and operating costs largely offset the increase. Productivity savings provided a significant benefit to operating income.

Adjusted EBITDA declined 0.5% to $587.7 million compared to $590.7 million in the prior year period. The drivers of the change in Adjusted EBITDA were similar to those of operating income, except that Adjusted EBITDA does not include unusual litigation costs which were favorable year over year. The cash impact of hedging was positive for the fiscal year, and slightly favorable to the prior year. In calculating Adjusted EBITDA, unusual litigation costs are excluded, and the adjustment for the cash impact of hedge positions is calculated, pursuant to the Company's 7.625% Notes Indenture and credit agreements.

Natural Balance Pet Foods, Inc. Acquisition

On May 22, 2013, Del Monte Foods and Natural Balance Pet Foods, Inc. announced that the companies have signed a merger agreement. Natural Balance Pet Foods, Inc., makers of super-premium pet food for dogs and cats sold throughout North America, will join Del Monte's substantial pet products portfolio.

Natural Balance Pet Foods, Inc. was founded in 1989 by Dick Van Patten and Joey Herrick. Today, the brand includes both dog and cat formulas and spans wet food, dry food and treats.

The purchase price and financial terms have not been disclosed. The transaction includes all Natural Balance® brands, products and other trademarks. The companies anticipate closing in July, subject to customary closing conditions and regulatory clearances.

Select Liquidity Data

At April 28, 2013, total debt was $3,985.1 million and cash and cash equivalents were $594.2 million. As of April 28, 2013, there were no outstanding borrowings under the Company's $750.0 million ABL Facility. For the fiscal year ended April 28, 2013, capital expenditures totaled $108.0 million. The Company also spent $12.0 million for the acquisition of the SnoKist assets.

Free Cash Flow2 for the fiscal year ended April 28, 2013 was $225.9 million, compared to $281.5 million for the fiscal year ended April 29, 2012. The decline was primarily due to higher capital expenditures, higher cash payments on interest rate swaps, and unfavorable working capital related to the timing of accounts payable payments.

Conference Call/Webcast Information

Del Monte Foods will host a live audio webcast, accompanied by a slide presentation, to discuss the fourth quarter fiscal 2013 results at 8:00 a.m. PT (11:00 a.m. ET) today. To access the live webcast and slides, go to http://investors.delmonte.com. Under Events, click Q4 F13 Del Monte Foods Earnings Conference Call. Printable slides are expected to be available in advance of the call. Historical quarterly results can be accessed at http://investors.delmonte.com. The audio portion of the webcast may also be accessed during the call (listen-only mode) as follows: 1-888-788-9432 (1-210-795-9068 outside the U.S. and Canada), verbal code: Del Monte Foods. The webcast and slide presentation will be available online following the presentation.

Merger

On March 8, 2011, Del Monte Foods Company was acquired by an investor group led by funds affiliated with Kohlberg Kravis Roberts & Co. L.P., Vestar Capital Partners and Centerview Capital, L.P. (collectively, the "Sponsors"). The acquisition is referred to as the "Merger."

About Del Monte Foods

Del Monte Foods is one of the country's largest producers, distributors and marketers of premium quality, branded pet products and food products for the U.S. retail market, generating over $3.8 billion in net sales in fiscal 2013. With a powerful portfolio of brands, Del Monte products are found in eight out of ten U.S. households. Pet food and pet snacks brands include Meow Mix®, Kibbles 'n Bits®, Milk-Bone®, 9Lives®, Pup-Peroni®, Gravy Train®, Nature's Recipe®, Canine Carry Outs®,Milo's Kitchen®and other brand names. Food product brands include Del Monte®, Contadina®,College Inn®, S&W®and other brand names. The Company also produces and distributes private label pet products and food products.

For more information on Del Monte Foods, visit the Company's website at www.delmontefoods.com.

Del Monte. Nourishing Families. Enriching Lives. Every Day.®

Non-GAAP Financial Measures

Del Monte Corporation reports its financial results in accordance with generally accepted accounting principles in the United States ("GAAP"). In this press release and the accompanying webcast, Del Monte is also providing certain non-GAAP financial measures - specifically, Adjusted EBITDA, Adjusted EBITDA Margin and Free Cash Flow.

Del Monte presents Adjusted EBITDA because it believes that this is an important supplemental measure relating to its financial condition since it is used in certain covenant calculations that may be required from time to time under the indenture that governs its 7.625% Senior Notes due 2019 (referred to therein as "EBITDA") and the credit agreements relating to its Term Loan Facility and ABL Facility (referred to therein as "Consolidated EBITDA"). EBITDA is defined as income before interest expense, provision for income taxes, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA, further adjusted as required by the definitions of "EBITDA" and "Consolidated EBITDA" contained in the Company's indenture and credit agreements. Although Adjusted EBITDA may be useful to benchmark our performance period to period, Del Monte's presentation of Adjusted EBITDA has limitations as an analytical tool. Adjusted EBITDA is not a GAAP measure of liquidity or profitability and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure determined in accordance with GAAP. Additionally, Adjusted EBITDA is not intended to be a measure of cash flow available for discretionary expenditures, as it does not take into account debt service requirements, obligations under the monitoring agreement with Del Monte's Sponsors, capital expenditures or other non-discretionary expenditures that are not deducted from the measure.

Del Monte presents Adjusted EBITDA Margin because it uses such measure internally to focus management on year-over-year changes in the Company's business and believes this information is also helpful to investors. In calculating Adjusted EBITDA Margin, the Company uses Adjusted EBITDA because it believes its investors are familiar with Adjusted EBITDA and that consistency in the presentation of EBITDA-related measures is helpful to investors.

Del Monte presents Free Cash Flow because it uses such measure internally to benchmark its performance period-to-period and believes this information is also helpful to investors. This presentation of Free Cash Flow has limitations as an analytical tool. Free Cash Flow does not represent the residual cash flow available for discretionary expenditures, since it does not take into account debt service requirements or other non-discretionary expenditures that are not deducted from the measure.

Del Monte cautions investors that the non-GAAP financial measures presented are intended to supplement its GAAP results and are not a substitute for such results. Additionally, Del Monte cautions investors that the non-GAAP financial measures used by the Company may not be comparable to similarly titled measures of other companies.

Non-GAAP Reconciliation: Adjusted EBITDA and Adjusted EBITDA Margin

                             

Three Months Ended April 28, 2013

Three Months Ended April 29, 2012

Pet Consumer Pet Consumer

(dollars in millions)

Products Products Corporate Total Products Products Corporate Total
 

Reconciliation:

Operating income $

108.6

$

32.8

$

(16.8

) $

124.6

$

92.2

$

10.4

$

(13.3

) $

89.3

Other income (expense) - -

(11.7

)

(11.7

)

- -

8.9

 

8.9

 

Adjustments to arrive at EBITDA:

Depreciation and amortization expensea

17.8

12.6

6.4

36.8

17.8

13.4

6.2

37.4

Amortization of debt issuance costs and
debt discountb
  -     -    

(6.6

)  

(6.6

)   -     -    

(6.2

)  

(6.2

)
EBITDA $

126.4

$

45.4

$

(28.7

) $

143.1

$

110.0

$

23.8

$

(4.4

) $

129.4

 
Non-cash charges -

-

2.0

2.0

-

0.8

1.3

2.1

Derivative transactionsc - -

(0.2

)

(0.2

)

- -

2.5

 

2.5

 

Non-cash stock based compensation - -

3.9

3.9

- -

3.6

3.6

Non-recurring (gains) losses

(4.4

)

(4.9

)

(0.4

)

(9.7

)

-

 

24.3

 

(5.6

)

18.7

 

Merger-related items - -

-

-

4.4

-

1.9

6.3

Business optimization charges

1.6

1.2

5.5

 

8.3

(0.8

)

3.9

(1.5

)

1.6

Other  

-

 

 

-

 

 

4.1

   

4.1

    -    

(0.8

)

 

2.6

   

1.8

 
Adjusted EBITDA $

123.6

  $

41.7

  $

(13.8

)

$

151.5

  $

113.6

  $

52.0

  $

(0.4

) $

166.0

 
 
Net sales $

960.4

$

934.6

 
Adjusted EBITDA margin

15.8

%

17.8

%
 

a Includes $(0.2) million of accelerated depreciation in the three months ended April 28, 2013 related to the closure of our Kingsburg, California facility.

 

b Represents adjustments to exclude amortization of debt issuance costs and debt discount reflected in depreciation and amortization because such costs are not deducted in arriving at operating income.

 

c Represents adjustments needed to reflect only the cash impact of derivative transactions in the calculation of Adjusted EBITDA.

 

Non-GAAP Reconciliation: Adjusted EBITDA, Free Cash Flow and Net Debt to Adjusted EBITDA

 

   

Trailing Twelve

Trailing Twelve

Months Ended

Months Ended

(dollars in millions)

April 28, 2013

April 29, 2012

 
Reconciliation:
Operating income $

384.5

$

370.2

Other income (expense)

12.5

 

(55.5

)

Adjustments to arrive at EBITDA:
Depreciation and amortization expensea <

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