US unit&rsquo s weaker performance and higher interest expense cited

CANNED-FOOD brand Del Monte Pacific : D03 -1.12% on Tuesday (Sep 10) posted a net loss of US$34.2 million for the first fiscal quarter ended July, widening from its net loss of US$13.1 million in the corresponding year-ago period.

 

The loss was largely driven by unfavourable results from its US subsidiary, Del Monte Foods (DMFI), and interest expenses, said the company.

 

Its gross profit declined, going down 19.1 per cent to US$87.6 million, on the back of DMFI&rsquo s high cost of inventory and the impact of inflation on production in the prior year.

 

Loss per share stood at US$0.0176, down from US$0.0067 in Q1 FY2024.

 

The group&rsquo s Q1 revenue rose 3.9 per cent to US$536.9 million, from US$516.7 million. The company attributed the increase to higher exports of fresh and packaged pineapple products, and higher sales in the Philippines.

 

Its US subsidiary, DMFI, achieved sales of US$356.6 million, accounting for 66 per cent of the group&rsquo s turnover. DMFI&rsquo s sales were stable, as the expansion of the sale of its Joyba bubble tea and growth in its broth and stock portfolio were offset by a slowdown in sales of its healthy snacks.

 

Excluding its US subsidiary, sales by the group for Q1 stood at US$180.4 million, 8.1 per cent higher than the US$166.9 million in sales in the corresponding quarter of the preceding year.

 

This was mainly driven by the strong growth in its international markets from higher sales of its premium S& W pineapples to Asia, Europe and the Middle East. Sales to the Philippines grew by 1.7 per cent.

 

Philippine sales of US$77.2 million were 6.5 per cent higher in peso terms, but 1.7 per cent higher in US dollar terms as a result of the depreciation of the peso. This was mainly driven by higher sales across key categories of packaged fruit, beverage and culinary, said the company.

 

Sales in its international markets grew by 14.7 per cent as a result of improved performances across all product categories, which include processed, fresh and frozen foods, and not-from-concentrate juices.

 

The group&rsquo s net debt, which includes its borrowings but excludes its cash and bank balances, amounted to US$2.2 billion as at Jul 31, 2024 &ndash lower than the US$2.3 billion as at Apr 30 this lowering of net debt came from the decrease in inventory from DMFI and settlement of loans.

 

The group said that it expects to incur a net loss in FY2025, although it expects this to be lower than in FY2024.

 

It will continue to pursue plans for the selective sale of assets in the US and the injection of equity in the group through strategic partnerships to lower its leverage. It will also continue to actively restore gross margins, such as by reducing its inventory levels by 30 per cent.

 

However, the positive financial impact will be fully reflected only in FY2026, said the group.

Its gross profit margin drops on higher variable product and waste cost, and warehousing and distribution costs related to the high inventory level of its US subsidiary

 

PHILIPPINE food and beverage manufacturer Del Monte Pacific : D03 +3% fell deeper in the red with a net loss of US$76.7 million for the fourth quarter ended Apr 30, 2024, compared with a loss of US$11.9 million in the same period last year.

 

The company attributed the performance to higher variable product and waste cost, and warehousing and distribution costs related to the high inventory level of its US subsidiary, causing its gross profit margin to drop to 10.3 per cent from 20.2 per cent for Q4 FY2023.

 

The US subsidiary contributed to 70 per cent of the group&rsquo s revenue, according to the results Del Monte filed to the Singapore Exchange on Friday (Jun 28).

 

Severance pay and professional fees incurred by the US subsidiary as well as increased interest expense also weighed on the group&rsquo s bottom line. Its interest expense amounted to US$53.8 million, up 16.7 per cent year on year (yoy).

 

Net loss per share for the quarter was US$0.0395, widening from US$0.0061 in the same period the year before.

 

Sales inched up 2.2 per cent yoy to US$597.3 million, boosted by higher exports of fresh and packaged pineapples.

 

It posted a net loss of US$127.3 million for FY2024 against a net profit of US$16.9 million for FY2023. Sales amounted to US$2.4 billion, up 0.3 per cent, driven by higher sales in the US and higher exports of fresh pineapples to China and South Korea.

 

Del Monte expects to continue to make a loss for FY2025, albeit a smaller one.

 

As at end-April, the group had a gearing of 8.9 times and net debt stood at US$2.28 billion, compared with 5.8 times and US$2.25 billion, respectively, as at end-April 2023.

 

&ldquo While overall debt level did not significantly increase from prior year due to better working capital management, Ebitda (earnings before interest, tax, depreciation and amortisation), and consequently net income, significantly decreased driven by higher cost and debt servicing... which also reduced total equity resulting in increased leverage,&rdquo Del Monte said.

 

Meanwhile, it is planning to dispose of selective assets as well as obtain injection of equity through strategic partnerships.

 

It is also working to improve its gross margins from the second half of FY2025 as &ldquo the group will still be carrying over high inflationary costs from FY2024 in the first half, particularly in the US&rdquo .

 

Such measures include reducing inventory, inventory write-offs, and warehousing and distribution costs in the US, consolidating manufacturing facilities in the US as well as downsizing its workforce.

 

It is not paying a dividend for FY2024 because of the net loss, whereas shareholders were rewarded US$0.0013 per share as final dividend in FY2023.