DEL MONTE FOODS CO. $7.65 (New York symbol DLM; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 200.7 million; Market cap: $1.5 billion; WSSF Rating: Average) makes canned fruits and vegetables, tuna, sauces and soups under the Del Monte, StarKist and College Inn brands. This business accounts for 60% of its sales. The other 40% comes from its pet food business, whose brands include Meow Mix, 9Lives and Milk-Bone.
Del Monte’s stock has moved down from its peak of $13 in July 2007. That’s because the company now expects food costs will rise by $170 million in fiscal 2008, up from its earlier estimate of $145 million.
In its second fiscal quarter ended October 28, 2007, Del Monte’s earnings rose 12.7%, to $26.7 million from $23.7 million a year earlier. However, if you disregard restructuring and other costs, per-share earnings fell 22.2%, to $0.14 from $0.18. Sales rose 5.0%, to $938.1 million from $893.5 million.
Del Monte recently raised prices on its pet food products by an average of 4%. This should help it reach its goal of buying back $200 million worth of its shares in the next three years. The savings should also let Del Monte keep paying its $0.16 dividend, which yields 2.1%.
The stock now trades at 11.4 times its projected fiscal 2008 earnings of $0.67 a share. Earnings in fiscal 2009 should improve to $0.75 a share, which implies a p/e of just 10.2.
Del Monte is a buy.
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