Del Monte mulls US subsidiary IPO; eyes higher FY22 net profit

Singapore

CANNED food brand Del Monte Pacific Limited is actively looking for ways to "protect margins" and expand its product offerings that will allow the company to capitalise on market opportunities and changing consumer trends, said company executives on Friday.

In a call to discuss the company's latest financial results, Parag Sachdeva, chief financial officer of Del Monte's subsidiary Del Monte Philippines Inc (DMPI), said the company is considering an initial public offering (IPO) of its 93.6 per cent-owned US subsidiary Del Monte Foods Inc (DMFI) as one option to improve its capital structure and business performance.

The IPO could take anywhere from 18 to 24 months to materialise, but things could be subject to change depending on factors such as external market conditions, he warned.

This plan comes shortly after the group announced its decision to delay plans for the IPO of its 87 per cent-owned Philippine subsidiary DMPI on the Philippine Stock Exchange due to the recent surge in Covid-19 cases.

Mr Sachdeva said Del Monte and its bankers are "continuously watching and reviewing the market" and will be looking at getting the IPO done in the "short to mid term".

The IPOs could help ease Del Monte's high levels of debt, which were of particular concern to analysts as this could make the company vulnerable to macroeconomic shocks.

For the first quarter of FY2022 ended July, Del Monte had lowered its net debt to earnings before interest, taxes, depreciation, and amortisation (Ebitda) to 3.8 times from 5.4 times in the year-ago period, and reduced its gearing to net equity to 2.06 times from 2.19 times.

This is still quite far from the company's goals of below 3 times for net debt to Ebitda, and 1-1.2 times for debt to equity.

Mr Sachdeva said the group is committed to reducing its financing costs. Ensuring that the group's leverage continues to go down is also a "strong focus", he added.

Del Monte on Thursday reported net profit of US$18.3 million for the first quarter of FY2022, reversing from a loss of US$3.2 million for the corresponding year-ago period.

Revenue was up 11.9 per cent year on year to US$462.1 million, which the group attributed to higher sales in the US across almost all major segments, higher exports of S&W fresh pineapples as well as processed pineapples and other products.

Segmentally, DMFI delivered a net profit of US$4.8 million, turning around from a loss of US$14.3 million in the year-ago period, while DMPI's net profit rose 37 per cent to US$25.6 million.

Barring any unforeseen circumstances, Del Monte is expecting to generate a higher net profit in FY2022 ending April next year.

Gregory Longstreet, chief executive of DMFI, is expecting the upcoming holiday season in the US to have a positive impact on revenue. Del Monte's largest US customers - Walmart, Costco and Kroger - have already told the company to anticipate higher demand for its products.

"We're seeing early orders and signs that it's going to be a very successful holiday," he said.

While Mr Longstreet said Del Monte's margins are likely to be improved each year as the group focuses more resources on branded growth, the group is also susceptible to cost pressures such as rising tin prices, container costs and shipment delays which could hit margins adversely.

Mr Sachdeva said Del Monte is expecting the impact of inflation for the current financial year to be around 3-4 per cent of sales on an incurred basis. The group has however taken measures on the revenue and cost side to mitigate and offset the inflationary impact.

For instance, in the US, DMFI has pencilled in cost efficiencies of US$15 million as well as revenue-generating initiatives in the range of US$15-20 million for FY2022, which will "completely offset" the impact of inflation.

Over in the Philippines, the group is also able to take on such inflationary pressures because of its strong branding and dominant market share in North Asian markets, said Mr Sachdeva.

Shares of Del Monte closed on Friday at S$0.39, up 6.9 per cent or 2.5 cents.