Del Monte to raise product prices by 6-7% to counter inflationary pressures

CANNED food brand Del Monte Pacific D03 is set to raise prices of its products by 6 to 7 per cent on average in both its US and Philippines markets in 2022 as inflationary pressures weigh on margins, company executives said on Friday (Mar 11).

In a call to discuss the group's latest financial results, Parag Sachdeva, chief financial officer of Del Monte's subsidiary Del Monte Philippines Inc (DMPI), said that the percentage hikes reflect the prices that will be "taken in the coming quarters" versus the prices taken in 2021.

In response to a query on whether the price hike will cause Del Monte to lose market share to competitor brands, Gregory Longstreet, chief executive of Del Monte's US subsidiary Del Monte Foods Inc (DMFI), said he believes this will not be the case.

He said: "All grocery prices are rising, so we're very consistent at this point with what... our competition is doing. We always have been proactive in pricing, and we also monitor what our competition is doing, so we don't fear any damage in terms of demand or share resulting from our latest round of pricing actions."

Longstreet said price revisions are not solely driven by inflation, but also stem from the group's need to maximise value and margins, and monitor elasticity.

Company executives stressed that the strength of the company's brand is what gives the group "pricing power". Del Monte has built "brand equity" in the markets it operates in, and that has allowed the group to "hold on to its business" and make price revisions where necessary.

Del Monte on Thursday posted earnings of US$25.9 million for the third fiscal quarter ended January, down 14 per cent from a net profit of US$30.2 million in the corresponding year-ago period.

Revenue for the quarter was up 4.9 per cent to US$659.4 million, which the group attributed to higher sales in the US across almost all major categories, as well as higher exports of S&W branded premium fresh pineapples.

However, Del Monte's cost of sales for the quarter was up 8 per cent to US$496.2 million, which resulted in gross profit falling 3.4 per cent to US$163.2 million.

The group took a hit from cost inflation for raw produce, metal packaging and transportation - all of which put pressure on margins. DMFI, in particular, was affected by these inflationary pressures.

One of the concerns among analysts and shareholders is Del Monte's high debt levels. For the 3 months ended January, the group saw its net debt to Ebitda (earnings before interest, taxes, depreciation and amortisation) improve slightly to 4.2 times from 4.5 times previously, and gearing to equity ratio fall to 2.1 times from 2.2 times previously.

In the near term, Sachdeva said the company's debt to equity ratio will rise above 3 times as it refinances its preference shares, but in the long term, this should fall to less than 1.5 times.

Despite relatively high debt levels, Del Monte has not tapped equity markets for funds. Sachdeva said the company currently prefers to take the initial public offering route in order to pare its leverage and refinancing obligations.

Del Monte's plans to list its subsidiaries in the US and Philippines are "still on the table", but volatile market conditions globally mean the company is unable to give a specific timeline or further details of the listings, said Sachdeva.

Looking ahead, Sachdeva said he expects the group to book a higher profit in Q4 this year, compared to the same period in FY2021. The company will also remain vigilant in managing its costs amid a high-cost environment.

As at 12.10 pm, shares of Del Monte are down 10 per cent or S$0.04 to S$0.36.