Del Monte Pacific

Del Monte Pacific (S$0.375): 2QFY16 met full-year earnings estimate on one-off adjustment

Del Monte Pacific (DMP) 2QFY4/16 net profit spiked to US$53.3m (2QFY15: US$0.2m) on stronger revenue and a one-time favourable adjustment to its US subsidiary’s retirement plan. This helped turn around 1HFY16 and lifted earnings to US$41.3m, topping full-year consensus estimate of US$41m.

Revenue for 2QFY16 surged 20.1% y/y to US$658.3m, mainly driven by its US subsidiary, Del Monte Foods (DMF), which contributed 82% of group sales. DMF top line soared 25% after it acquired the vegetable business of Sager Creek Vegetable and overcame a tight supply issue that plagued 1QFY16.

Excluding DMF, DMP sales were flat, weighed by lower pineapple supply amid the El Nino weather pattern, which resulted in a fall in exports of packaged pineapple.

Gross margin inched up 2.4ppt to 23.3%, and operating profit skyrocketed almost 3.8x to US$96.1m, due to a one-time US$39.4m favourable adjustment to DMF’s retirement plan, which offset the entire quarter’s general and administrative expenses.

However, net gearing increased to 5.56x from 5.04x in FY15.

Management highlighted that DMF’s 2QFY16 performance reflects the fundamentals that have been restored, after the group suffered two years of losses amid acquisition and transition expenses following the announcement of the DMF takeover in Oct ’13.

The group expects DMF results to improve further as the subsidiary unlock more growth potential, accelerate penetration into the food service sector and enter new vegetable market segments.

Coupled with the group’s businesses in Asia and Middle East, which are also expected to grow, DMP forecast that it will swing back to profitable times in FY16.

In addition, DMP intends to issue US$360m worth of USD denominated perpetual preference shares in 1H16 in Philippines as part of its deleveraging plan.

After a 29% jump earlier today, Del Monte Pacific is currently trading at 12.9x FY16 consensus P/E.