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Highlights from Del Monte Pacific’s Latest Quarterly Results

The Asia-based vegetables and fruit processor Del Monte Pacific (SGX: D03) announced its transition period results yesterday. Due to the company’s acquisition of the US-based Del Monte Foods (a non-related company) which was completed this February, Del Monte Pacific has decided to switch its financial year such that it will end on 31 April each year.

This is the first time investors would be able to see the contributions coming from Del Monte Foods and get a better understanding of how it has altered the business of Del Monte Pacific. The transition period ran from 1 January to 30 April 2014.

Profits, where art thou?

Within the transition period, Del Monte Pacific had started to include Del Monte Foods’ results starting from 18 February 2014.

For the entire transition period, the new Del Monte Pacific (which includes Del Monte Foods) recorded revenue of US$379.2 million, up by 197% from a year ago. More than three-quarters (77%) of Del Monte Pacific’s total revenue actually came from Del Monte Foods.

Unfortunately, a number of one-off expenses related to the acquisition had resulted in the company posting a loss of US$42.8 million in the transition period. But even if those one-off expenses were stripped away, Del Monte Pacific’s results would also have more room for improvement; the company’s adjusted profit still fell by almost half from US$6.6 million a year ago to US$3.8 million. That is a net profit margin of only 1% as compared to a much healthier margin of 5.1% just a year ago.

The company blamed the lower margin partly on the upward revaluation of inventory for Del Monte Foods, which led to an increase in raw material costs.

The future of Del Monte Pacific

Del Monte Pacific’s management expects to see some synergy between its current and acquired operations and is planning to cross sell Del Monte Foods’ products from the USA to Asia and use Del Monte Foods’ platform in the USA to cross sell products that were previously only sold in Asia.

Furthermore, the new combined entity will be trying to streamline the raw and packaging materials used to achieve a higher operating efficiency. The company expects FY2015 (financial year ended April 2015) to be a transition year which might see its profitability continue to be under pressure. With that, Del Monte Pacific should only be returning to a ‘normal’ level of profitability only in FY2016.

Foolish Summary

What existing shareholders can expect from Del Monte Pacific in the near future is the possibility of some form of dilution as the company would likely be issuing new shares (of both the common and preferred variety) to raise funds to pay-off some of the loans it took up to finance the acquisition of Del Monte Foods.

The acquisition is a really big bet for Del Monte Pacific and it will be interesting to see how the story pans out over the next few years.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.