Del Monte Pacific Limited (SGX: D03) is a food and beverage company with a dual listing in Singapore and the Philippines. It operates mainly under 4 brands, namely Del Monte, S&W, Contadina and College Inn.
The Group sells packaged fruits, vegetable and tomato, sauces, condiments, pasta, broth and juices, under various brands and also sells fresh pineapples under the S&Wbrand.
The company has recently caught my attention, since its shares are trading close to their 52 week low. Thus, I have decided to take a closer look.
There are many aspects that we need to look at to learn about a business. In this article, we will focus on one of those aspects – cost structure.
To do so, let’s first look at some numbers below to give us an overview.
|US$000||Year ended April 16||% of revenue|
|Cost of sales||-1,785,985||79%|
|Distribution and selling expense||-201,031||9%|
|General and administrative expense||-150,121||7%|
|Operating profit before other income/expense||130,700||6%|
Source: Del Monte’s 2016 Annual Report
Key takeaway from the above:
Above is a summary of Del Monte’s FY16 full-year cost structure. There are a few things that investors should know.
- The biggest cost component within Del Monte’s business is the cost of sales, accounting for more than 80% of 2016 total cost. Out of the US$ 1.8 billion in cost of sales, US$1.32 billion is related to cost of inventory sold.
- The other major cost for Del Monte is staff cost, accounting for about US$379 million in 2016. This is the second biggest cost within the group.
- The next major cost is related to depreciation and operating lease rental. The former accounts for about US$65 million, whilst the latter accounts for about US$52 million in 2016. This cost is mostly fixed in nature.
- The rest of the expenses not mentioned above are mostly related to advertising and marketing cost, freight, warehousing costs and others.
Here, we can see that cost of inventory represents the bulk majority of the cost for Del Monte. As such, one of the major area of improvement for the company could be procurement efficiency.
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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 Lawrence Nga doesn’t own shares in any companies mentioned.