At long last, it seems we have a new and improved Del Monte Foods (NYSE: DLM ) . Well, maybe at least it's "different." I've repeatedly taken swipes at Del Monte Foods for producing little else but a lot of cash, but the company has since then made a big move to focus on pet-food products while also sticking to its more traditional branded vegetable and seafood businesses.
Of course, none of that really changes this quarter all that much. Sales were up a bit more than 3% as sales growth in the consumer business came in at 3.5% and in the pet business at 2.5%. Gross margins actually ticked up a bit, and operating income rose 6%. While the company reported a substantial increase in income from continuing operations, the presence of special items last year mutes the reality of that performance.
I like the pet-products business, and I know firsthand the lengths to which pet owners will pamper their little beasts. But I'm not sure that I have full faith in management just yet.
For starters, management continues to harp on the idea that the company will see benefits from healthy-living trends. I don't buy it -- and neither are consumers, apparently, considering Del Monte brand sales rose by only about 2% this quarter. Let's face it -- folks in America aren't fat and unhealthy because they don't know they're supposed to eat veggies; they're fat and unhealthy because they don't want to eat them. Besides, healthy eating hasn't done any favors for the likes of Fresh DelMonte (NYSE: FDP ) or Chiquita Brands (NYSE: CQB ) lately.
I'm also less than impressed with the company's "transformation plan," highlights of which include seeking out supply chain efficiencies, optimizing manufacturing, and streamlining the organization -- including the elimination of 85 jobs.
I'm sorry, but isn't that what a management team is supposed to do? I really don't mean to hold up Del Monte Foods as any unique example, but I'm getting really annoyed by companies that announce big "plans" that are little more than doing what I'd expect any other reasonably competent management team to do. So Del Monte execs are looking to cut costs and boost margins -- great, but that's exactly what they're paid to do.
Those criticisms aside, I feel much better about this stock as an investment idea today than I did a year (or even six months) ago. There are certainly other cheap-looking food stocks out there, though -- among them Unilever (NYSE: UL ) , General Mills (NYSE: GIS ) , and Kellogg (NYSE: K ) -- so wise Fools should shop around.
For more Foolish food for thought:
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Fresh Del Monte is a former Motley Fool Hidden Gems pick.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
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