Del Monte: No Surprises Here

While the company had a quarter of fruitful sales, Del Monte Foods (NYSE: DLM) canned the upper range of its earnings guidance for the year because of increasing costs.

With the help of a strong pet products segment and new product growth, sales rose 12%, keeping top-line performance strong. However, cost pressure from fish, grains, fats, and oils negatively affected the company's operating results. The company acknowledges the challenges presented by rising costs, and it continues to focus on filling its portfolio with higher-margin and higher-growth businesses. Management is also currently testing innovative products outside its core market, including an energy drink and premium tuna filets. The new products it's already launched, including Chillers and no-sugar-added fruit, have proven productive so far.

Del Monte's growth story seems to lie with its pet products. Sales here rose 21.9% year over year, and its Meow Mix and Milk-Bone acquisitions should help the company maintain strong momentum in this segment. The company's strong portfolio of pet brands contributed positively to its overall sales growth, and Del Monte anticipates that these products will help it ultimately reach its guidance figures.

I'm sure some investors may be concerned by the company's lowered earnings expectations, but I'm not too worried. Management left all other projections alone, and it still anticipates sales increasing by 5% to 7%.

Del Monte carries numerous brand-name items, and its increasing sales indicate that its products are still in demand. The company seems to have a lot of potential in the pet market, and it should continue to benefit from initiating new products. However, while the company is working hard to improve its cost-effectiveness, I think investors should sit and stay until these changes are actually made.

Further Foolishness:

• Foolish Forecast: Dog Days for Del Monte Foods
• Del Monte in the Doghouse?
• Del Monte's New Food Menu

Over at the Motley Fool CAPS community, Del Monte gets only two out of five stars. Disagree? Bring your opinion here.

Fool contributor Larry Rothman is happy to receive feedback, and promises to read it when not being wrestled by his three children. Feel free to email him at rothmanviews@comcast.net. He doesn't have any positions in the companies mentioned. The Fool's disclosure policy is an obedience-school dropout.