Boring is beautiful. Sometimes.
I'm a sucker for boring companies in boring industries, but I like to see them growing nicely. Del Monte Foods
Sales were anemic in the fourth quarter, and the company missed analyst estimates. Although the reported figure of a 7.5% decline in quarterly sales is due in large part to an extra week in the year-ago period, the adjusted figure of "flat" isn't exactly rousing. Earnings were similarly blah -- adding back a bunch of items and adjusting for the extra week still leaves only a flat year-over-year comparison.
Though management chooses to release only selected bits and pieces of the balance sheet and cash flow statement, those looked OK for the year. Inventories and accounts receivable appear to be under control, and the company generated a respectable amount of free cash flow for the full year.
As has been the case before, the underlying story is mixed. Cat food was a weak performer, but dog food did passably well. Likewise, vegetables and StarKist were weak, but private-label soups did pretty well. To their credit, management is not ignoring the problems -- not only are they working to revitalize and promote quality brands, but they are also targeting about 20% of their low-margin products for elimination over the next two years.
Looking ahead, I just can't muster many reasons to be excited about this company. True, management recently announced a $125 million share repurchase program, but that won't restore growth to the top line. What's more, the rumors that the company is looking to sell its baby-food and private-label soups business may or may not be true -- and even if the deals happen, I'm not sure they'll really change the picture that much.
Luckily, the shares aren't all that terribly expensive -- or at least not if you believe that some measure of growth will be forthcoming. But I can't see why I'd want to buy Del Monte Foods when there are other, better choices out there. Motley Fool Hidden Gems selection Fresh Del Monte Produce
Maybe Del Monte Foods can prove me wrong, but I think I'll keep napping on these shares for the time being.
For more Foolish food follies:
- Del Monte's Earnings Doldrums
- Heinz Hits the Sauce
- Unilever Looks for Growth Leverage
- Going Bananas at Fresh Del Monte
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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).