Packaged- and processed-food provider Del Monte (NYSE:DLM) has traditionally served up human fare, but is increasingly focusing on feeding four-legged pets and other critters as a way to boost growth. Recent acquisitions are definitely helping the top line, but tomorrow's fourth-quarter earnings will provide insight on how higher sales are flowing through to the bottom line.

What analysts say:

  • Buy, sell or waffle? Ten analysts follow Del Monte. Three are bullish, two aren't, and five are on the fence with a hold rating.
  • Revenues. Analysts are projecting second-quarter sales of $904.5 million for year-over-year growth of just more than 13%.
  • Earnings. Analysts project second-quarter earnings are $0.22 per share, or 4.8% above last year's $0.21.

What management says:
Back in March, when it released third-quarter results, Del Monte said it expected 13%-15% net sales growth from $799.2 million in last year's fourth quarter. It also guided earnings from continuing operations to $0.13-$0.16, including $0.06-$0.07 in one-time charges.

What management does:
Sales growth has picked up recently, now that Del Monte is actively acquiring pet-food businesses as the category proves more appealing than its consumer-products division, a.k.a. human food. However, overall profitability is suffering, because the company is having difficulty passing higher food costs to consumers in the form of higher prices for its flagship processed vegetable and fruit brands, including Fruit Natural.  

Margins

10/05

01/06

04/06

07/06

10/06

01/07

Gross

26.3%

26.5%

26.2%

26.2%

26.3%

26.5%

Operating

11.6%

11.2%

10.2%

10.3%

10.5%

10.9%

Net

4.5%

4.7%

5.7%

5.2%

4.4%

4.1%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Top-line prospects are looking healthier, but competition is still intense in the consumer-food industry. For instance, Del Monte competes with General Mills' (NYSE:GIS) Green Giant vegetable brand, Heinz's (NYSE:HNZ) Classico and other tomato brands, Campbell Soup's (NYSE:CPB) Prego soups, and Unilever's (NYSE:UN) (NYSE:UL) Ragu spaghetti franchise.

In addition, grocery store chains are increasingly embracing private-label brands to capture more profits in the food they sell. This includes retail behemoth Wal-Mart (NYSE:WMT), which controls about 30% of Del Monte's sales.

Add it all up, and Del Monte appears to be in a long-term pickle to improve its competitive position. Throw in the fact that most peers sport a higher dividend yield and similar levels of growth prospects, and it's hard to get excited about investing in the stock at the current share price.

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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. The Fool has an ironclad disclosure policy. Feel free to email Ryan with feedback or to discuss any company mentioned.