Q: Why do we invest in stocks?
A: To make money. Specifically, to take the money we have and grow it into more.
OK. Next question: Why would anyone want to invest in Del Monte Foods (NYSE:DLM)?
The company's earnings are due out some time Thursday morning, presumably before market open (that's usually the case, historically). But even so, I doubt many investors will be waking up with the roosters to hear the big news. Because by all accounts, there won't be any.
Back in September, when Del Monte last reported its numbers (for fiscal Q1 2006), the company advised that in fiscal Q2, investors should expect less-than-Earth-shaking results. Sales growth of 0%-2% vs. fiscal Q2 2005. Profits between $0.16 and $0.21 per diluted share. Impressive? Hardly.
This time last year, Del Monte was reporting $0.20 per share in net profits; it would have been $0.21 per share but for $0.01 written off as "integration expenses." So in the best of all possible worlds, Del Monte has told us it expects minimal sales growth and stagnant profits.
The analysts tracking the company aren't expecting even that much, however. Following the "golden mean" of stock analysis, they've split the difference on Del Monte's own predictions and are calling for the company to achieve 1% sales growth and $0.19 per share in profits. That would make for a 5% year-over-year profits decline, stagnant profits in comparison to fiscal Q2 2004, and a decline of 42% in comparison to the company's fiscal Q2 2003 earnings (according to data provided by Capital IQ). Ick.
But if you can face the company's earnings report tomorrow, despite the early hour, despite the almost certain dearth of good news, what glimmers of hope might a Fool be on the lookout for? Sales increases are out -- the company already said as much. Reducing the cost of operations, likewise -- Del Monte noted in the last earnings release that fuel costs, for example, were "higher than the Company's initial expectations for the full year." And note: That was pre-Katrina.
Really, there's only one line where you might find good news on tomorrow's income statement, and that's "gross margins" (That's actually two lines. The one for "gross profit" divided by the one for "net sales".) It won't be easy for Del Monte to strong-arm suppliers into giving it better raw materials prices or to exhibit pricing power, either. That comes with the territory when you're the No. 3 player in an industry, behind such big names as ConAgra (NYSE:CAG) and General Mills (NYSE:GIS).
But in the current situation, that slim chance seems to be Del Monte's only hope for returning to the growth path.
Fool contributor Rich Smith does not own shares of any company named above.
