Del Monte Foods (NYSE:DLM) is scheduled to release earnings tomorrow. The food seller hopes its financial fare won't turn too many stomachs. Let's chew on some numbers.

What analysts say:

  • Buy, sell, or waffle? Ten analysts follow the company. Three recommend buying, two believe the shares should be sold, and five just want to stay put with a hold recommendation.
  • Revenue. Analysts expect sales of $711.4 million, just 5.5% higher than a year ago.
  • Earnings. On average, the company is expected to report only $0.01 a share. Estimates range from a loss of $0.01 to a profit of $0.04. This is quite a fall from a year ago, when the company earned $0.09 a share.

What management says:
Del Monte is trying to leverage its strong brands and add strong ones to its stable via acquisitions. More than 90% of its products are all-natural, and the company is introducing new products designed to continue capturing health-conscious consumers. Recent additions include Del Monte No Sugar Added Fruit, Del Monte Organic Vegetables, Chillers, and new flavors of Fruit Naturals. In the pet-products segment, it recently introduced 9 Lives Daily Essentials, Meow Mix Market Select Cups, Kibbles 'n Bits Brushing Bites, and Pup-Peroni Ribs products. Through sourcing and supply-chain initiatives, the company aims to continue reducing costs and becoming more efficient. Management hopes to bolster shareholder returns by increasing the dividend and repurchasing shares.

What management does:
Like food manufacturers across the sector, Del Monte is dealing with higher raw-material costs that will likely affect this quarter's results. The gross margin expanded by 40 basis points last year, to 26.6%, and the operating margin grew as well, to 10.9%, from 10.2% a year earlier. Thus far, price hikes, cost reductions, acquisitions, and new products appear to be driving operating-margin expansion. Higher interest costs are knocking down the net margin.

Metric

4/30/06

7/30/06

10/29/06

1/28/07

4/2907

Gross Margin

26.2%

26.2%

26.3%

26.5%

26.6%

Operating Margin

10.2%

10.3%

10.5%

10.9%

10.9%

Net Margin

5.7%

5.2%

4.4%

4.1%

3.3%

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:
The focus will be on whether the company continued to expand margins in the face of rising product costs. Although competitors have been raising prices, their margins have still come under pressure. Smithfield Foods (NYSE:SFD) was able to buck the trend and report solid earnings, while Hormel Foods (NYSE:HRL) hasn't been able to cut the mustard. However, Del Monte has an advantage: Although pet products account for only about 37.5% of the top line, it provides about two-thirds of operating income. The segment has well-known brands, as we saw above, and recently acquired Meow Mix and Milk Bone. Pet lovers, get ready to put Kitty on a diet! Investors, stay tuned.

Fool contributor Larry Rothman is happy to receive feedback, and he promises to read it when he's 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.