Latest / Investor Exchange / Del Monte Pacific Third Quarter FY2025 Results

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Del Monte Pacific Third Quarter FY2025 Results · Investor Exchange

• 0:02
  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
• 0:07
  Okay, so you're here with us because you really want to understand what's going
• 0:11
  on with Del Mondi Pacific Limited, right? Their financials.
• 0:14
  But you don't want to wade through like a whole ocean of data.
• 0:17
  You just want like the good stuff, you know.
• 0:20
  And lucky for you, you've given us a bunch of goodies to dig into.
• 0:24
  We've got their management discussion and analysis, this, a whole presentation
• 0:28
  and press release all about their performance in the third quarter and then
• 0:32
  the nine months leading up to January 31st, 2025.
• 0:35
  Yeah, sounds good. So as you know, DMPL, they're traded on both the Singapore
• 0:39
  and the Philippine stock exchanges.
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  So let's really dive in and try to understand what drove these numbers,
• 0:46
  you know, like the good stuff and maybe the not so good stuff.
• 0:50
  And then, of course, like what are they expecting down the line? Yeah.
• 0:53
  These documents provide a really good snapshot of the company's performance
• 0:58
  and their own thoughts on what happened, you know, why things happened the way they did. Yeah.
• 1:03
  And one thing to note is that these Q3 results are still unaudited.
• 1:06
  They say that in the MDA. So that just means that this is their current view.
• 1:11
  Things could change as the audit progresses, but it does give us a pretty good
• 1:15
  idea of where things are headed. Okay.
• 1:17
  So like always, let's start big picture with the overall group performance.
• 1:22
  And just looking at it quickly, it actually looks like their sales actually increased.
• 1:27
  Right? By like 2.5% in the third quarter, which is pretty decent.
• 1:32
  And then for the nine month period, 3.5%. Yeah.
• 1:36
  I mean, that's not bad, right? That seems like a pretty solid result on the surface.
• 1:40
  Yeah, definitely positive, right? It's a win for them. They're generating more revenue.
• 1:44
  Yeah, it shows they're able to grow their top line and sell more of their products.
• 1:49
  And, you know, they even specifically mentioned in the documents that a big
• 1:53
  part of this growth was because of higher exports of their pineapple products,
• 1:57
  both fresh and packaged.
• 1:59
  Right, but that also makes them, like, pretty reliant on the global markets, right?
• 2:03
  Well, that's true. It means they're a little more sensitive to changes in the
• 2:07
  global economy or, you know, even things like trade policies could affect them down the road.
• 2:12
  Yeah, that's a good point. It's definitely something to keep an eye on. It is, definitely.
• 2:15
  But then, you know, you dig a little deeper, look at their bottom line,
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  and it's kind of a different story. We're talking about a net loss.
• 2:21
  Oh, yeah. A pretty big one.
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  U.S. $35.9 million for the third quarter alone and then for the whole nine months.
• 2:29
  A pretty substantial U.S.
• 2:31
  $92.2 million.
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  And what's really interesting is that, you know, it's way bigger than their losses last year.
• 2:39
  Yeah. So it's almost like the revenue growth just didn't trickle down to profitability.
• 2:42
  Right. Yeah. And that's what we have to figure out. Why is there this disconnect
• 2:46
  between their sales going up, but their profits are actually going down?
• 2:49
  Yeah. And to do that, we need to like zoom in on each of their main businesses,
• 2:54
  see how they how they did individually. Makes sense.
• 2:57
  All right. So let's start with their U.S. arm. That's Del Monte Foods Corporation, too, or DMFC.
• 3:03
  Like, what role did they play in this whole thing?
• 3:06
  Well, DMFC, they actually saw their sales drop a little bit,
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  unlike the group as a whole.
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  It was down by 1.1% for the third quarter and 1.5% over the nine months. Okay.
• 3:17
  They actually give a few reasons for this. First of all, they had a lower demand
• 3:20
  from retailers for some of their core products, like their fruit cups,
• 3:24
  some of their tomato products, and broth. And then on top of that,
• 3:27
  they mentioned something called an unfavorable sales mix.
• 3:30
  What that means is they basically sold more of the less profitable products.
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  So, for example, they might have sold a bunch of canned beans,
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  but not as many of the higher margin products like their premium fruit cups.
• 3:41
  Oh, OK. So even if they sold like the same total number of items,
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  the fact that they were selling more of the less profitable ones means that
• 3:49
  their overall profits will be lower.
• 3:51
  And of course, it wasn't all bad news. They did mention that price adjustments
• 3:55
  and stronger sales to the food service industry helped to offset some of those
• 3:59
  losses. But overall, it wasn't a great quarter for DMFC.
• 4:02
  Yeah, so less sales and then selling more of the less profitable stuff.
• 4:05
  That doesn't sound like a winning recipe.
• 4:07
  No, not really. So how did this actually impact their bottom line?
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  Like, how did it impact their profit? It had a big impact.
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  Their gross profit, which is like the money they make after they pay for making
• 4:19
  their products, that took a pretty big hit.
• 4:21
  And their gross profit margin, which is, you know, like a percentage of their
• 4:24
  revenue, that shrank quite a bit as well. It went down to 12.6% in Q3 compared to 15.7% last year.
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  So yeah, that's a pretty significant drop. And they gave a bunch of reasons
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  for this. One was the unfavorable sales mix we just talked about, right?
• 4:40
  So selling more of the cheaper products. But then there's also this thing called fixed cost absorption.
• 4:48
  It's a bit of a mouthful, but basically it means that they have certain costs
• 4:52
  that stay the same no matter how much they produce.
• 4:54
  Oh, okay. So, you know, think of it like the rent on their factories.
• 4:58
  Even if they're making fewer cans of tomatoes, they still have to pay the same rent for the factory.
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  So that means that each can of tomatoes they do produce has to carry a bigger
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  share of that fixed cost, which makes each can less profitable.
• 5:12
  Oh, OK, that makes sense. And then on top of all that, they also had higher
• 5:15
  costs for warehousing and for transportation.
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  So, yeah, things weren't looking great for DMFC in terms of their profitability.
• 5:22
  So less efficient because they're producing less. And I'm guessing that really
• 5:25
  hurts their earnings overall, right?
• 5:27
  Yeah, absolutely. Their EBITDA, that's earnings before interest,
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  taxes, depreciation and amortization. You know, which is a really key measure
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  of how profitable their operations are.
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  That just plummeted. It was down by over 70% in both the third quarter and for the nine months. Wow.
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  So yeah, it was a big, big drop. And then as you might expect,
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  their net loss got even bigger. In Q3 alone, their net loss was U.S. $40.5 million.
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  That's up from a U.S. $23.1 million loss last year.
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  And then for the nine months, it's even worse. U.S. $104.7 million compared
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  to U.S. $35.9 million the year before.
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  And they actually specifically say in the report that this is all linked to
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  those higher operating costs we just talked about, as well as higher interest expenses.
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  So yeah, it's a bit of a mess for DMFC right now. It sounds like the U.S.
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  Is really weighing down the entire group's financial performance.
• 6:19
  It is, yeah. But was there any good news, like anything positive coming out
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  of DMFC? Well, there were a couple of bright spots.
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  They highlighted the positive impact of some of their new products that they
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  launched in the last three years.
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  These new products actually made up a pretty decent chunk of their sales,
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  like 5.1% in the third quarter and 5.8% for the nine months.
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  So it seems like their efforts to come up with new and interesting products
• 6:43
  are working. They're actually generating some revenue.
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  Obviously, it hasn't been enough to offset all the challenges they're facing,
• 6:51
  but it's something positive.
• 6:53
  It shows they're still innovating. Yeah, something to build on. Exactly.
• 6:57
  And it looks like they're not just sitting around and waiting for things to get better.
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  The documents actually talk about some pretty significant changes they're making
• 7:05
  to try and turn things around.
• 7:07
  Yeah, absolutely. They've laid out a few key strategies to try and improve their performance.
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  One of the big ones is consolidating their assets, especially those that aren't
• 7:16
  being used as much as they could be.
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  They've already closed one of their plants, the Hanford plant.
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  And the idea here is to streamline their manufacturing, reduce their overall
• 7:26
  footprint, and ultimately, you know, cut costs and improve their margins.
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  And they're looking at, you know, the next couple of years, 2026,
• 7:33
  2027, as the timeframe for when they expect these changes to really start having a positive impact.
• 7:40
  So thinking long term. Yeah, absolutely. And, you know, plant closures are tough,
• 7:45
  but sometimes they're necessary to make a business more efficient.
• 7:48
  That's true. What else are they focused on? Well, another big focus for them
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  is reducing their inventory.
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  They've actually made a lot of progress here. They've managed to cut their inventory
• 7:56
  levels by 25 percent compared to last year.
• 7:59
  Wow. Yeah, it's a pretty big reduction. That's about U.S.
• 8:02
  $291 million less inventory. And they're planning to keep reducing it in the coming quarters.
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  And this is really important because, you know, when you have a lot of inventory
• 8:12
  sitting around, that's basically cash that's tied up.
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  It's not working for you. So by reducing their inventory, they're freeing up
• 8:19
  that cash and improving their cash flow.
• 8:22
  And we're actually going to see that later on when we look at their cash flow
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  statements, you can really see the positive impact of those inventory reductions.
• 8:30
  Makes sense. Yeah. And what's the third initiative?
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  So the third big thing they're doing is it's really a broad cost cutting program.
• 8:37
  They're looking at every aspect of their business, trying to find ways to save money.
• 8:41
  So that includes things like their SG&A expenses, which is basically,
• 8:44
  you know, their sales and marketing costs, their administrative expenses.
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  But they're also looking at their warehousing costs, their distribution costs,
• 8:53
  and just their overall operational expenses.
• 8:55
  And to help with this, they've actually implemented a new organizational structure
• 8:59
  and supply chain this year.
• 9:00
  So it's a full court press to get these costs under control.
• 9:05
  Yeah, exactly. It's a pretty comprehensive effort.
• 9:07
  And are they just like cutting back or are they looking for ways to grow the business as well?
• 9:13
  No, they are definitely looking for ways to grow. They're planning to keep expanding
• 9:17
  their newer businesses.
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  And they're also really focused on growing their food service and e-commerce channels.
• 9:24
  Okay. You know, those are areas where they see a lot of potential for growth.
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  And they also emphasize that they're committed to maintaining their leading
• 9:32
  position in the Del Monte vegetable business.
• 9:35
  Okay, good. So it's a multi-pronged strategy, right? Yeah. Like focusing on
• 9:38
  efficiency and growing the business.
• 9:40
  Exactly. Okay, let's move on to what looks like the real bright spot in all of this.
• 9:44
  Del Monte Philippines, DMPI, their performance was just like completely different
• 9:49
  from what we saw in the U.S., right? Yeah, it really was.
• 9:52
  DMPI had a fantastic quarter. Their sales increased by 10% in U.S. dollar terms.
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  And even more impressively, they were up 15.3% in Philippine peso terms.
• 10:04
  Yeah, it's a big jump. And for the nine months, it was the same story.
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  13% growth in U.S. dollars and 16.4% in pesos.
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  And they specifically called out their beverage segment, their packaged fruit,
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  and their culinary segments as being the main drivers of that growth.
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  So they had huge sales growth. And unlike DMFC, this growth actually translated
• 10:24
  into more profit, right?
• 10:26
  Yeah, it did. Their gross profit and their gross profit margin,
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  they both improved significantly.
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  In Q3, their margin went up to 27.4% compared to 22.9% the year before.
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  And this was all thanks to a combination of lower costs, better pricing strategies,
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  and a more favorable sales mix.
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  So basically the exact opposite of what was happening at DMFC.
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  They were selling more of their higher margin products, which really helped
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  to boost their profitability.
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  So the opposite of what was going on with DMFC, and I'm guessing that also flowed
• 10:55
  down to their net profit. Yeah, absolutely.
• 10:57
  Their net profit just skyrocketed. It was up by a whopping 83% to U.S.
• 11:02
  $21.4 million in Q3. And for the nine months, it was up 80% to U.S. $60.8 million.
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  So, yeah, it's a really stark contrast
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  between the U.S. and the Philippine operations. A complete turnaround.
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  So what drove the success? What are they doing right in the Philippines?
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  Well, they pointed to a few key factors.
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  First of all, their marketing campaigns seem to be really hitting the mark.
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  They specifically mentioned their Noche Buena campaign during the Christmas
• 11:30
  season, which was clearly very successful.
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  And they also said that they've gained market share in their beverage segment.
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  They specifically mentioned their 100% pineapple juice fiber enriched product,
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  which is doing really well. Okay.
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  And they've also launched some successful new products like their Fruity Zing
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  and their Fit and Right Green Apple.
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  And it seems like they're doing well across all of their sales channels.
• 11:51
  Okay. So effective marketing new products. Yeah. Sounds like a healthy business.
• 11:55
  Okay. So let's move on to their international markets, not including the Philippines.
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  How did they do? So their international markets also did really well.
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  They saw sales growth of 29% in Q3 and 27.6% for the nine months. Wow.
• 12:10
  Okay. Yeah. And the main reason for this was strong demand for both their fresh
• 12:15
  pineapple and their packaged products. This was across different regions.
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  So was there any specific region that was particularly strong?
• 12:23
  Yeah, they actually mentioned a few. They said that sales in China,
• 12:26
  South Korea, and Japan were all very strong, especially for their fresh pineapple.
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  Okay. And this was driven by a combination of things, higher sales volumes,
• 12:34
  better pricing, and also a better product mix.
• 12:37
  They're actually selling more of their premium S&W deluxe pineapple.
• 12:41
  Okay. And that's interesting because that particular variety now makes up about
• 12:45
  30% of all their fresh pineapple exports, and it even won a Superior Taste Award
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  from the International Taste Institute.
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  So yeah, it's clearly a popular product.
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  And then on top of that, their processed exports to North Asia,
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  Europe, and the Americas, they all increased as well, driven by stronger sales
• 13:02
  of packaged pineapple and industrial products, and also better pricing.
• 13:06
  And they're even branching out into new categories.
• 13:08
  They launched S&W salted egg cookies in Hong Kong and Macau. Salted egg cookies?
• 13:14
  Yeah, it's a thing. Apparently.
• 13:16
  Okay, so strong performance all around, except for in the U.S. Yeah, seems like it.
• 13:20
  Okay, so we talked about the group's gross profit. And even with DMPI doing
• 13:24
  so well, the overall gross profit for the group actually decreased, but only slightly.
• 13:29
  Yeah. So the improvement in DMPI's gross profit definitely helped.
• 13:32
  But it just wasn't enough to fully offset the big decline that was coming from GMFC.
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  So overall, there was still a slight decrease in the group's gross profit.
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  But, you know, it could have been a lot worse if DMPI hadn't performed so well.
• 13:45
  Exactly. And what about EBITDA at the group level?
• 13:48
  So EBITDA at the group level, that was a bit of a mixed bag.
• 13:51
  It actually went up slightly in the third quarter, but for the nine months, it was actually down.
• 13:55
  Again, this really just reflects the contrasting performances of DMPI,
• 14:00
  which was doing really well, And DMFC, which was, you know, struggling.
• 14:03
  Okay. So it kind of evened out. It evened out. Okay.
• 14:06
  Let's talk about debt now. We see that their net debt actually decreased,
• 14:11
  which is a good thing, right? Yeah. It is a good sign.
• 14:14
  And the main reason for this reduction in debt is that they've gotten better
• 14:18
  at managing their inventory.
• 14:20
  They've reduced their inventory levels across the whole group.
• 14:22
  Right. But there's a bit of a catch here.
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  Their net debt-to-equity ratio and the net debt-to-EBIT ratio,
• 14:29
  those have actually gone up.
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  And this is important because it shows that even though they've reduced their total debt,
• 14:36
  Their equity base has shrunk because of the losses they've been making in the U.S.
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  So basically, their debt is now a bigger proportion of their equity in their earnings.
• 14:45
  And that could potentially make them more vulnerable to financial problems in
• 14:50
  the future if things don't improve.
• 14:51
  Okay, so it's a mixed bag when it comes to debt. Yeah, it is.
• 14:54
  It's not as straightforward as it might seem at first glance.
• 14:57
  But one thing that seems to be pretty positive is their cash flow from operations.
• 15:02
  Oh, yeah, that's a really good sign. Their cash flow from operations has improved
• 15:06
  significantly, both in Q3 and for the nine months.
• 15:09
  And this is largely because of those inventory reductions we talked about earlier.
• 15:14
  Both DMFC and the rest of the group have done a really good job of reducing
• 15:18
  their inventory, which has freed up a lot of cash.
• 15:20
  Okay, so that's a big win for them. Yeah, it is. It shows that they're managing
• 15:24
  their working capital more efficiently.
• 15:26
  Okay, so we talked about the past and we talked about the present.
• 15:30
  Now, what about the future? What are they expecting for the rest of the year?
• 15:34
  So they've said that they're still expecting to make a net loss for the full fiscal year 2025.
• 15:40
  Okay. And this is in line with what they've been saying previously.
• 15:44
  And it takes into account all the changes they're making in the U.S.,
• 15:47
  like closing that plant and all the other cost-cutting measures.
• 15:50
  Right. So they're not expecting to turn things around completely this year.
• 15:54
  But they are expecting things to start getting better in the next couple of years, in 2026 and 2027.
• 16:01
  And they're really banking on the success of those strategic initiatives that DMFC is implementing.
• 16:07
  So if those cost-cutting measures and the asset consolidation,
• 16:11
  if those work, they should start to see some real improvements in their financial
• 16:14
  performance in the coming years.
• 16:16
  So the future hinges on the U.S. market, on DMFC. It does. Yeah.
• 16:21
  DMPI and the international markets, they're doing well. So it's really all about
• 16:25
  whether DMFC can turn things around.
• 16:28
  If they can get their costs under control and improve their margins,
• 16:32
  then the group as a whole should start to see some real progress.
• 16:36
  So, you know, it's a story of two different paths within one company,
• 16:40
  right? Yeah, it is. It's fascinating, actually.
• 16:42
  Yeah, it is. We've got, you know, the Philippines and the international markets, they're doing great.
• 16:47
  But then the U.S. is really tracking them down. Right. And it's all going to
• 16:50
  come down to how well DMFC can execute those strategic initiatives.
• 16:55
  If they can manage to reduce their costs and improve their margins,
• 16:58
  then things should start looking up for the entire group.
• 17:01
  But if they can't, well, then they're going to continue to struggle.
• 17:04
  So you, the listener, considering everything we've talked about today,
• 17:08
  what do you see as the biggest opportunity for Del Monte Pacific in the next few years?
• 17:13
  Or maybe the biggest risk? You know, what are your thoughts?
• 17:17
  And, of course, if you really want to get into the nitty gritty,
• 17:19
  we encourage you to take a look at the full financial reports.
• 17:22
  Thanks for joining us for this Deep Dive.
• 17:24
  Music.