Del Monte's Q4 rocked -- buy or sell on the news?

Posted Jun 11th 2009 2:50PM by Steven Mallas
Filed under: Earnings Reports, ConAgra Foods (CAG), General Mills (GIS), Kraft Foods'A' (KFT)

Shares of Del Monte (NYSE: DLM) are up over 9% in early afternoon trading. And the volume is doing gangbusters business. The market is responding to the company's fourth-quarter results. The numbers did tell an overall fun story.

To begin with, revenues saw a big jump of 20%. As many news items have pointed out, price increases helped out. It should also be pointed out that the company's press release indicated that an extra week skewed things a bit. That's okay, though, it was still a good top-line performance. Earnings per share from continuing divisions came in at $0.35, which meant that Del Monte grew the bottom line by 75% (a couple elements affecting the perception of this profit expansion was a better tax situation linked to a positive change in California tax code and a $0.04 per-share transformation expense recorded in Q4 2008). Analysts said the company might earn $0.26 per share. That's a pleasant difference, isn't it?

Del Monte apparently knows what it's doing in terms of distributing both its human food products and its pet food products. The company was able to withstand the economic climate and get consumers to pay up for its brands. That's the big key with consumer products: leverage brand equity. Names like Kraft (NYSE: KFT), General Mills (NYSE: GIS), and ConAgra (NYSE: CAG) are in the same boat. They're on the same supermarket shelves as Del Monte. Marketing their names and making connections with the shopping mindshare is what it's all about.

Adjusted cash flow for the whole year wasn't all that great. It declined significantly when compared to last year's number. I would expect, however, that cash flow over time should be okay for the company. I'm not necessarily worried about it. And let it be noted that the adjusted cash flow was adequate enough for the dividend obligation.

Del Monte is looking good to me. It's not that far off from a 52-week high, and the stock has traded in a tight range in the last year. I think investors could look at this one after the earnings excitement has faded.

Disclosure: I don't own any company mentioned; positions can change without notice.

Tags: CAG, conagra, consumer products, consumer stocks, ConsumerProducts, ConsumerStocks, Del Monte, DelMonte, dividends, DLM, food, general mills, GeneralMills, GIS, inthenews, KFT, Kraft, pet food, PetFood, supermarket