Del Monte streamlining operations in US

Fresh from a $200-million fundraising, Campos family-led Del Monte Pacific Ltd. (DMPL) plans to streamline its operations in the United States, improve margins by exiting the nonbranded manufacturing business and focusing on its branded consumer business.
DMPL—which yesterday raised the curtain for the dollar-denominated securities (DDS) trading platform of the Philippine Stock Exchange with the listing of $200 million worth of preferred shares sold to the domestic capital market—was also planning to expand to Latin America and continue to grow its businesses in Asia-Pacific.

In the Philippines, DMPL plans to increase its pineapple production this year by 20 to 750,000 tons from year-ago level. This is faster than the 8-10 percent average growth seen in previous years as the company was coming from a low base in 2016, when the El Niño dry spell adversely affected output.
In a briefing after the listing of its $200-million preferred shares on the local bourse, DMPL chief finance officer Parag Sachdeva said that while the US business under Del Monte Foods Inc. had seen some decline in sales volume, the group was “very confident about its performance in the coming years.”

In the next two to three years, he said plans would be in place to increase US revenue and cash flow, trim costs and improve operating margins.

“We are reviewing our strategic footprint, particularly on the plants and distribution network. In the next 12 months, we will be making those calls to see where the opportunities to streamline our asset base are and that will be one of the major steps to improve our Ebitda (earnings before interest, taxes, depreciation and amortization) and gross margins.

US subsidiary DMFI has 12 manufacturing plants in the US and 12 to 14 distribution centers.

DMPL chief operating officer Cito Alejando said the priority would be to grow the branded consumer business in the US, which accounted for 80 percent of the group’s portfolio.

“That (branded business) is very profitable. Twenty percent (of the portfolio) is on the private label which we are considering to exit because they give lower margins and our strategic thrust is to grow branded business,” he said.

The private label business refers to the manufacturing of unbranded products, typically for other companies that sell them under their own label.

The US business’ shift to a “branded business play,” Alejando said, would increase gross margins and provide the “oxygen” for advertising and promotion of the branded products.

The group also plans to streamline the logistics side of the business. Some of its distribution centers are being rented while others are outsourced. “That is being studied right now. Before the end of this calendar year, we will have news as to how we will rationalize our network,” he said.

The coming fiscal year, he said, would be all about increasing the branded businesses, including vegetables, fruits and tomato.

Outside of the US, Alejandro said DMPL would continue to expand operations, particularly in India and the Philippines.

In India, Sachdeva said the group would look at expansion opportunities, both organic and inorganic.