Fitch Ratings Upgrades Del Monte; Rating Outlook Stable.CHICAGO -- Fitch has raised the ratings on Del Monte Foods Del Monte Foods (NYSE: DLM) is an American food production and distribution company based in San Francisco, California. It offers canned goods in Del Monte, S&W and Contadina brands, pet foods under Kibbles n' Bits, 9Lives, Pounce, Milk-Bone and several premium brands, Company's (DLM See ILM. DLM - Distributed Lock Manager on distributed VMS systems. ), the parent company, and Del Monte Corporation's (wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. of DLM) senior secured bank facilities to 'BB+' from 'BB' and senior subordinated notes to 'BB-' from 'B'. The senior secured bank debt is guaranteed by Del Monte Foods Company and collateralized by security interests in substantially all assets. The senior subordinated notes are guaranteed on a subordinated basis by Del Monte Foods Company and on a senior subordinated basis by all subsidiaries of Del Monte Corporation. The Rating Outlook is Stable. Approximately $1.5 billion of debt is affected by the upgrade. The rating action on DLM's senior secured bank facilities follows continued improvement in credit metrics, primarily due to debt reduction, and reduced integration related risk since DLM's Dec. 20, 2002 acquisition of various H.J Heinz's (Heinz) product lines. The acquired businesses included Heinz's U.S. Seafood, North American North American named after North America. North American blastomycosis see North American blastomycosis. North American cattle tick see boophilusannulatus. Pet Food and Pet Snacks, U.S. Private-Label Soup, and U.S. Infant Feeding product lines. The rating action on DLM's subordinated debt Subordinated Debt A loan (or security) that ranks below other loans (or securities) with regard to claims on assets or earnings. Also known as "junior security" or "subordinated loan". reflects higher expected recoveries available to subordinated debt-holders. The Rating Outlook encompasses Fitch's expectation that integration-related synergies and selective price action will help DLM manage through the current difficult commodity costs environment. The Rating Outlook also considers Fitch's expectation of improved visibility and comparability in financials in the near term. After one full year of operation since the Heinz acquisition, DLM's accomplishments include a 25% reduction in the $1.1 billion in acquisition-related debt and a stabilization of market share in its Pet Products operating segment. DLM has also successfully managed the commodity swings in the tuna segment, expanded capacity and improved product quality in private label soup, and repositioned its infant feeding business under the Del Monte name. While fiscal 2005 is challenged by a significant rise in input and packaging costs, Fitch expects synergies related to the Heinz acquisition and selective price action to result in steady consolidated margins. For the last twelve months (LTM LTM abbr. long-term memory ) ending Aug. 1, 2004, the first fiscal quarter of 2005, DLM's total debt-to-EBITDA was 3.2 times (x) on a generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ) basis, down from a post acquisition high of 4.1x in fiscal 2003 on a pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma GAAP basis. DLM's EBITDA-to-interest incurred for the same period was 3.7x on a GAAP basis, up from 3.2x in fiscal 2003 on a pro forma GAAP basis. Cash flow from operating activities-to-total debt has declined from 30% on a GAAP basis in fiscal 2003 to 15% on a GAAP basis for the most recent LTM. Fiscal 2003 GAAP cash flow represents a full fiscal year of Heinz performance and only four months of Del Monte's performance. Hence, this decline is due to the timing and structure of the Heinz acquisition, which resulted in only a partial year's worth of acquisition-related interest costs. Nevertheless, Fitch expects improvement in the near to intermediate term in cash flow from operating activities-to-total debt, primarily driven by additional debt reduction and some cash flow growth. Del Monte produces, distributes and markets shelf-stable branded and private label food and pet products in the U.S. retail market. Its market shares in private-label soup, canned fruit, canned seafood, canned vegetables, solid tomatoes, and infant food are approximately 70%, 42%, 42%, 23%, 21%, and 12%, respectively. Del Monte's consumer brands include Del Monte, StarKist, S&W, Contadina, College Inn, and Nature's Goodness. Del Monte also has a competitive position in dry and wet dog and cat food and snacks with such brands as 9Lives, Kibbles 'n Bits Kibbles 'n Bits is a brand name of dog food manufactured and marketed by Del Monte Foods. It was originally created in 1981 as the first dual textured dog food, having soft chewy pieces as well as hard crunchy ones. In 1995, the brand was acquired by Del Monte. , Pup-Peroni, and Pounce. On a GAAP-reported basis, Del Monte's Consumer and Pet Products business segments represented 75% and 25% of fiscal 2004 sales and 61% and 39% of fiscal 2004 operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. (excluding corporate expenses), respectively. |
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