Del Monte: Snacks for People, Pets and Investors

With the recent sale of Starkist fetching $300 million for the company and 8%-10% sales growth expected for 2009, Del Monte Foods (DLM - commentary - Cramer's Take) offers investors a unique growth opportunity in a defensive sector.

The company is currently reaping the rewards of an aggressive three-point growth program. First, and foremost, the company has passed through price increases, resulting in higher dollar volumes.

Second, the company has invested in operational efficiencies and a corporate reorganization plan that is expected to yield $50 million in annual cost savings going forward. Finally, the company is becoming much more innovative and aggressive in its product marketing.

Del Monte was a division of RJR Nabisco purchased by an investment group in 1990. Following some divestitures, the company became publicly traded on the NYSE in 1999. Over the years, the company has purchased a number of products and divisions from other companies within the food industry.

Del Monte currently has two divisions -- consumer products and pet products. Consumer products includes well-known brands such as Del Monte, S&W, SunFresh, Fruit Naturals, Orchard Select and Contadina. Del Monte also manufactures private-label products for other companies. The company is now one of the nation's leading producers and distributors of branded and private-label food.

In the pet product category Del Monte's portfolio includes names such as Meow Mix, Kibbles 'n Bits, 9Lives, Milk-Bone, Pup-Peroni and Pounce. Pet food products generated $3.7 billion in net sales during fiscal year 2008.

Del Monte also has a strong brand portfolio that can be extended through additional distribution and product variation with new items such as refrigerated foods with long shelf life. Management has been introducing new product packaging and creating a much more sophisticated consumer marketing team. Del Monte has also been adjusting its product portfolio to higher-margin products. The recent sale of StarKist and the seafood division enabled the company to pay down $300 million in debt and took a lot of volatility out of the cost structure.

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At the time of publication, Gear had no positions in the stocks mentioned.

Steve Gear was director of capital markets at Stockhouse.