Deutsche Bank Leveraged Finance Conference September 2008

Transcription

1 Deutsche Bank Leveraged Finance Conference September 2008

2 FORWARD LOOKING STATEMENT DISCLAIMER During the course of our discussion today, we will make statements that may constitute projections, expectations, beliefs or similar forward-looking statements. We would like to caution you that the Company s actual results could differ materially from the results anticipated or projected in these forward-looking statements. Detailed information concerning important factors that could cause Del Monte s actual future results to differ materially from the information we will give you today is included in our public filings, including our most recent annual report on Form 10-K and quarterly report on Form 10- Q, which are available on the SEC s EDGAR database or on our website. The Company does not undertake to update any of these forward-looking statements in light of new information or future events. In June 2008, the Company announced that it plans to sell its seafood business, including StarKist. Unless otherwise noted, all of Del Monte's financial information included in this presentation excludes the seafood business, which is reported as discontinued operations. Footnotes are provided throughout the deck to facilitate understanding of when the seafood business is excluded and included. 2

3 Cat (green dress) Dave Meyers Chief Financial Officer

4 CORPORATE GOAL Top-Tier Consumer Packaged Foods Company Success in the Marketplace Competitive margin profile Significant Shareholder Value Creation 4

5 BUILDING BLOCKS FOR SUCCESS Business fundamentals in place DEL MONTE FOODS Talent For Success Go-To- Market Platform Consumer On Our Side Strong Brands Customer On Our Side Powerful Infrastructure Large Categories Value-Added Innovation Balanced Portfolio 5

6 OPERATING ENVIRONMENT F09 NSV Momentum expected to continue EPS Double-digit cost pressures and increased marketing investment anticipated Net Sales 1 EPS from Cont. Ops 1 $4.0 $3.5 $B $3.2 Mid-point $3.4 $0.70 $0.60 $ Lower End of $0.58-$0.62 $3.0 $0.50 $2.5 $2.0 $1.5 $1.0 F09 NSV Guidance: 6% - 8% Growth $0.40 $0.30 $0.20 F09 EPS Guidance: Lower End of $ $0.62 $0.5 $0.10 $0.0 F08 F09E $0.00 F08 F09E 1 Numbers exclude the seafood business. Fiscal 2008 financial information excluding the seafood business is preliminary and subject to change. 2 Includes $0.08 of transformation expense. 6

7 ACTIONS TAKEN Step change required to drive EPS and address margin issues relating to double-digit cost inflation Actions Taken Portfolio Strategy Organization StarKist divestiture upgrades performance metrics NSV Growth: +100bps Operating Margin: +100bps Leverage: ~$300M debt reduction 2-Year OSA: Mitigates a majority of fixed infrastructure costs in F10 Accelerated growth plan Increased investment Key Growth Engines Core Brands Innovation Productivity gains Sharpened focus on key levers Aligned to support strategic objectives Leadership team deepened Marketing centralization structure put into place 7

8 F09 PROGRESS REPORT Del Monte well positioned to deliver F09 targets Better than expected financial results in Q1F09 Net sales driven by existing and new product volume EPS Q2F09 environment Majority of F09 planned pricing actions implemented Pricing versus cost dynamic improving Q1F09: acutely impacted by costs in excess of pricing Q2F09: pricing expected to cover costs in Consumer Products, which now excludes the seafood business 1 2HF09: pricing expected to cover costs company-wide Consumer reaction to pricing largely as expected through Q1F09 Volume impact of pricing in-line with expectations Trade down to private label in select areas of portfolio 1 The seafood business is now reported as discontinued operations. 8

9 KEY CHANGES TO WIN IN THE FUTURE Accelerate growth in higher margin, higher growth businesses, supported by more marketing-centric organization and increased investment Strategic Focus Execute pricing/productivity Unleash potential of core brands Drive key growth engines Organizational Structure COO structure CMO/Marketing centralization Supporting Investment 20%+ increase in marketing planned in F09 & F10 9

10 UNLEASH POTENTIAL OF CORE BRANDS Leverage Brand Equities $1B Del Monte brand > $200M Kibbles N Bits brand > $200M 9Lives brand ~$70M Pup-Peroni brand Unleash Potential of Core Brands Increase Innovation More consumer focused Platform-driven Accelerated rate Execute Pricing Actions More frequent More predictive Q1 F09 Update Began implementing increased marketing investment plan to leverage higher margin core brands Continued to drive F09 new product launches while executing pricing actions 10

11 ACCELERATE KEY GROWTH ENGINES Consumer Growth Engine Drive Accelerated Growth with Key Growth Engines Packaged Produce Pet Growth Engine Pet Products Q1 F09 Update Consumer key new product platform launched in Q1; innovation pipeline strong Pet key platforms in development with additional planned increased marketing support 11

12 DRIVE PACKAGED PRODUCE Refrigerated, ready-to-enjoy fruit in clear packaging; extended shelf-life Fills unmet consumer and customer needs Attractive category growth dynamics Need States Category Growth Consumer Drivers Healthy products Consistent quality Convenient packaging Customer Benefits Del Monte s category management expertise in a fragmented supplier base Opportunity to build partnership to successfully manage and grow the category $M $700 $600 $500 $400 $300 $200 $100 $0 $335 $400 $485 $545 Size: ~$700M Growth: ~19% $670 F04 F05 F06 F07 F08 Source: Nielsen Homescan Panel All Outlet Size and Growth Estimates FY2008. Note: Packaged Produce Category includes fresh as well as processed fruit. Fresh Del Monte Produce Inc. holds the rights to use the Del Monte name and trademark with respect to fresh fruit, vegetables, and produce throughout the world (including the United States). 12

13 DRIVE PACKAGED PRODUCE Packaged Produce growth engine: Leverages the $1B Del Monte brand Drives margins and growth expansion beyond the can Growth Engine Packaged Produce Leverage Competitive advantage in sourcing and processing Current Platform Sales: ~$145M; CAGR 1 : ~25% Additional Platforms ~$200M Incremental Opportunity First Product Launched Q1F09 Dedicated sales force Existing refrigerated distribution Category management expertise Refrigerated glass Fruit Natural standard cups Fruit Bowls 1 CAGR based on F06 F08 actual sales

14 DRIVE PACKAGED PRODUCE Del Monte Red Grapefruit meets untapped consumer and customer needs National Launch Q1F09 Brand Brand Attributes Consumer Insight Concept Health Trust Quality Convenient cut citrus Consistent quality Table-ready to enjoy grapefruit 1 Packaged Produce category is defined as refrigerated fruit + fresh cut fruit. Source: Nielsen Homescan Panel All Outlet Size and Growth Estimates FY

15 GROW PET PRODUCTS Increasing pet population and favorable pet spending trends drive attractive category dynamics Need States Pet Food & Snacks 1 Category Consumer Drivers Healthy treating and meal solutions Recognizable ingredients Customer Benefits Value-added product innovation to drive sales $B $18.0 $16.0 $14.0 $12.0 $10.0 $8.0 $6.0 $4.0 $2.0 $0.0 $13.7 $1.9 $11.8 Pet Food $14.4 $2.0 $12.4 Pet Snacks $15.4 $2.2 $13.2 Size: ~$16B Growth: ~6% $16.2 $2.3 $13.9 F05 F06 F07 F08 1 Excludes Rawhide. Source: Nielsen Homescan Panel All Outlet Size and Growth Estimates FY

16 GROW PET PRODUCTS Investing behind Pet Products to capture high growth/high margin category dynamics National Launch of Meow Mix Wholesome Goodness Wet In Q1F09 Meow Mix Sales: ~$300M Growth Engine Pet Products Milk-Bone Sales: ~$200M Kicked off Milk-Bone 100-year anniversary celebration in Q1F09 Leverage >$300M Meow Mix and >$200M Milk-Bone brand equities Injection molding, forming and patented packaging process technology Strong strategic sourcing partnerships Clear consumer needs 16

17 GROW PET PRODUCTS Meow Mix Wholesome Goodness provides pet parents with premium wet food equivalent to what they eat at the table National Launch Q1F09 Brand Brand Attributes Consumer Insight Playful Interactive Meal decisions with recognizable ingredients Concept Real Meals made with fresh ingredients Source: Nielsen Homescan Panel All Outlet Size and Growth Estimates FY

18 KEY CHANGES TO WIN IN THE FUTURE Accelerate growth in higher margin, higher growth businesses, supported by more marketing-centric organization and increased investment Strategic Focus Execute pricing/productivity Unleash potential of core brands Drive key growth engines Organizational Structure COO structure CMO/Marketing centralization Supporting Investment 20%+ increase in marketing planned in F09 & F10 18

19 ORGANIZATIONAL STRUCTURE Objectives: COO Structure Strengthen leadership capabilities Senior Team: Enhances strategy and execution focus CEO: Expands focus on strategic opportunities and initiatives COO: Sharpens focus on execution and delivery of strategic objectives CMO & Marketing Centralization Heightens Del Monte s marketing capabilities and expertise Increasing marketing impact on business decisions, performance and strategy Heightens innovation with upgraded shared disciplines across all brands Streamlines decision making with Sales Strengthens talent pool and provides attractive career options Q1 F09 Update Marketing centralization largely complete with all key positions filled 19

20 KEY CHANGES TO WIN IN THE FUTURE Accelerate growth in higher margin, higher growth businesses, supported by more marketing-centric organization and increased investment Strategic Focus Execute pricing/productivity Unleash potential of core brands Drive key growth engines Organizational Structure COO structure CMO/Marketing centralization Supporting Investment 20%+ increase in marketing planned in F09 & F10 20

21 Soccer Larry Bodner SVP, Finance, Investor Relations & Corporate Communications

22 F09 KEY DRIVERS F09 is characterized by 5 expected key drivers 1 1. Seafood Business Divestiture Eliminates a source of earnings volatility Accelerates topline growth Improves margins De-levers the balance sheet 2. Solid Topline Strength of new products Pricing 3. Stepped-Up Marketing Investment 20%+ above F08 levels primarily to drive growth engines and support pricing actions Packaged Produce Pet Products 4. Significant Cost Increases Cost increases the highest in this decade 5. Aggressive Pricing/Cost Savings ~10% pricing ~$50M cost reduction programs 1 All data excludes the seafood business from fiscal 2008 and fiscal

23 SOLID TOPLINE F09 topline growth guidance of 6-8% driven by strength of new products and pricing across the portfolio F09 NSV Growth By Segment 1 F09E 1 F09E Drivers Base Volume (incl. elasticity): ~(8)% Anticipated elasticity impact from Pricing actions Pet +7 to 8% Consumer +5 to 7% New Product Volume: ~+5% Growth Engines, including Packaged Produce & Pet Pricing: ~+10% Planned pricing at over 3x prior year average TOTAL: +6-8% 1 All F09E growth rates are based on fiscal 2008 and fiscal 2009 results excluding the seafood business. 23

24 SUPPORTING INVESTMENT High Growth/Margin Business Focus High Margin 40-45% of Net Sales Margins > 25% higher than company average High Growth ($ M) $120 $110 $100 $90 $80 $70 $60 Marketing Investment Increasing Marketing Expense Percent of Sales F06 F07 F08 F09E Plan to increase marketing in high growth/margin businesses by +30% YOY in F09, ahead of company average (%) 3.5% 3.3% 3.1% 2.9% 2.7% 2.5% 2.3% 2.1% 1.9% 1.7% 1.5% Q1 F09 Update 30+% increase in Pet marketing in Q1; Consumer spending ramping in Q2 Continue to target 20+% increase in F09 marketing investment Increased investment expected to pressure EPS near-term but drive sustainable topline/eps growth long-term Note: All data excludes the seafood business. 24

25 COST PRESSURES CONTINUE IN F09 Gross cost increases continue to accelerate with F09 expected to be up double-digits Gross Cost Increases 1 vs. Prior Year % Increase YOY ~12% Cost Bucket F09E vs. F08 Gross Cost Increases 1 % of F08 Op Costs F08 Increase ($M) F09E Increase ($M) 2 ~7% Packaging ~20% ~$15 ~$40-$50 Logistics ~15% ~$20 ~$35-$45 ~5% Raw Products ~40% ~$85 ~$175 ~4% Other ~25% ~$25 ~$35-$45 Total 100% ~$145 ~$300 Good visibility into cost profile for rest of F09 ~80% covered on hedgeable commodities (~15% of COGS) Raw materials/harvest conditions tracking to expectations in pack businesses 1 Numbers exclude the seafood business. 2 As provided on our Q1F09 earnings call on August 28,

26 AGGRESSIVE PRICING Pricing actions to help offset accelerating cost increases in F09 and catch-up on a run-rate basis by year-end F07 F08 F09YTD 2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2HF09 Fruit Veg Tomato ~6% ~7% ~9% ~3% ~5% ~7% ~14% ~13% A D D IT I O NA Dry Dog ~5% ~2% ~2% ~11% L Dry Cat Biscuits Wet Cat ~7% ~4% ~8% ~4% ~3% ~6% ~6% ~5% ~6% ~6% ~8% ~5% P R I C I N G TOTAL (FY) 1 ~3.0% ~2.5% ~10% 1 Historical pricing impact has been restated to exclude the seafood business. 2 Reflects announced pricing actions as of the Q1F09 earnings conference call. 26

27 SHARE STRENGTH Steady shares despite increased price gaps Price Gaps to Private Label 1 vs. All Outlet Shares 2 35% Fruit 30% Vegetables 30% 25% 25% 20% 20% 15% 31% 29% 29% 32% 31% 15% 27% 25% 25% 27% 25% 10% 10% 5% 5% 0% F05 F06 F07 F08 Q1F09 0% F05 F06 F07 F08 Q1F09 Price Gaps to Private Label 60% 65% 72% 74% 76% 60% 65% 63% 59% 63% 1. Price gaps to private label for total Fruit (ex Multi Serve Applesauce) and total Veg (ex Casserole Bakes) base EQ price. 2 Market share represented by case share. Source: Del Monte estimates based on Nielsen SCANTRACK grocery estimates for price gaps and Nielsen Homescan Panel All Outlet Estimates for market share. 27

28 $M $250 $200 $150 $100 $50 COST SAVINGS Expect ~$50M in productivity and transformation savings in F09 Productivity & Transformation Cumulative Cost Savings 1 ~$15 ~$45 ~$90 ~$155 ~$205 Key Drivers of F09E/Future Savings 2 Productivity Savings Lean Operations Improve energy efficiency (e.g. solar) Product reformulation Packaging innovation Transformation Plan Savings Supply Chain Optimization Trade Promotion Management $0 F05 F06 F07 F08 F09E 1 Data has been restated to exclude the seafood business. 2 Key drivers of F09E/future savings exclude the impact of the seafood business. 28

29 USES OF CASH FLOW Focused on achieving debt targets; debt reduction primary expected use of adjusted cash flow in F09 Focused on Achieving Debt Targets Strengthen balance sheet ahead of sizeable debt maturities ~$465M due in F11 Debt Targets 3.0x to 3.5x Debt/EBITDA Maintain debt ratings F09 Expected Uses of Adjusted Cash Flow 1 Debt Reduction Maintain Dividend F09 adjusted cash flow guidance: Lower end of $150-$170M 1 DLM defines cash flow as cash from operations, less cash from investing. DLM also uses adjusted cash flow which, in general, excludes cash used in or provided by large acquisitions or divestitures. Adjusted cash flow for F09E includes StarKist seafood through the expected closing in Q2F09 but excludes the expected cash provided by divestiture. 29

30 DRIVING DOWN DEBT Expected de-leveraging impact of StarKist divestiture in F09 provides future financial flexibility F09E Pre-Divestiture F09E Post-Divestiture Year-End Debt $1.8B 1 ~$1.5B 1 Debt/ EBITDA 4.0x 3.6x Flexibility to balance other uses of cash in F10 and beyond: Opportunistic M&A that meets strategic/financial guidelines - U.S. center-of-store focus with #1 or #2 brands - Gross margin accretive - EPS accretive within ~2 years - NPV materially positive Share repurchase 1 Assumes debt reduction of ~$115M from F09 expected adjusted cash flow in both scenarios. F09E post-divestiture includes additional debt paydown with anticipated net after-tax proceeds from the sale of the seafood business. 30

31 KEYS TO LONG-TERM SUCCESS Strong category fundamentals and focus on our growth engines will drive long-term EPS growth Long-term category growth ~5-6% on $ basis Disciplined portfolio management Divestiture of StarKist enhances growth/margin profile Strong brands; Marketing expected to be up 20+% in F09 & F10 Stepping up to drive innovation behind growth engines Pricing and productivity actions to cover costs in long-term Increased frequency/magnitude Long runway of productivity initiatives High-Single Digit EPS Growth Long-Term Significant deleveraging Drives ~2-4% EPS growth over long-term / Provides financial flexibility 31

32 Q&A

33 NON-GAAP FINANCIAL MEASURES Del Monte Foods Company reports its financial results in accordance with generally accepted accounting principles in the United States (GAAP). In this presentation and the accompanying webcast, Del Monte is also providing certain non-gaap financial measures. The non-gaap cash flow measures that the Company is using to compare its fiscal 2009 guidance to its fiscal 2008 results exclude cash expected to be provided by the planned sale of the seafood business, including StarKist. Del Monte uses this non-gaap financial measure internally to benchmark its performance against its performance in fiscal 2008, which had not included such a large divestiture, and believes this information is also helpful to investors. When looking internally at yearover-year changes in cash flow, the Company generally excludes the cash used in or provided by large acquisitions or divestitures, such as the now-expected fiscal 2009 divestiture of the seafood business, the fiscal 2007 acquisitions of Meow Mix and Milk- Bone and the fiscal 2006 divestiture of its soup and infant feeding businesses, and it is providing fiscal 2009 guidance on the same basis. The Company cautions investors that the non-gaap financial measures presented are intended to supplement the Company s GAAP results and are not a substitute for such results. Additionally, the non-gaap financial measures used by Del Monte may differ from non-gaap measures used by other companies. 33

34 NON-GAAP FINANCIAL MEASURES Del Monte Foods Company Reconciliations of Non-GAAP Financial Measures (in millions) Selected Cash Flow Data Fiscal Year Ended May 3, 2009 (guidance) April 27, 2008 Net cash provided by operating activities, as reported (GAAP) $190 - $200 $ Net cash provided by (used in) investing activities, as reported (GAAP) (79.7) Cash flow Net proceeds from large divestitures (300) (1) - Cash flow, as adjusted $150 - $170 $ (1) Relates to expected sale of seafood business; subject to working capital adjustment. 34

35 Bag Deutsche Bank Leveraged Finance Conference September 2008