DEL Monte Pacific Ltd. (DMPL) plans to cut production this summer by as much as 50 percent for some product categories as part of measures to address declining profit margins.
The company has reported a net loss of $127.3 million for the fiscal year that ended April 2024 from a net profit of $16.9 million a year ago, mainly due to higher costs and expenses coupled with declining volume sales and an inventory imbalance.
DMPL Chief Executive Officer Gregory Longstreet said they did not anticipate the sales decline in 2023, which he added was an industry-wide phenomenon amid changes in consumer behavior, especially in the United States.
Grocery sales were said to have fallen 10 percent following a pullback in federal stimulus measures and SNAP (Supplemental Nutrition Assistance Program) benefits or food stamps, as well as due to inflation and as consumers returned to dining out and cooking less at home.
“So with these trends, obviously our volume planning had assumed a more robust buildup, even though in most segments we were predicting some category decline, but not to the tune of what we saw in the entire year,” DMPL Chief Financial Officer Parag Sachdeva told analysts and investors earlier this week.
The shortfall led to a more complicated issue in managing the company’s inventory, Sachdeva continued. “You ended up with aging issues, you ended up with FIFO (first in, first out) issues, which led to increased waste.”
“This gap in what was forecasted to what actually occurred is exactly what Parag described. It created the inventory imbalance,” Longstreet said, adding that they expect to carry an inventory imbalance for the next 12 to 24 months.
To address the issue, DMPL’s production will be reduced by 30 to 40 percent, and as deep as 50 percent for some of their categories, to balance inventory, he said.
“We are making significant cuts … for fiscal year 2025. For example, in tomatoes, the reduction is between 35 percent [and] 40 percent, to give you just a flavor of how much we are reducing,” Sachdeva added.
The move will allow DMPL to look for more opportunities to improve its margin structure.
“Though it is definitely mitigated, as we have got better at it, and we would be able to bring the inventory levels down in the second half after the [production] reductions have been achieved, so we feel that that would allow us to bring the inventory to a reasonable level,” Sachdeva said.
On Friday, DMPL shares were unchanged at P4.50 apiece amid a 0.23-percent decline for the benchmark Philippine Stock Exchange index.
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