Fresh Del Monte Produce took another big step in diversifying its business with an agreement to acquire Salinas, Calif.-based Mann Packing.
The companies expect the $361 million deal to close in the first quarter of this year, according to a news release Feb. 6.
Coral Gables, Fla.-based Del Monte may be known for its bananas, but fresh-cut is one of the areas driving growth for the company, executives have explained in recent earnings calls. Sales in that segment have risen significantly since 2014, including some notable and steady increases throughout 2017.
The numbers have largely been driven by increasing volumes, showing Del Monte’s investment in the fresh-cut segment.
Mann specializes in value-added vegetable products, from its Veggie Slaw Blends to its Nourish Bowls to its Culinary Cuts line that includes Butternut Squash Zig Zags, Sweet Potato Ribbons and Cauliflower Cauliettes. The company did $535 million in sales last year, per the release.
“Mann has a lot of interesting new products and capabilities, and Del Monte can take it to another level,” said Mitch Pinheiro, an analyst for Costello Asset Management.
Taking into account the purchase price Del Monte paid and its expectation that the acquisition will contribute to earnings in the first year, Pinheiro surmised that Del Monte was very comfortable with Mann’s level of profitability — likely above average — and that Del Monte saw opportunities for significant cost savings up front.
Investing further in the fresh-cut segment makes sense as supermarkets look to take the additional labor and food safety risk out of stores, Pinheiro said.
Vice president of marketing Dionysios Christou said Del Monte does not expect any major changes in the Mann Packing organization, and leadership there will continue to be involved in the combined businesses. In addition, Del Monte envisions continuing use of the Mann’s brand.
“We plan to develop a joint brand strategy to ensure that both brands — Mann’s and Del Monte — are used appropriately,” Christou said. “Depending on the product, the Mann brand or Del Monte brand may be used, whichever makes the most sense and has the best fit for that particular item.”
Big boost on vegetables
Fruit is the forte of Del Monte, so the acquisition gives the company much more of a foothold in vegetables than it had previously.
“Mann Packing’s strength in the vegetable category, one of the fastest-growing fresh food segments, will provide us with synergies, enhancing our ability to better serve our combined customers and address consumers’ needs for healthier products,” Mohammad Abu-Ghazaleh, Del Monte chairman and CEO, said in the release.
Lorri Koster, chairman and CEO of Mann, expressed excitement about the deal.
“We share Del Monte’s values and commitment of providing fresh, high-quality produce based foods that are nutritious and delicious,” Koster said in the release. “Both our companies have been successful in their own right with their superior quality, service and value to our customers and consumers in all channels throughout North America. This will only be enhanced by combining the business expertise and skills of two of the industry’s premier organizations.”
The most recent earnings report from Del Monte underscored the importance of diversification.
Due to a global oversupply of bananas, gross profit on sales for the third quarter in 2017 dropped to $5.7 million, down from $39.6 million in 2016. The decrease was a major contributer to lower third-quarter gross profit for the company overall, $58.3 million versus $118.8 million.
Abu-Ghazaleh explained during an earnings call Oct. 31 that the company was working to regulate its banana supply in hopes of moderating prices but said markets make it a difficult situation, particularly in the U.S. where customers demand low prices.
Abu-Ghazaleh noted that significant growth in the “other fresh produce” category — which includes fresh-cut, avocados, pineapples and non-tropical fruit — has helped offset those challenges.