Del Monte Foods Bankruptcy Sounds Alarm for Packaged Food Industry

(Daniel Acker/Bloomberg)

Del Monte Foods, known for its namesake canned fruits and vegetables, announced late Tuesday that it’s entering Chapter 11 bankruptcy and looking for a buyer for all of its assets.

Del Monte’s troubles sound an alarm for the food industry that is going through significant transformation. Like other consumer packaged goods brands, Del Monte has faced pressure as consumers reduce spending or shift toward private labels amid inflation. Rising input costs and the 50% tariffs on steel and aluminum imports, which took effect earlier this month, further added to its financial woes.

The company racked up debt in 2023, expecting sales improvement and higher production volume. That didn’t happen. Now, excessive debt and mounting interest have forced the firm to close some production facilities to reduce costs amid historically low liquidity, chief restructuring officer Jonathan Goulding said in a court filing.

“After a thorough evaluation of all available options, we determined a court-supervised sale process is the most effective way to accelerate our turnaround and create a stronger and enduring Del Monte Foods,” President and CEO Greg Longstreet said in a statement.

Del Monte Foods is the private U.S. subsidiary of Singapore-listed Del Monte Pacific, while Fresh Del Monte Produce is publicly traded in New York. Although they have the same “Del Monte” logo through cross-licensing, the two firms are completely siloed.

Del Monte Foods said it struck a $912.5 million restructuring agreement with key lenders that will allow it to operate as normal during the sale process. “With an improved capital structure, enhanced financial position and new ownership, we will be better positioned for long-term success,” said Longstreet.

A sale alone likely won’t save the company, which needs to diversify its product portfolio to meet consumers’ changing demand.

Consumers have been shifting away from preservative-laden canned food to fresher, healthier alternatives. While Del Monte is privately owned, the same headwinds are pressuring public companies selling canned foods, including General Mills, Campbell’s, B&G Foods, and Conagra Brands. All have seen their stocks tumble more than 15% this year.

By contrast, Fresh Del Monte Produce, which focuses on fresh-cut fruit and vegetables, has been doing well. The popularity of high-margin pineapples has shifted investor perception for Fresh Del Monte from a commoditized fruit shipper to a growing brand. The company shed underperforming businesses while moving into higher-margin niches such as avocado oil.

A $150 million buyback and dividend bump this year, along with improving margins, has further fueled investor confidence. Shares have gained more than 50% over the past 12 months as valuation continued to expand. Fresh Del Monte’s stock was flat on Wednesday.

Write to Evie Liu at evie.liu@barrons.com