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Del Monte (DLM)
Del Monte Sells Starkist
Del Monte (DLM: Charts, News, Offers) hopes that dumping Starkist tuna overboard will improve profit margins. The firm announced today that it will sell its seafood business to South Korean company Dongwon. The seafood section of Del Monte includes the famous Starkist tuna brand, which was purchased for $363 million by Dongwon. Del Monte produces both traditional and pet food, including the brands College Inn and Meow Mix. The San Francisco food firm bought Starkist just six years ago in 2002. Why has Del Monte decided to sell off its tuna processing acquisition?
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The driving force behind Del Monte's decision is its new business model. The firm has shifted its focused to higher margin produce and pet foods. Furthermore, the recent increase in tuna costs has been cutting into its profit margins in recent quarters. Del Monte hopes that divesting Starkist will enable the firm to concentrate exclusively on its more profitable offerings and recover from past, lower profit quarters. However, there was another factor that influenced Del Monte to sell Starkist.
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Del Monte is also looking to pay off its accrued debt. The rising prices in energy and ingredient costs coupled with the Starkist's high expenses has put a financial squeeze on Del Monte. However, the firm announced that the $363 million will help reduce the debt, and point the company in the right direction. Rick Wolford, Del Monte's chief executive officer, said, "This divestiture will immediately help improve our margin structure, eliminate a source of earnings volatility and reduce our debt leverage." The firm forecasts its fiscal 2008 profit from continuing operations to be $108 million, excluding Starkist. Del Monte seems confident that the Starkist divesture will help spark an increase in future profits and overall company performance.
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Del Monte appears to have a solid strategy in place to escape its recent debt and prepare the firm for future success. The $363 million inflow may be the key to a resurgence by the San Francisco based company. However, can Del Monte manage this money efficiently enough to pay off its debt and improve future profit margins? Only time will tell if this divesture is the financial spark Del Monte is looking for.
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