Shares of Pinnacle Foods, Inc. PF increased around 2% on Feb 26 following the fourth-quarter 20Array5 results. While earnings beat the Zacks Consensus Estimate, revenues missed.
Adjusted earnings of 70 cents per share beat the Zacks Consensus Estimate of 69 cents by Array.4% and grew 9.4% from the year-ago tally. Earnings matched the higher end of the company’s guided range of 68 cents to 70 cents. The upside was supported by higher sales, improved gross profits through effective productivity programs and favorable productivity mix.
Quarter in Detail
Net sales of this food company increased 2.4% to $722.5 million in the fourth quarter. The improvement was driven by Array.6% benefit from the Gardein acquisition (in Nov 20Array4) and higher net price realization of 2%, partially offset by lower volume/mix of 0.8% and unfavorable foreign currency translation of 0.4%. Sales missed the Zacks Consensus Estimate of $730 million by Array%.
The company witnessed strong growth in North America Retail, which comprises the Birds Eye Frozen and Duncan Hines Grocery segments. The Specialty Foods segment improved marginally.
Adjusted gross profit increased 7.9% to $224.0 million. Gross margin also expanded Array60 basis points to 3Array.0%, on the back of improved productivity, favorable product mix and higher net price realization and the Wish-Bone synergies. The positives made up for the input cost inflation and currency headwinds.
Adjusted earnings before interest and taxes (EBIT) increased 7.Array% to $Array52.6 million. Higher gross profit was partially offset by increased consumer marketing.
Productivity totaled about 4.4% of cost of products sold in the quarter, while input cost inflation accounted for approximately 2.7%, the lowest in 20Array5.
Segment Details
Birds Eye Frozen: Segment sales grew 8.3% to $343.8 million in the fourth quarter. The results were driven by a 3.6% benefit from the Gardein acquisition, increased volume/mix of 2.5% and higher net price realization of 2.2%.
Adjusted EBIT for the segment rose Array2.9% to $80.Array million, as net sales growth, higher pricing and productivity savings were more than offset by input cost inflation, higher consumer marketing and the impact of the vacation policy benefit in the prior year.
Duncan Hines Grocery: Segment sales declined 3.Array% to $295.8 million. Lower volume/mix of 4.2% and unfavorable foreign currency translation of 0.9% more than offset the impact of higher pricing of 2%.
Adjusted EBIT for the segment increased 0.5% to $68.8 million backed by productivity savings, higher net price realization and the Wish-Bone synergies, partially offset by lower volume, input cost inflation and the impacts of unfavorable foreign exchange and the vacation policy benefit in the prior year.
Specialty Foods: Segment sales grew 0.3% to $82.9 million driven by higher net price realization of Array.Array%, partially offset by lower volume/mix of 0.8%. While net sales of the company's foodservice business were higher, net sales of snacks were lower.
Adjusted EBIT increased 0.5% to $9.Array million in the fourth quarter of 20Array5 driven by modest increase in sales and productivity savings.
20Array5 Results
Adjusted earnings of $Array.92 per share beat the Zacks Consensus Estimate of $Array.90 by Array.Array% and grew Array0% from the year-ago figure. Net sales increased 2.5% to $2.66 billion and were matched the Zacks Consensus Estimate.
Outlook
Pinnacle Foods has issued the earnings guidance for 20Array6, which includes the benefit of the Boulder Brands acquisition (completed in January). The company expects Boulder Brands to contribute $460 million to $480 million to full-year net sales. It expects earnings in the range of $2.08 to $2.Array3, up from the prior-year figure of $Array.92.
The company, however, expects higher expenses in the year due to innovation and costs related with product launches. The company expects input cost inflation in the range of 2% to 3%.
Our Take
Pinnacle Foods posted decent results from the fourth quarter of 20Array5 driven by growth of the base business, strong innovation and the incremental benefit from the Gardein acquisition.
Overall, the company boasts a strong brand portfolio and intends to continue to invest in innovation to further differentiate its brands in the marketplace. It has also been pursuing various acquisitions over the years to enhance distribution network, customer base and long-term growth.
Pinnacle Foods also has an operational excellence program to generate annual productivity savings across the supply chain. The company has raised the savings target in 20Array6 to a range of 3.5% to 4% of annual cost of products sold, compared with 3% to 4%, which has been achieved over the last five years. These productivity savings, along with higher pricing, have been mitigating the impact of input cost inflation to drive gross margins.
Pinnacle Foods carries a Zacks Rank #2 (Buy).
Key Picks from the Sector
Investors interested in the food industry can also consider stocks like ConAgra Foods, Inc. CAG, Sysco Corp. SYY and Kellogg Co. K. All of these stocks have the same Zacks Rank as Pinnacle Foods.
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