Shares of Pinnacle Foods Inc. (PF) reached a 52-week high of $35.85 and eventually closed at $35.60 per share on Dec 26. Shares of this food company have been gaining momentum since the company reported strong third quarter fiscal 2014 results on Nov 12 and anticipated double-digit growth in adjusted earnings in fiscal 2014.
Growth Drivers
Pinnacle reported solid third quarter fiscal 2014 results, wherein adjusted earnings of 41 cents came in line with the Zacks Consensus Estimate and surged 17% from the year-ago figure. Despite higher-than-anticipated inflation and a highly competitive pricing environment, the upswing in earnings was bolstered by higher sales, improved gross margins through effective productivity programs and ongoing improvement in product mix.
Net sales increased 9% to $624.0 million, benefiting from the Wish-Bone acquisition and higher volume/mix, partially offset by lower net pricing and foreign currency headwinds. Adjusted gross profits increased 9.1% to $171 million, while gross margin was flat at 27.4% owing to productivity savings.
In Oct 2013, Pinnacle Foods completed the acquisition of the Wish-Bone salad dressing business from consumer giant Unilever Plc (UL).
Pinnacle Foods also generated exceptional cash flow during the quarter, including both strong cash flow from operations and the benefit of a $163 million fee associated with the termination of its merger agreement with The Hillshire Brands Company. The fee, net of expenses, along with cash on hand, was used to reduce indebtedness by $200 million.
Chicago-based Hillshire Brands had proposed to buy Pinnacle Foods on May 12. However, two weeks later Tyson Foods, Inc. (TSN) and poultry producer Pilgrim’s Pride Corp. (PPC) showed their interest in acquiring Hillshire. Finally, Tyson, with its better offer, won the deal to acquire Hillshire while Pinnacle moved away from the pending deal. (Read: Pinnacle Terminates Hillshire Deal, Makes Way for Tyson)
Though Pinnacle tightened its fiscal 2014 earnings guidance range from $1.70 – $1.75 per share to $1.71 – $1.74 per share, the company continues to expect double-digit growth in adjusted EPS for fiscal 2014 based on its strong productivity initiatives and a solid pipeline.
Pinnacle Foods has a Zacks Rank #3 (Hold).
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