Despite stiff competition and aggressive promotional activities toughening the food industry conditions, Pinnacle Foods Inc. PF has been steadily gaining from acquisitions and business expansion efforts. Notably, shares of this renowned marketer and distributor of food products have gained 9% in the past year, compared with the industry’s decline of 4.3%.
Lets now look into the factors impacting Pinnacle Foods performance and see how it is placed for the forthcoming periods.
Growth Driving Efforts
Pinnacle Foods strives to expand market share and strengthen business through strategic buyouts. The acquisition of Boulder Brands (in January 2016) provided Pinnacle Foods a growth platform for refrigerated foods. The benefits from this acquisition are expected to enhance procurement, manufacturing and logistics operations. Further, the company expects to achieve synergies worth more than $15 million in 2017, and projects incremental synergies of $4-6 million in 2018 from Boulder Brands. Other acquisitions which have driven Pinnacle Foods’ business in the past include Duncan Hines, Garden Protein and Wish-Bone.
Further, the company plans to expand brands line-up through innovations. In this regard, the company launched Hungry-Man handfuls during the third quarter of 2017, which is a four-line item of hand-held pocket meals. Other noteworthy launches include the introductions of Perfect Size for One, Vlasic purely pickles and Birds Eye product lines.
Apart from such initiatives, Pinnacle Foods has been on track with efforts to induce operational efficiency. In fact, productivity savings along with modest net realized pricing and acquisition synergies helped the company offset the impact of input cost inflation during the third quarter. Owing to such efforts, the company expects gross margin to improve 300-400 basis points by 2019. Pinnacle Foods is also pursuing other initiatives to boost profits including low-margin SKU rationalization and increasing the effectiveness of trade promotional spending.
Can Efforts Offset Hurdles
Pinnacle Foods has been witnessing sluggish net sales for Specialty segment since five consecutive quarters now. In third-quarter 2017, sales at the segment tumbled 17.2% to $77 million due to reduced volume/mix, impacts from the Aunt Jemima (AJ) exit and lower net price realization. Also, the exit of the gardein private label business and soft food service sales hampered underlying sales, alongside weighing upon the segment margin.
Additionally, Pinnacle Foods expects the impact of adverse weather conditions experienced during 2017 to linger in the forthcoming periods as well and lead to increased freight rates. In fact, the company expects input cost inflation of approximately 3% on account of greater-than-anticipated transport costs.
Nevertheless, we note that Pinnacle Foods has been steadily expanding its market share. In fact, the third quarter of 2017 marked Pinnacle Foods’ 14th straight quarter of market share growth. Moreover, by deriving strength from business expansion efforts, we expect the company to offset the aforementioned hurdles with ease and continue being in investors’ good books.
Do Consumer Staples Stocks Grab Your Attention? Check These
Investors interested in the same sector may consider stocks such as Estee Lauder Companies Inc EL, Conagra Brands Inc CAG and Meredith Corporation MDP, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Estee Lauder came up with an average positive earnings surprise of 18% in the trailing four quarters. It has a long-term earnings growth rate of 12.5%.
Conagra Brands pulled off an average positive earnings surprise of 6.2% in the trailing four quarters. Also, it has a long-term earnings growth rate of 7%.
Meredith Corporation delivered an average positive earnings surprise of 7.1% in the trailing four quarters. It has a long-term earnings growth rate of 8%.
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