Parsippany, New Jersey-based Pinnacle Foods (PF), a food manufacturer, marketer and distributor, reported mixed results for the first quarter recently. Market share performance for the frozen segment remained very strong. The Birds Eye vegetables and Birds Eye meals gained 1.7 and 1.9 market share points.
While the earnings seemed good, the revenues could have been better. Favorable product mix has been an important contributor to gross margin improvement. It boasts of a strong portfolio and pursues continual innovation.
Net sales during the first quarter increased by 1.6% and were $766.1 million ($754.3 million in the prior-year quarter).
Gross profit in the first quarter increased by 6.3% versus a year ago and was $211.1 million, or 27.6% of net sales ($198.6 million, or 26.3% of net sales, in the prior-year quarter).
Adjusted gross profit increased by 6.2% and was $218.3 million.
As a percentage of net sales, adjusted gross profit margin expanded by approximately 120 basis points and was 28.5%.
EBIT in the first quarter of 2017 increased by 38.5% and was $111.2 million ($80.3 million in the year-ago quarter).
Adjusted EBIT during the first quarter increased by 12.8% and was $120.5 million ($106.8 million in the prior-year quarter).
Net interest expense for the quarter increased to $80.7 million compared to $31.6 million in the prior-year quarter.
Adjusted Net Interest Expense in the first quarter decreased 0.9% to $31.3 million ($31.6 million in the prior-year quarter).
The effective tax rate during the first quarter was 24.1% (49.0% in the prior-year quarter).
The adjusted tax rate during the quarter was 32.5% (37.0% in the prior-year quarter).
Net earnings during the first quarter decreased by 6.8% and were $23.1 million ($24.8 million in the prior-year quarter).
Adjusted Net Earnings increased by 27.1% and was $60.2 million ($47.4 million in the prior-year quarter).
Net cash provided by operating activities totaled $63.0 million during the quarter ($76.8 million in the prior-year quarter).
It ended the quarter with cash and cash equivalents of $141.5 million.
Capex during the quarter was $29.2 million.
Segmentwise results
Frozen
Net sales for the Frozen segment decreased by 2.9% and were $320.9 million in the first quarter ($330.5 million in the prior-year quarter).
EBIT for this segment decreased by 0.8% and was $50.9 million in the first quarter ($51.3 million in the prior-year quarter).
Grocery
Net sales for the Grocery segment increased by 3.4% and were $259.4 million in the first quarter of 2017 ($250.9 million in the prior-year quarter).
EBIT for this segment increased by 30.4% and was $51.8 million in the first quarter of 2017 ($39.7 million in the prior-year quarter).
Adjusted EBIT increased by 14.4% and was $52.8 million ($46.1 million in the prior-year quarter).
Boulder
Net sales for the Boulder segment increased by 21.4% and were $97.3 million in the first quarter of 2017 ($80.2 million in the prior-year quarter).
Adjusted EBIT increased by 43.5% and was $13.2 million ($9.2 million in the prior-year quarter).
EBIT for the Boulder segment totaled $6.7 million in the first quarter (a loss of $4.5 million in the prior-year quarter).
Specialty
Net sales for the Specialty segment decreased by 4.5% and were $88.5 million in the first quarter ($92.7 million in the prior-year quarter).
EBIT for this segment increased by 27.0% and was $8.9 million in the first-quarter ($7.0 million in the prior-year quarter).
Adjusted EBIT increased by 21.2% and was $9.7 million ($8.0 million in the prior-year quarter).
Expectations for 2017
Range
Productivity for the year
To range between 3.5% and 4.0% of cost of products sold
Adjusted net interest expense
To be around $123 million
Adjusted effective tax rate for the year
To be around 35.0%
Capex
To range between $115 million and $125
million
Focus
Expanding its presence in growing and complementary health and wellness categories.
Improving free cash flow and net leverage ratio.
More tightly managing the supply chain and overhead expenses.
Innovation.
Enhance distribution network.
Broaden customer base.
Conclusion
The company boasts of annual sales in excess of $3 billion. The company's portfolio includes well-known brands like Birds Eye, Birds Eye Voila!, Duncan Hines, Earth Balance, EVOL, gardein, Glutino and many more. Its products compete in frozen, refrigerated and shelf-stable formats. It employs around 5,000 employees across the U.S. and Canada.
During the first quarter, the company experienced retail distribution expansion and it observed operating expense discipline. The company benefited from growth in gross profit, lower operating expenses during the quarter. The productivity savings may keep the higher inflation costs at bay.
The company is rapidly gaining market share and is fueled by strength of both existing and new products. It is driven by strong productivity, higher net price realization and a favorable product mix, as well as benefiting from the Boulder Brands acquisition. In 2016, it benefited $15 million as synergies. The profit margins are expanding and it is committed to strict cost discipline. It is focusing on future growth by maximizing the value through productivity. Over the past four years, it has generated productivity savings worth $274 million.
Adding this company may produce benefits for shareholders.
Disclosure: I do not hold any position in the company.
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