Pinnacle Foods (PF) Tops Q2 Earnings; Shares Up on View
Zacks Equity Research
Updated
Pinnacle Foods, Inc.PF reported mixed second-quarter 2016 results. While earnings beat the Zacks Consensus Estimate, revenues missed the same. Shares of Pinnacle Foods were up 2.65% on Jul 28.
Adjusted earnings of 42 cents per share beat the Zacks Consensus Estimate of 40 cents by 5% and grew 16.7% from the year-ago period. The upside was supported by double-digit sales growth, improved gross profits through effective productivity programs and favorable productivity mix.
Quarter in Detail
Net sales of this food company increased 19.7% to $756.4 million in the second quarter. The improvement was driven by a 19.4% benefit from the Boulder Brands acquisition (completed in January) and higher net price realization of 1.3%, partially offset by lower volume/mix of 0.9% and unfavorable foreign currency translation of 0.1%. Sales however missed the Zacks Consensus Estimate of $760 million by 0.5%.
Adjusted gross profit increased 31.4% to $218.6 million. Gross margin expanded 260 basis points (bps) to 28.9% on the back of improved productivity, Boulder Brands acquisition, favorable product mix and higher net price realization, which offset the impact of modest input cost inflation.
Adjusted earnings before interest and taxes (EBIT) increased 31.9% to $114.8 million, driven by higher sales and gross profit.
PINNACLE FOODS Price and Consensus
PINNACLE FOODS Price and Consensus | PINNACLE FOODS Quote
Segment Details
Birds Eye Frozen: Segment sales grew 6.1% to $285.2 million in the second quarter, driven by increased volume/mix and higher net price realization, which was offset by new product introductory expenses. The company witnessed continued strong performance of the Birds Eye franchise and the Gardein brand.
Adjusted EBIT for the segment rose 24.5% to $45.4 million, as net sales growth and productivity savings offset the negative impact from input cost inflation and higher marketing expenses.
Duncan Hines Grocery: Segment sales declined 2.7% to $270.5 million due to lower volume/mix, currency headwinds, offset by lower pricing.
Adjusted EBIT for the segment grew 1.2% to $50.7 million reflecting productivity savings. However, this was offset by sales decline, modest input cost inflation and a double-digit increase in marketing investment.
Boulder Brands: Pinnacle completed the acquisition of Boulder Brands on Jan 15, 2016. As a result, Boulder is now a wholly owned subsidiary of Pinnacle.
In the second quarter of 2016, Boulder Brands contributed $122.6 million to net sales. Adjusted EBIT for the Boulder Brands segment totaled $17.2 million.
Specialty Foods: Segment sales declined 7.9% to $78.1 million due to lower volume/mix, partially offset by higher net price realization. Lower sales for private label canned meat led to volume decline.
Adjusted EBIT decreased 15.7% to $6.1 million in the second quarter of 2016 largely reflecting the impact of the net sales decline.
Outlook
Pinnacle Foods has raised its earnings guidance for 2016, which includes the benefit of the Boulder Brands acquisition. It now expects adjusted earnings in a range of $2.10 to $2.15 per share, higher than the earlier guidance of $2.08 to $2.13. Boulder Brands is now expected to contribute approximately 7 to 8 cents to adjusted earnings for the year compared with the previous guidance of approximately 5 cents. This revised outlook represents year-over-year growth of 9% to 12%.
Boulder Brands is expected to contribute net sales in a range of $460 million to $480 million.
The company now expects input cost inflation at the lower end of the range 2% to 3%. Second half inflation is expected to be higher than the first half. Productivity savings are estimated in a range of 3.5% to 4% of costs, including Boulder Brands' organic cost savings but excluding synergies. Second half productivity is expected to be higher than the first half.
Currency is expected to be less of a headwind in 2016, with the impact estimated at about 1 cent.
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. 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 Omega Protein Corp. OME, The J. M. Smucker Co. SJM and Treehouse Inc. THS. All of them carry a Zacks Rank #2.
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