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Why Is Pinnacle Foods (PF) Up 5.4% Since the Last Earnings Report?

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A month has gone by since the last earnings report for Pinnacle Foods, Inc. . Shares have added about 5.4% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to the stock's next earnings release, or is it due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Pinnacle Foods First Quarter Earnings Top, Revenues Lag

Pinnacle Foods reported mixed first-quarter 2017 results. While earnings beat the Zacks Consensus Estimate, revenues lagged the same. The company reaffirmed its earnings guidance for 2017.

Quarter in Detail

Adjusted earnings of $0.50 per share grew 25% from the year-ago period and beat the Zacks Consensus Estimate of $0.46 by 8.7%. The upside was supported by higher sales growth, improved gross profits and favorable productivity mix. In fact, in the last 13 straight quarters, earnings beat the Zacks Consensus Estimate in the past seven quarters and were in line in the remaining six.

Net sales of Pinnacle Foods improved 1.6% to $766.1 million in the first quarter. Higher sales was driven by a 2.9% benefit from the Boulder Brands acquisition (completed in Jan 2016), higher pricing of 0.4% and favorable currency of 0.1%, partially offset by lower volume/mix of 1.8%. However, sales growth was lower than 18.8% growth in the preceding quarter, reflecting the unfavorable impact of Easter timing. Sales lagged the Zacks Consensus Estimate of $769 million by 0.4%. We note that in the past eight straight quarters, sales beat the Zacks Consensus Estimate in two quarters and lagged in the remaining six.

Adjusted gross profit increased 6.2% to $218.3 million, while gross margin expanded 120 basis points (bps) to 28.5% on the back of top-line growth, improved productivity, the Boulder Brands acquisition, which offset the impact of input cost inflation.

Adjusted earnings before interest and taxes (EBIT) went up 12.8% to $120.5 million, driven by higher sales and gross profit.

Segment Details

Frozen: Segment sales declined 2.9% to $320.9 million in the first quarter due to lower volume/mix, partially offset by higher net price realization of 0.8%, acquisition benefit of 0.4% and currency tailwinds of 0.2%. The segment sales were sluggish due to the exceptionally strong performance of Birds Eye in the fourth quarter last year as well as the shift of Easter into second-quarter 2017.

Adjusted EBIT for the segment rose 3.9% to $51.9 million, as improved productivity offset the negative impact from input cost inflation and lower sales.

Grocery: Segment sales increased 3.4% to $259.4 million driven by favorable volume/mix of 2.1% and acquisition impact of 1.9%, partially offset by unfavorable net price realization of 0.6%. Dunkin Hines brand grew double-digits in the quarter. In addition, the company continues to witness growing momentum on its newly launched Perfect Size for One, which will achieve national distribution by the end of the second quarter. Also posting strong growth for the Grocery segment in the quarter was Armour canned meat, partially offset by Vlasic pickles.

Adjusted EBIT for the segment increased 14.4% to $52.8 million, reflecting higher sales and productivity savings. However, this was offset by input cost inflation.

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 first-quarter 2017, Boulder Brands contributed $97.3 million to net sales, up 21.4% from the prior-year period. This performance reflected acquisition gain of 19%, favorable pricing of 3.8% and higher volume/mix of 1.7%. The decline in Boulder Brands UK operations partially offset the increase. Adjusted EBIT for the Boulder Brands segment totaled $13.2 million, up 43.5% from the prior-year quarter.

Specialty Foods: Segment sales declined 4.5% to $88.5 million due to lower volume/mix and lower net price realization, partly offset by acquisition gains. The private label business continued to be under pressure in the quarter, as was anticipated by the company, due to lower sales of USDA stew, as well as the exit of the gardein private label business. Adjusted EBIT increased 21.2% to $9.7 million in the reported quarter.

The company witnessed sluggish net sales for the Specialty segment since past three consecutive quarters (excluding the first quarter), despite solid growth in the Snacks business. Due to a heightened competitive bidding environment for the already low-margin USDA stew business, the company continues to expect Specialty to remain challenged through 2017, reflecting lower sales of private label canned meat.

Other Financial Aspects

Pinnacle Foods ended the quarter with cash and cash equivalents of $141.5 million, long-term debt of $2.94 billion, and total shareholders’ equity of $1.96 billion.

In the quarter, the company generated cash flow from operations of $62.9 million and incurred capital expenditure of $29.2 million. Additionally, the company’s total free cash flow for the quarter totaled $33.7 million.

Full-Year 2017 Guidance

The company reaffirmed its guidance for adjusted earnings for 2017 (as announced on Mar 23) and continues to expect earnings in range of $2.55–$2.60 per share. Delay in the timing of Easter in 2017 is expected to shift approximately 2% of net sales and approximately 1 cent of earnings from the first quarter to the second quarter. As a result, both the Frozen and Grocery segments will be impacted owing to their seasonal nature. Also, the benefit of the 53rd week is expected to add approximately 1% to net sales and $0.03 per share to earnings for the year.

The company continues to expect input cost inflation in the range of 2.5−3% for the year. Productivity savings are estimated in a range of 3.5−4% of costs, excluding Boulder Brands' synergies.

Capital expenditures for the full year are expected to be in the range of $115 million to $125 million.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been two revisions lower for the current quarter.

Pinnacle Foods, Inc. Price and Consensus

 

Pinnacle Foods, Inc. Price and Consensus | Pinnacle Foods, Inc. Quote

VGM Scores

At this time, Pinnacle Foods's stock has an average Growth Score of 'C', however its Momentum is doing a bit better with a 'B'. Charting a somewhat similar path, the stock was allocated a grade of 'C' on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of 'C'. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is more suitable for momentum investors than those looking for value and growth.

Outlook

While estimates have been broadly trending downward for the stock, the magnitude of these revisions has been net zero. Notably, the stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.

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