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Pinnacle Foods (PF) Q3 Earnings Beat; Shares Up on View

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Pinnacle Foods, Inc. reported mixed third-quarter 2016 results. While earnings beat the Zacks Consensus Estimate, revenues missed the same. Shares of Pinnacle Foods were up 0.44% on Oct 27 after the company raised its earnings guidance for 2016.

Adjusted earnings of 53 cents per share beat the Zacks Consensus Estimate of 52 cents by 1.9% and grew 15.2% 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 19.3% to $758.8 million in the third quarter. The improvement was driven by a 19% benefit from the Boulder Brands acquisition (completed in January), higher net price realization of 0.2% and increased volume/mix of 0.1%. Sales, however, missed the Zacks Consensus Estimate of $777 million by 2.3%.

Adjusted gross profit increased 24.2% to $229.1 million. Gross margin expanded 120 basis points (bps) to 30.2% on the back of improved productivity, the Boulder Brands acquisition and favorable product mix, which offset the impact of input cost inflation.

Adjusted earnings before interest and taxes (EBIT) went up 24.6% to $134.6 million, driven by higher sales and gross profit.

Segment Details

Birds Eye Frozen: Segment sales grew 4.1% to $308.9 million in the third quarter, driven by increased volume/mix and higher net price realization. The company witnessed continued strong performance of the Birds Eye franchise and the Gardein brand.

Adjusted EBIT for the segment rose 13.5% to $65.0 million, as net sales growth, productivity and favorable mix offset the negative impact from input cost inflation.

Duncan Hines Grocery: Segment sales dropped 3% to $249.5 million due to lower volume/mix, offset by higher pricing.

Adjusted EBIT for the segment decreased 2.5% to $47.5 million, reflecting productivity savings. However, this was offset by sales decline, input cost inflation and unfavorable mix.

BoulderBrands: 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 third quarter of 2016, Boulder Brands contributed $120.9 million to net sales. Adjusted EBIT for the Boulder Brands segment totaled $21.3 million.

Specialty Foods: Segment sales fell 3.4% to $79.4 million due to lower volume/mix and lower net price realization. Expected lower sales for private label canned meat led to the volume decline.

Adjusted EBIT decreased 12.3% to $7.1 million in the reported quarter, largely reflecting the impact of the net sales decline.

PINNACLE FOODS Price, Consensus and EPS Surprise

 

PINNACLE FOODS Price, Consensus and EPS Surprise | PINNACLE FOODS Quote

Outlook

Pinnacle Foods has raised its earnings guidance for the second time in 2016, reflecting Boulder Brands’ acquisition. It now expects adjusted earnings in the range of $2.13−$2.15, compared with the previous guidance range of $2.10−$2.15. The revised outlook represents year-over-year growth of 11%−12%. Boulder Brands is now expected to contribute approximately 8−9 cents to adjusted earnings per share for the year compared with the previous guidance of 7−8 cents.

Boulder Brands is expected to contribute net sales in a range of $460−$480 million.

The company now expects input cost inflation in the range of 2%−2.5% for the year. Productivity savings are estimated in a range of 3.5%−4% of costs, including Boulder Brands' organic cost savings but excluding synergies.

Overall, the company boasts a strong brand portfolio and intends to continue investing 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.

Moreover, Pinnacle Foods 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.

Zacks Rank

Pinnacle Foods carries a Zacks Rank #3 (Hold).

Some well-positioned food stocks in the industry include The Chefs’ Warehouse, Inc. (CHEF - Free Report) , The Kraft Heinz Company (KHC - Free Report) and McCormick & Company, Inc. (MKC - Free Report) . All these stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Chefs’ Warehouse has a long-term earnings growth rate of 12.50%, Kraft Heinz has a long-term earnings growth rate of 19.54%, and McCormick has a long-term earnings growth rate of 9.00%.

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