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Pinnacle Foods (PF) Up 2.1% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Pinnacle Foods, Inc. . Shares have added about 2.1% in that time frame, outperforming the market.

Will the recent negative trend continue leading up to the stock’s next earnings release, or is it due for a breakout? 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 Meets Fourth Quarter Earnings Estimates, Lifts View

Pinnacle Foods reported mixed fourth-quarter 2016 results. While earnings were in line with the Zacks Consensus Estimate, revenues beat the same. The company raised its earnings guidance for 2017.

Quarter in Detail

Adjusted earnings of $0.79 per share grew 12.9% from the year-ago period. The upside was supported by double-digit sales growth and improved gross profits through effective productivity programs. However, it was in line with the Zacks Consensus Estimate. In fact, in the last 12 straight quarters, earnings have beaten Zacks Consensus Estimate in the past 6 quarters and posted in-line results in the remaining six.

Net sales of Pinnacle Foods increased 18.8% to $858.5 million in the fourth quarter. The improvement was driven by a 17.3% benefit from the Boulder Brands acquisition (completed in Jan 2016), increased volume/mix of 2.0%, partially offset by 0.5% lower net price realization. Sales beat the Zacks Consensus Estimate of $852 million by 0.8%. In the past seven straight quarters, sales have beaten the Zacks Consensus Estimate in two quarters and lagged in the remaining five quarters.

Adjusted gross profit increased 19.5% to $267.7 million. Gross margin expanded 20 basis points (bps) to 31.2% on the back of improved productivity, the Boulder Brands acquisition, which offset the impact of input cost inflation and unfavorable product mix.

Adjusted earnings before interest and taxes (EBIT) went up 19.6% to $182.5 million, driven by higher sales and gross profit.

Segment Details

Frozen: Segment sales grew 7.8% to $371.1 million in the fourth quarter, driven by increased volume/mix and Boulder Brand acquisition, partially offset by lower net price realization. The company witnessed continued strong performance of the Birds Eye franchise as well as robust business in Canada.

Adjusted EBIT for the segment rose 11.9% to $88.2 million, as net sales growth and productivity offset the negative impact from input cost inflation.

Grocery: Segment sales increased 7.1% to $298.4 million driven by Boulder Brands acquisition, partially offset by lower volume/mix and lower net price realization. The growth was driven by the newly added Smart Balance brand, sustained strength witnessed at Armour canned meat and improvement of Log Cabin syrup. These growth drivers were partially dampened by lower sales of Duncan Hines baking products and Nalley’s chili.

Adjusted EBIT for the segment increased 16.6% to $79.1 million, reflecting higher sales, productivity savings and the addition of Smart Balance brand. 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 fourth-quarter 2016, Boulder Brands contributed $97.4 million to net sales compared with $11.8 million in the prior-year period. This performance reflected the impact of the Boulder Brands buyout and increase in volume/mix of 21.5% for the gardein brand. Adjusted EBIT for the Boulder Brands segment totaled $12.7 million, compared with $1.2 million in the prior-year quarter.

Specialty: Segment sales increased 4.1% to $91.5 million driven by Boulder Brands acquisition, partly offset by lower volume/mix and lower net price realization. However, the segment continued to be pressured by lower sales of private label canned meat, due to a heightened competitive bidding environment.

Adjusted EBIT decreased 2.1% to $10 million in the reported quarter.

Full-Year 2016 Results

In 2016, adjusted earnings were $2.15 per share, which were in line with the Zacks Consensus Estimate but grew 12.0% from the year-ago period. It also dovetailed with the upper end of the raised guidance of $2.14 to $2.15.

Net sales increased 17.8% to $3.13 billion in the year. The improvement was driven by Boulder Brands acquisition and higher net price realization, partially offset by currency headwinds. Sales also beat the Zacks Consensus Estimate of $3.12 billion.

Other Financial Aspects

Pinnacle Foods ended 2016 with cash and cash equivalents of $353.1 million, long-term debt of $3.140 billion, and total shareholders’ equity of $1.949 billion.

During 2016, the company generated cash flow from operations of $487.5 million and incurred capital expenditure of $101.1 million. Free cash flow grew more than $120 million to approximately $387 million in 2016.
 
Full-Year 2017 Guidance

The company raised its guidance for adjusted earnings for 2017 to a range of $2.55 to $2.60 from $2.43 to $2.48 per share (issued on Jan 23). The company now expects input cost inflation in the range of 2.5% to 3.0% for the year. Productivity savings are estimated in a range of 3.5% to 4% of costs, excluding Boulder Brands' synergies. Capital expenditures for the full year are expected to be in the range of $120 million to $130 million.

The impact of a later Easter in 2017 is expected to shift approximately $15 million of net sales and about $0.01 of adjusted earnings from the first quarter to the second quarter. This will significantly impact the Frozen segment and the Grocery segment, due to the seasonal nature of those portfolios.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimates. There have been four downward revisions for the current quarter. In the past month, the consensus estimate also shifted downward by 5.1% due to these changes.

Pinnacle Foods, Inc. Price and Consensus

 

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

VGM Scores

At this time, Pinnacle Foods' stock has a nice Growth Score of 'B', though it is lagging a lot on the momentum front with a 'D'. 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.

Our style scores indicate that the stock is more suitable for growth investors than value investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of these revisions also indicates a downward shift. Notably, the stock has a Zacks Rank #2 (Buy). We are expecting an above average return from the stock in the next few months.

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