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Pinnacle Foods (PF) Q1 Earnings Top, Revenues Lag, Stock Up
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Pinnacle Foods, Inc. reported mixed first-quarter 2017 results, the impact of which was clearly visible in yesterday’s trading session, when the stock closed 1.1% higher. While earnings beat the Zacks Consensus Estimate, revenues lagged the same. The company reaffirmed its earnings guidance for 2017.
In fact, we note that the stock has notably outperformed the Zacks categorized Food – Miscellaneous/Diversified industry over the past one year. While the stock rallied 37.3%, the industry gained 1.4% in the said time frame.
Quarter in Detail
Adjusted earnings of 50 cents per share grew 25% from the year-ago period and beat the Zacks Consensus Estimate of 46 cents 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.
Pinnacle Foods, Inc. Price, Consensus and EPS Surprise
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%.
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%.
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 has 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 3 cents 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.
Our Take
Overall, the company boasts of a strong brand portfolio and intends to continue investing in innovation products 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.
While ConAgra Foods has a long-term earnings growth rate of 8%, Lamb Weston has a long-term earnings growth rate of 4.2%. Medifast has posted positive earnings surprise in all the trailing-four quarters, making for an average positive surprise of 18.21%.
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Pinnacle Foods (PF) Q1 Earnings Top, Revenues Lag, Stock Up
Pinnacle Foods, Inc. reported mixed first-quarter 2017 results, the impact of which was clearly visible in yesterday’s trading session, when the stock closed 1.1% higher. While earnings beat the Zacks Consensus Estimate, revenues lagged the same. The company reaffirmed its earnings guidance for 2017.
In fact, we note that the stock has notably outperformed the Zacks categorized Food – Miscellaneous/Diversified industry over the past one year. While the stock rallied 37.3%, the industry gained 1.4% in the said time frame.
Quarter in Detail
Adjusted earnings of 50 cents per share grew 25% from the year-ago period and beat the Zacks Consensus Estimate of 46 cents 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.
Pinnacle Foods, Inc. Price, Consensus and EPS Surprise
Pinnacle Foods, Inc. Price, Consensus and EPS Surprise | Pinnacle Foods, Inc. Quote
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%.
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%.
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 has 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 3 cents 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.
Our Take
Overall, the company boasts of a strong brand portfolio and intends to continue investing in innovation products 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 and Other Stocks to Consider
Pinnacle Foods carries a Zacks Rank #2 (Buy).
Other top ranked food stocks in the industry include ConAgra Foods Inc. (CAG - Free Report) , Lamb Weston Holdings Inc. (LW - Free Report) and Medifast Inc. (MED - Free Report) . All the three stocks have a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
While ConAgra Foods has a long-term earnings growth rate of 8%, Lamb Weston has a long-term earnings growth rate of 4.2%. Medifast has posted positive earnings surprise in all the trailing-four quarters, making for an average positive surprise of 18.21%.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors. Click here for Zacks' secret trade>>