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Pinnacle Foods (PF) to Pare Input Costs Woes in Q1 Earnings?

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Pinnacle Foods Inc. is slated to release first-quarter 2018 results on May 3. This provider of branded food products delivered a negative earnings surprise in the last reported quarter, though it has outperformed the Zacks Consensus Estimate by an average of 2.8% in the trailing four quarters. Let’s see what’s in store for Pinnacle Foods this time around.

Pinnacle Foods Inc. Price and EPS Surprise

Pinnacle Foods Inc. Price and EPS Surprise | Pinnacle Foods Inc. Quote


Can Revenue-Driving Initiatives Offset Hurdles?

Pinnacle Foods should continue gaining from its focus on acquisitions, innovations and robust brand portfolio. Well, the company has a solid customer reach, as its products can be found in over 85% U.S. households. Pinnacle Foods has been undertaking constant innovations to maintain market share. Some noteworthy innovations in the past include new varieties of the Duncan Hines Decadent, Duncan Hines Perfect Size baking kits, Birds Eye product lines and Vlasic purely pickles. The company also revealed plans to roll out new products under the Birds Eye brand and will also be expand its Hungry-Man Handful line in 2018, which may benefit the quarter to be reported. These factors, along with improved pricing and contributions from its Duncan Hines Grocery and Birds Eye Frozen businesses fueled its top line in the last reported quarter, wherein the company delivered a solid in-market performance. Moreover, the quarter marked Pinnacle Foods’ 15th straight quarter of market share growth.

However, sales were somewhat by exit of certain low-margin Aunt Jemima (“AJ”) products, shut down of Boulder UK operations and soft underlying sales. Weakness in underlying sales resulted from lower retail inventory levels and lower volume/mix. Well, AJ exit and underlying sales decline was a major drag for the Specialty Foods segment in particular, as sales here tumbled almost 10% in the fourth quarter of 2017. Underlying sales were majorly hurt by the lower volume/mix stemming from the company’s previously announced exit from its gardein private label business. Markedly, analysts polled by Zacks expect net sales from Specialty Foods to fall 9.1% to $80 million in the first quarter. The Zacks Consensus Estimate for sales of Birds Eye Frozen (or Frozen) and Duncan Hines Grocery (or Grocery) segments are pegged at $319 million and $260 million, respectively, in comparison with $321 million and $259 million. The consensus mark for sales at Boulder Brands, which is likely to be hurt by shut down of Boulder UK operations, stands at $103 million.

Though net sales in the first quarter of 2018 is expected to gain from early Easter, overall top line looks somewhat pressurized from the aforementioned hurdles. The Zacks Consensus Estimate for sales currently stands at $763 million, reflecting a decline from $766 million reported in the year-ago period.

Cost-Savings Efforts vs. Input Cost Inflation

Pinnacle Foods has been battling elevated costs owing to increased packaging and logistics costs. This, along with unfavorable impacts of product mix, increased manufacturing investments and discrete costs arising from the AJ exit remained a drag on gross margin in the last reported quarter. Also, management had earlier projected input cost inflation for 2018 in the range of 3.8-4.2%, with greater inflationary pressure in the first half of the year. This raises concerns over Pinnacle Foods’ upcoming earnings.
Nevertheless, we commend the company’s solid productivity initiatives aimed at generating savings and improving gross margin. To this end, the company has an operational excellence program in place designed to generate annual productivity savings across the supply chain. On account of such efforts combined with acquisition synergies and benefits from the network optimization program, the company expects productivity for 2018 in the range of 4-4.5% of cost of products sold. Pinnacle Foods is also pursuing other initiatives to boost gross margin, including improving its product mix through product innovation and low-margin SKU rationalization, increasing the effectiveness of trade promotional spending and realizing synergies from acquisitions. It looks like these dedicated endeavors will help the company tide over all aforementioned hurdles and deliver bottom-line growth.

The consensus estimate for first-quarter earnings is pegged at 56 cents, which marks an improvement of 12% from 50 cents recorded in the year-ago period. However, this estimate has dropped by a notch over the past 30 days.

What the Zacks Model Unveils

Further, our proven model doesn’t show that Pinnacle Foods is likely to beat bottom-line estimates this quarter.  For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Though Pinnacle Foods carries a Zacks Rank #3, its Earnings ESP of -0.90%, makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Under Armour (UAA - Free Report) a Zacks #3 Ranked stock, has an Earnings ESP of +11.31%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Colgate (CL - Free Report) , a #3 Ranked company, has an Earnings ESP of +0.37%.

Estee Lauder (EL - Free Report) has an Earnings ESP of +0.67% and a Zacks Rank of 3.

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