It has been about a month since the last earnings report for Pinnacle Foods Inc. . Shares have added about 5.1% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is PF 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 Q1 Earnings & Sales Beat, Rise Y/Y
Pinnacle Foods came out with first-quarter 2018 results, with the top and the bottom line beating the Zacks Consensus Estimate and improving year over year. Results benefited from the company’s strong market share expansion.
Adjusted earnings came in at 57 cents per share that beat the Zacks Consensus Estimate by a penny and improved 14% year over year.
Net sales of $778.8 million beat the consensus mark of $763 million and grew 1.7% from the prior-year quarter’s tally. Top-line results during the period primarily benefited from enhanced volume/mix, net price realization and favorable currency impacts. An earlier Easter drove the company’s top-line performance. These upsides were partially countered by the negative impacts of Aunt Jemima (“AJ”) exit.
Further, the quarter continued to depict sturdy in-market performance. In fact, retail consumption expanded 3.5% along with market share growth of 0.4 points. This marked the company’s 16th consecutive period of growth in composite market share.
Moving on, adjusted gross profit in the first quarter came in at $211.2 million, declining 3.1% from the prior-year quarter’s level. Further, adjusted gross margin contracted 130 bps to 27.1% on account of increased inflation stemming from transportation costs as well as costs related to innovation outsourcing. These were partially cushioned by improvements in productivity and net pricing.
Adjusted earnings before interest and taxes (EBIT) inched up 1% to $121.6 million in the quarter, gaining from the phasing of marketing and advertising spend.
Frozen: Sales increased 7.5% in the quarter to $344.9 million on account of favorable volume/mix, net price realization, currency impacts and earlier Easter timing. Performance of the Frozen segment strongly benefitted from Birds Eye franchise during the quarter, which drove in-market performance. These were partially offset by unfavorable impacts from the AJ exit. Adjusted EBIT in the segment rose 11.8% to $58 million.
Grocery: Sales rose 0.6% to $261 million backed by the benefits from an early Easter and improved volume/mix, partially offset by unfavorable net price realization. Retail consumption in the Grocery segment improved during the period, buoyed by strong performance of Vlasic pickles, Armour canned meat, Duncan Hines baking products and syrups business. These upsides were offset by declines witnessed in Wish-Bone. Adjusted EBIT in the segment declined 4.3% to $50.5 million.
Boulder: Pinnacle Foods completed the acquisition of Boulder Brands on Jan 15, 2016. Consequently, it became a wholly-owned subsidiary of the company. In first-quarter 2018, sales in the Boulder segment inched up 0.5% to $97.8 million, fueled by favorable volume/mix, partially countered by lower net price realization. Strong performance of the Gardein and Earth Balance businesses benefited the quarter. Adjusted EBIT for the segment totaled $12.6 million, improving 4.2% from the prior-year quarter.
Specialty Foods: Sales tumbled 15% to $75.2 million due to negative impacts of the AJ exit and lower volume/mix. These declines were partially countered by improved net price realization. The segment’s adjusted EBIT came in at $8.3 million, which fell 14.2% from the prior-year quarter.
Other Financial Aspects
Pinnacle Foods ended the quarter with cash and cash equivalents of $77.6 million, long-term debt of $2,703.7 and total equity of $2,406.4 million.
Pinnacle Foods’ net cash flow from operating activities during the first quarter was $121.6 million. The company had incurred capital expenditure of $35.8 million. Further, management continues to expect capital expenditures in the range of $155-$165 million in 2018.
Management is quite impressed with the overall market share growth. In order to enhance marketing effectiveness, the company announced its partnership with VaynerMedia. Such efforts combined with commitment toward innovation are expected to bolster performance in the forthcoming periods.
That said, the company continues to expect adjusted earnings per share for 2018 in the range of $2.85-$2.95. Considering the guidance at mid-point, the bottom line represents growth of 16% from 2017’s 52-week adjusted earnings per share of $2.50. The Zacks Consensus Estimate is currently pegged at $2.89 for 2018.
The company expects net sales for 2018 to gain from the AJ recall. Management also expects input cost inflation for 2018 in the range of 3.8-4.2%. Also, Pinnacle Foods is on track with its savings objectives and network optimization plans. On account of such efforts combined with acquisition synergies, the company expects productivity for 2018 in the range of 4-4.5% of cost of products sold.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been six revisions lower for the current quarter.
Pinnacle Foods Inc. Price and Consensus
At this time, PF has an average Growth Score of C, however its Momentum is doing a bit better with a B. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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 momentum investors than growth investors.
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, PF has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.