Although most food companies in the United States are struggling against high costs, stiff competition and consumers shifting preferences, few such as Pinnacle Foods Inc. are on safer grounds on well-chalked strategies. Notably, the company’s shares have surged close to 20% in the past six months compared with the industry’s 3.8% rise. Let’s take a closer look at the aspects fueling this renowned food space player and see whether it can tide over the headwinds in the forthcoming periods.
Brand Strength Fuels Market Growth
Pinnacle Foods’ in-market performance has been strong for quite some time. This is mainly attributable to the company’s well-chalked acquisitions that have added strong brands to the portfolio. In fact, the acquisition of Boulder Brands, completed in January 2016, provided the company a new growth platform in refrigerated foods and added iconic brands such as Udi's, Glutino, Smart Balance as well as EVOL to the portfolio. In 2017, the company gained synergies of $16 million from the Boulder acquisition and expects to continue benefitting from residual synergies. Other notable acquisitions of Pinnacle Foods include Duncan Hines’ manufacturing business, Garden Protein and the Wish-Bone salad dressings business, which have been yielding.
Moving on, the company’s Frozen segment, which depicts strong in-market performance, benefits from the popularity of the Birds Eye line. Strong sea food business boosts growth in the segment.
Additionally, the company’s market performance gains from a diverse portfolio of food brands that enjoy strong household penetration in the United States. Also, Pinnacle Foods undertakes 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. For 2018, Management plans to roll out new products under the Birds Eye brand and will also expand the Hungry-Man Handful line. Management is also planning exciting innovations in the gardein and Evol brands.
Can Efforts Offset Headwinds?
Pinnacle Foods is witnessing sluggish net sales in the Specialty segment since the past few quarters. In the second quarter of 2018, sales in the segment dipped 0.3% to $77.7 million due to negative impacts of the AJ exit and lower volume/mix. The company is also struggling freight cost inflation. In fact, freight costs are likely to remain high in the near future, which is likely to dent margins.
Nevertheless, we expect the company’s robust efforts to augment market share will continue yielding and provide cushion to the aforementioned hurdles. In fact, strong market performance along with other strategic growth-oriented initiatives propelled management to provide an encouraging earnings view for the year when it reported second-quarter 2018 results. Pinnacle Foods is also encouraged about the potential takeover by Conagra Brands (CAG - Free Report) by the end of 2018. Cost synergies and brand strength from the combined portfolio reflects solid growth prospects in the long run. That said, we expect this Zacks Rank #3 (Hold) company to remain a prudent pick for investors.
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