Pinnacle Foods Inc. Reports Strong Fiscal Q3 Results
14 Nov 2013 --- Pinnacle Foods Inc. reported another quarter of strong growth in net earnings and diluted earnings per share, excluding items affecting comparability, and now expects pro forma diluted EPS for fiscal 2013 to be at the high end of its previous guidance range of $1.53 to $1.57.
Consolidated net sales in the third quarter ended September 29, 2013 increased approximately 1% versus year-ago, driven by a 2% increase in net sales for the Company's North America Retail business, which is comprised of the Birds Eye Frozen and Duncan Hines Grocery segments.
Diluted earnings per share in the third quarter of 2013 increased to $0.35, compared to diluted earnings per share of $0.11 in the year-ago period. Excluding items affecting comparability, on a pro forma basis which is described in the accompanying reconciliation tables, diluted earnings per share advanced 38% to $0.36, compared to diluted earnings per share of $0.26 in the year-ago period.
Commenting on the results, Pinnacle Foods Chief Executive Officer Bob Gamgort stated, "The third quarter results demonstrate the success of our strategy of Reinvigorating Iconic Brands through focused investment spending, strong productivity results and maintaining a lean and efficient organization structure. We achieved solid net sales growth in our North America retail business, and we expanded our margins and EPS meaningfully in the quarter. We are confident that our programs for the balance of the year appropriately address continuing challenges in the industry."
Third Quarter Consolidated Results
Net sales in the third quarter of 2013 increased 0.8% to $572.5 million, compared to net sales of $567.9 million in the third quarter of 2012. This performance reflected growth in North America Retail, driven by the Duncan Hines Grocery segment, partially offset by planned lower sales in the Company's Specialty Foods segment.
North America Retail net sales increased 2.2% to $482.2 million in the third quarter of 2013, compared to $471.6 million in the year-ago period, almost entirely due to volume/mix growth of 2.1%. Fueling the growth in net sales were the Company's Leadership Brands, most notably Birds Eye Vegetables, Vlasic pickles and Log Cabin and Mrs. Butterworth's syrups.
Adjusted EBITDA on a pro forma basis advanced 11% to $107.9 million in the third quarter of 2013, compared to $97.2 million in the third quarter of 2012. This performance reflected a 220 basis point increase in gross margin, due to favorable product mix and productivity, which collectively more than offset modest input cost inflation. Also contributing to the gross margin growth was the benefit in the current quarter of the expected insurance recovery of expenses related to a voluntary Aunt Jemima product recall in 2012. Adjusted EBITDA is a Non-GAAP measure defined below under "Non-GAAP Financial Measures," and is reconciled to net earnings in the tables that accompany this release.
Earnings before interest and taxes (EBIT) advanced 42% versus year-ago to $84.9 million in the third quarter of 2013, compared to $59.9 million in the third quarter of 2012. Excluding items affecting comparability, EBIT on a pro forma basis increased approximately 13% to $88.2 million in the third quarter of 2013, compared to $78.4 million in the year-ago period, due to the growth in gross profit, partially offset by higher marketing investment behind the Company's Leadership Brands and increased administrative expenses.
Net earnings in the third quarter advanced to $40.7 million, or $0.35 per diluted share, compared with net earnings of $9.9 million, or $0.11 per diluted share, in the year-ago period. Excluding items affecting comparability, on a pro forma basis, net earnings for the third quarter increased to $42.4 million, or $0.36 per diluted share, compared to net earnings of $30.5 million, or $0.26 per diluted share, in the year-ago period.
Net cash provided by operating activities advanced significantly in the third quarter of 2013 to $29.6 million, compared to a net operating cash outflow of $5.3 million in the year-ago period.
Third Quarter Segment Results
Birds Eye Frozen
Net sales for the Birds Eye Frozen segment increased 0.8% to $258.0 million in the third quarter of 2013, compared to $256.0 million in the year-ago period. This performance reflected higher volume/mix of 0.4% and a 0.3% decline in net pricing, as well as a 0.7% benefit from the aforementioned insurance recovery. The sales performance in the quarter was largely driven by growth of Birds Eye vegetables, including Birds Eye Recipe Ready, introduced last quarter, and Birds Eye Voila! complete bagged meals, offset by declines for Mrs. Paul's and Van de Kamp's seafood, Hungry Man dinners and Celeste pizza.
EBIT for the Birds Eye Frozen segment increased approximately 6% to $45.0 million in the third quarter of 2013, compared to $42.4 million in third quarter of 2012. Excluding items affecting comparability, EBIT advanced approximately 11% to $47.9 million, largely due to higher gross profit driven by productivity in excess of inflation, as well as the benefit of the aforementioned insurance recovery, partially offset by higher marketing investment.
Duncan Hines Grocery
Net sales for the Duncan Hines Grocery segment advanced 4.0% to $224.2 million in the third quarter of 2013, compared to $215.6 million in the year-ago period, almost entirely due to growth in volume/mix. This performance reflected higher sales of Vlasic pickles, Mrs. Butterworth's and Log Cabin syrups, Duncan Hines baking mixes and frostings, Comstock and Wilderness pie and pastry fruit fillings and the Company's Canadian business. Partially offsetting these positive drivers were lower sales of canned meat.
EBIT for the Duncan Hines Grocery segment advanced 45% to $38.3 million in the third quarter of 2013, compared to $26.3 million in the year-ago period. Excluding items affecting comparability in both periods, EBIT advanced approximately 10% to $37.5 million, reflecting higher gross profit due to increased volume and favorable mix, lower commodity costs and productivity savings, partially offset by higher marketing investment.
Specialty Foods
Net sales for the Specialty Foods segment declined approximately 6% to $90.3 million in the third quarter of 2013, compared to $96.3 million in the third quarter of 2012. This performance largely reflected planned lower sales of private label canned meat.
EBIT for the Specialty Foods segment increased to $8.0 million in the third quarter of 2013, compared to $0.5 million in the third quarter of 2012. Excluding items affecting comparability in both periods, EBIT increased approximately 10% to $8.3 million, largely due to higher gross profit stemming from favorable mix and productivity savings in excess of inflation.
Nine Months Consolidated Results
Consolidated net sales for the first nine months of 2013 declined 1.1% to $1.75 billion, compared to net sales of $1.77 billion in the year-ago period. This performance primarily reflected the planned exit of low-margin, unbranded Specialty businesses, partially offset by net sales growth of 0.7% for the Company's North America Retail businesses.
Pinnacle's retail consumption, as measured by IRI, outpaced the performance of its composite categories, which declined by approximately 1% versus year-ago for the nine months ended September 29, 2013.
Adjusted EBITDA on a pro forma basis advanced 12.6% to $305.0 million in the first nine months of 2013, compared to $270.9 million in the year-ago period.
Excluding items affecting comparability in both periods, EBIT increased 15.2% to $247.3 million in the first nine months of 2013, compared to EBIT of $214.6 million in the year-ago period. On the same basis, net earnings advanced 62% to $115.7 million, or $0.99 per diluted share, compared to net earnings of $71.3 million, or $0.61 per diluted share, in the year-ago period.
Net cash provided by operating activities increased significantly in the first nine months of 2013 to $141.7 million, compared to $62.4 million in the year-ago period.
Outlook
Given the Company's strong performance through the first nine months of 2013, Pinnacle strengthened its pro forma EPS outlook for 2013 and now expects to be at the high end of its previous EPS guidance range of $1.53 to $1.57 for the full year, excluding items affecting comparability. This updated guidance continues to include $0.01 to $0.02 accretion in the fourth quarter from the recently-acquired Wish-Bone business and a diluted weighted average share count for the year of 116.5 million.
