Pinnacle Foods Inc. Reports 3rd Quarter Fiscal 2015 Results
PARSIPPANY, NJ, October 29, 2015 - Pinnacle Foods Inc. (NYSE: PF) today reported its financial results for the third quarter ended September 27, 2015 and reaffirmed its guidance for full-year adjusted diluted earnings per share of $1.89 to $1.91, representing growth of 9-10% versus year-ago.
Consolidated net sales in the third quarter of 2015 increased 2.0% versus year-ago, reflecting strong growth in North America Retail, which is comprised of the Birds Eye Frozen and Duncan Hines Grocery segments, partially offset by the expected decline in the Company's Specialty Foods segment. North America Retail net sales increase of 4.8% was driven by the benefit of the Gardein acquisition and growth of the base business.
GAAP diluted earnings per share totaled $0.41 in the third quarter of 2015, compared to $1.16 in the year-ago period, reflecting the benefit in 2014 of $0.79 per diluted share associated with the termination of the Company's merger agreement with The Hillshire Brands Company. Excluding the termination fee and other items affecting comparability, which collectively totaled ($0.05) in the third quarter of 2015 and $0.75 in the third quarter of 2014, diluted earnings per share advanced 12.2% to $0.46, compared to $0.41 in the year-ago period. The items affecting comparability are detailed and described in the accompanying reconciliation tables.
Commenting on the results, Pinnacle Foods Chief Executive Officer Bob Gamgort stated, "We are pleased with our performance in the quarter. Strong top- and bottom-line results in North America Retail were driven by strength of the base business, including the benefit of our recently-launched innovation, and the Gardein acquisition. We again outpaced the performance of our composite categories, and we expanded our gross margin meaningfully. We remain confident in our outlook for the full year."
Third Quarter Consolidated Results
Net sales in the third quarter of 2015 increased 2.0% to $636.3 million, compared to net sales of $624.0 million in the year-ago period. This growth reflected a 2.6% benefit from Gardein and higher net price realization of 0.9%, partially offset by lower volume/mix of 1.0% and unfavorable foreign currency translation of 0.5%.
North America Retail net sales advanced 4.8% to $554.1 million in the third quarter of 2015, compared to $528.6 million in the year-ago period, reflecting a 3.0% benefit from Gardein, higher volume/mix of 1.4% and higher net price realization of 1.0%, partially offset by unfavorable foreign currency translation of 0.6%.
Gross profit in the third quarter of 2015 increased 7.9% versus year-ago to $176.9 million, or 27.8% of net sales, compared to gross profit of $163.9 million, or 26.3% of net sales, in the year-ago period. Excluding items affecting comparability, gross profit advanced 7.8% to $184.4 million and, as a percentage of net sales, gross profit margin expanded by approximately 160 basis points to 29.0%. This performance reflected the benefit of productivity, which exceeded input cost inflation, as well as favorable product mix and higher net price realization.
Earnings before interest and taxes (EBIT) in the third quarter of 2015 declined to $97.8 million, compared to $246.6 million in the third quarter of 2014, due to the prior year benefit of $163 million from the aforementioned termination fee. Excluding the fee and other items affecting comparability, EBIT in the third quarter advanced 5.9% to $108.0 million, compared to $101.9 million in 2014, reflecting the growth in gross profit, partially offset by higher marketing and selling, as well as administrative expenses.
Adjusted EBITDA grew 7.5% to $131.1 million in the third quarter of 2015, compared to $122.0 million in the third quarter of 2014. 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.
Net interest expense for the quarter declined 10.2% to $22.3 million, compared to $24.8 million in the year-ago period, reflecting the interest rate step-down on the Company's term loans related to its deleveraging in 2014. Excluding items affecting comparability, the effective tax rate for the quarter was 36.3%, compared to 38.2% in the year-ago period, primarily due to qualifying in 2015 for the Domestic Production Activities Deduction and foreign tax credit associated with the Company's Canadian operations.
Net earnings in the third quarter declined to $48.1 million, compared with net earnings of $136.0 million in the year-ago period, reflecting the prior year benefit of the termination fee. Excluding items affecting comparability, net earnings for the third quarter increased 14.6% to $54.6 million, compared to net earnings of $47.6 million in the year-ago period, while diluted earnings per share increased 12.2% to $0.46 per diluted share.
Net cash provided by operating activities totaled $86 million in the third quarter of 2015, compared to $226 million in the prior year quarter that included a net cash benefit of $151 million from the termination fee. Excluding this benefit, net cash provided by operating activities in the third quarter of 2014 totaled $75 million.
Third Quarter Segment Results
Birds Eye Frozen
Net sales for the Birds Eye Frozen segment advanced 15.3% to $296.7 million in the third quarter of 2015, compared to $257.4 million in the year-ago period, reflecting growth of 9.1% from the base business and a benefit of 6.2% from the Gardein acquisition. The strong base business performance reflected higher volume/mix of 7.6% and higher net price realization of 1.5%.
Net sales growth for the quarter was driven by double-digit growth of the Birds Eye franchise, partially offset by lower sales of the segment's Foundation Brand portfolio. The Birds Eye Flavor Full and Birds Eye Protein Blends platforms, launched earlier in the year, fueled the growth of Birds Eye vegetables, while distribution gains and the expansion of Family Size offerings drove the growth of Birds Eye Voila!.
During the quarter, the Company introduced a line of Disney-themed pasta and vegetable side dishes under the Birds Eye Steamfresh brand, as well as a new Birds Eye Voila! platform, which offers consumers four non-chicken varieties, such as beef, pork and shrimp, at a premium price point.
EBIT for the Birds Eye Frozen segment increased 17.2% to $52.0 million in the third quarter of 2015, compared to $44.3 million in the third quarter of 2014. Excluding items affecting comparability, EBIT advanced 19.3% to $57.3 million, reflecting the strong net sales growth and productivity savings, partially offset by input cost inflation.
Duncan Hines Grocery
Net sales for the Duncan Hines Grocery segment declined 5.1% to $257.4 million in the third quarter of 2015, compared to $271.2 million in the year-ago period. This performance reflected lower volume/mix of 4.4% and unfavorable foreign currency translation of 1.2%, partially offset by higher net price realization of 0.5%.
Higher sales of Vlasic pickles and Log Cabin syrups were more than offset by lower sales of Duncan Hines baking products and Wish-Bone salad dressings. Also impacting the quarter were lower sales in the Company's Canadian business, primarily driven by the unfavorable impact of foreign currency translation.
Duncan Hines grew market share during the quarter in a category that remains difficult. Fueling the market share growth was the introduction of Duncan Hines Perfect Size baking kits designed specifically for smaller households.
EBIT for the Duncan Hines Grocery segment advanced 1.4% to $44.2 million in the third quarter of 2015, compared to $43.6 million in the year-ago period. Excluding items affecting comparability, EBIT declined 1.5% to $48.8 million, due to the lower net sales and input cost inflation, partially offset by productivity savings.
Net sales for the Specialty Foods segment declined 13.9% to $82.2 million in the third quarter of 2015, compared to $95.4 million in the third quarter of 2014, driven by lower volume/mix of 14.2%, partially offset by higher net price realization of 0.3%. This performance primarily reflected the expected decline in private label canned meat sales.
EBIT for the Specialty Foods segment decreased 21.6% to $7.8 million in the third quarter of 2015, compared to $9.9 million in the third quarter of 2014. Excluding items affecting comparability, EBIT declined 24.5% to $8.1 million, reflecting the decline in net sales.
Outlook for the Balance of the Year
The Company continues to expect adjusted diluted EPS for 2015 in the range of $1.89 to $1.91. The outlook includes the following full year assumptions:
- Productivity is now estimated at the high end of the Company's 3.0% to 4.0% guidance range.
- Input cost inflation continues to be estimated in the range of 3.0% to 3.5%.
- Interest expense remains estimated at approximately $90 million.
- The effective tax rate continues to be estimated in the range of 36.5% to 37.0%.
- The weighted average diluted share count remains estimated in the range of 117.3 to 117.5 million shares.
Conference Call Information
The Company will host an investor conference call on Thursday, October 29, 2015 at 9:30 AM (ET) to discuss the results of the quarter. To access the call, investors and analysts can dial (866)-802-4355 in the U.S. and Canada or (703) 639-1323 from outside the U.S. and Canada and reference conference name: Pinnacle Foods Q3 Earnings Call. A replay of the call will be available, beginning October 29, 2015 at 1:00 PM (ET) until November 12, 2015, by dialing (888) 266-2081 in the U.S. and Canada or (703) 925-2533 from outside the U.S. and Canada and referencing Access Code 1642543. Access to a live audio webcast and replay of the event will be available in the Investor Center of the Company's corporate website at www.pinnaclefoods.com.
About Pinnacle Foods Inc.
In more than 85% of American households, consumers reach for Pinnacle Foods brands. Pinnacle Foods is ranked on Fortune Magazine's 2015 Top 1000 companies list. We are a leading producer, marketer and distributor of high-quality branded food products, which have been trusted household names for decades. Headquartered in Parsippany, NJ, our business employs an average of 4,500 employees. We are a leader in the shelf-stable and frozen foods segments and our brands hold the #1 or #2 market position in 10 of the 14 major categories in which they compete. Our Birds Eye Frozen segment manages brands such as Birds Eye®, gardein™, Birds Eye Steamfresh®, C&W®, McKenzie's®, and Freshlike® frozen vegetables, Birds Eye Voila!® complete bagged frozen meals, Van de Kamp's® and Mrs. Paul's® frozen prepared seafood, Hungry-Man® frozen dinners and entrees, Aunt Jemima® frozen breakfasts, Lender's® frozen and refrigerated bagels, and Celeste® frozen pizza. Our Duncan Hines Grocery segment manages brands such as Duncan Hines® baking mixes and frostings, Vlasic® and Vlasic Farmer's Garden® shelf-stable pickles, Wish-Bone® and Western® salad dressings, Mrs. Butterworth's® and Log Cabin® table syrups, Armour® canned meats, Brooks® and Nalley® chili and chili ingredients, Duncan Hines® Comstock® and Wilderness® pie and pastry fruit fillings and Open Pit® barbecue sauces. Our Specialty Foods segment manages Tim's Cascade Snacks®, Hawaiian® kettle style potato chips, Erin's® popcorn, Snyder of Berlin® and Husman's® snacks in addition to our food service and private label businesses. Further information is available at www.pinnaclefoods.com.
This release may contain statements that predict or forecast future events or results, depend on future events for their accuracy or otherwise contain "forward-looking information." The words "estimates," "expects," "contemplates," "anticipates," "projects," "plans," "intends," "believes," "forecasts," "may," "should," and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are made based on management's current expectations and beliefs concerning future events and various assumptions and are not guarantees of future performance. Actual results may differ materially as a result of various factors, some of which are beyond our control, including but not limited to: general economic and business conditions, deterioration of the credit and capital markets, industry trends, our leverage and changes in our leverage, interest rate changes, changes in our ownership structure, competition, the loss of any of our major customers or suppliers, changes in demand for our products, changes in distribution channels or competitive conditions in the markets where we operate, costs of integrating acquisitions, loss of our intellectual property rights, fluctuations in price and supply of raw materials, seasonality, our reliance on co-packers to meet our manufacturing needs, availability of qualified personnel, changes in the cost of compliance with laws and regulations, including environmental laws and regulations, and the other risks and uncertainties detailed in our Form 10-K filed with the Securities and Exchange Commission on February 24, 2015 and subsequent reports filed with the Securities and Exchange Commission. There may be other factors that may cause our actual results to differ materially from the forward-looking statements. We assume no obligation to update the information contained in this announcement, except as required by applicable law.