Pinnacle Foods Reports Strong 1st Quarter Fiscal 2017 Results
Company Reaffirms Guidance for the Year
Diluted earnings per share, including costs related to the Company’s recent refinancing and other items affecting comparability, decreased 9.5% to
Net sales in the first quarter of 2017 increased 1.6% versus year-ago, despite the unfavorable impact of Easter shifting to the second quarter, largely due to strong growth of the Boulder segment, including the carry-over benefit of the Boulder Brands acquisition (three extra weeks), and solid growth of the Company’s Grocery segment. As expected, net sales in the Frozen segment were unfavorably impacted by the Easter timing. Composite market share advanced 0.8 share points versus year-ago, marking the 12th consecutive quarter of share growth.
Commenting on the results,
First Quarter Consolidated Results
Net sales in the first quarter of 2017 increased 1.6% to
Gross profit in the first quarter of 2017 increased 6.3% versus year-ago to
Earnings before interest and taxes (EBIT) in the first quarter of 2017 increased 38.5% to
Net interest expense for the quarter increased to
The effective tax rate (ETR) for the first quarter of 2017 declined to 24.1%, compared to 49.0% in the year-ago period, including items affecting comparability in both periods. The Adjusted ETR for the quarter was 32.5%, compared to 37.0% in the year-ago period, largely reflecting a 430 basis point benefit in the first quarter of 2017 from stock options exercise activity and the related impact of the adoption of the new accounting standard for stock-based compensation in 2017.
Net earnings in the first quarter decreased 6.8% to
Net cash provided by operating activities totaled
First Quarter Segment Results
Net sales for the Frozen segment decreased 2.9% to
Market share performance for the segment remained very strong, with Birds Eye vegetables and Birds Eye meals gaining 1.7 and 1.9 market share points, respectively, on broad-based strength across each portfolio. To maintain momentum behind Birds Eye, early in the second quarter of 2017 the Company began the rollout of five new platforms—namely, Birds Eye Veggie Mashers, Birds Eye Vegetable Pasta, Birds Eye Super Food Blends, Birds Eye Organic, and
EBIT for the Frozen segment decreased 0.8% to
Net sales for the Grocery segment increased 3.4% to
Growth in the Grocery segment was driven by broad-based strength of the Duncan Hines brand, fueled by the launch of Perfect Size for 1, an ultra-convenient, single-serve baking solution made with real, simple ingredients that are baked in a mug, in the microwave, in one minute. Also posting strong growth in the quarter was Armour canned meat, partially offset by lower sales of Vlasic pickles.
Market share performance for the segment was strong, largely driven by strength of Duncan Hines baking products and Armour canned meat, partially offset by Vlasic pickles and syrups.
EBIT for the Grocery segment increased 30.4% to
Net sales for the Boulder segment increased 21.4% to
Net sales growth across the segment reflected particular strength of the gardein and EVOL brands, while retail consumption in the quarter advanced 4.2%, despite the segment’s SKU rationalization program.
EBIT for the Boulder segment totaled
Net sales for the Specialty segment declined 4.5% to
EBIT for the Specialty segment advanced 27.0% to
Outlook for the Balance of the Year
Forecasted Adjusted Diluted EPS metrics provided below are non-GAAP measures. The Company does not provide guidance for the most directly comparable GAAP measure, diluted EPS, and we similarly cannot provide a reconciliation between our forecasted Adjusted Diluted EPS and diluted EPS metrics without unreasonable effort due to the unavailability of reliable estimates for certain items, such as non-cash gains or losses resulting from mark-to-market adjustments of hedging activities and foreign currency impacts. These items are not within our control and may vary greatly between periods and could significantly impact future financial results.
The Company reaffirmed its guidance for Adjusted Diluted EPS for 2017 in a range of
The impact of Easter in 2017 is expected to shift approximately 2% of net sales and approximately
$0.01of Adjusted Diluted EPS from the first quarter to the second quarter. The Frozen segment and, to a lesser extent, the Grocery segment are expected to be most affected by this shift, due to the seasonal nature of those portfolios.
The benefit of the 53rd week is expected to add approximately 1% to net sales and
$0.03to Adjusted Diluted EPS for the year. This impact will benefit the fourth quarter of 2017.
- Input cost inflation for the year continues to be estimated in the range of 2.5% to 3.0%.
Productivity for the year continues to be estimated in the range of 3.5% to 4.0% of cost of products sold, excluding the Boulder Brands acquisition synergies of approximately
$15 millionthat will benefit both gross margin and SG&A overhead.
Adjusted Net Interest Expense continues to be forecasted at approximately
- Adjusted ETR for the year, including the benefit of the new accounting standard for stock-based compensation, remains estimated at approximately 35.0%. This forecast assumes that the second quarter rate will approximate the first quarter rate, with the second half expected to be considerably higher. Given the greater-than-expected stock options exercise activity in the first quarter, along with the heavy equity vesting period in the second quarter, the Company plans to provide an update on its Adjusted ETR forecast on its second quarter earnings call in July 2017.
- The weighted average diluted share count for the year continues to be estimated at approximately 120 million shares, with the second half of the year higher than the first half.
Capital expenditures for the full year are now estimated in the range of
$115 million to $125 million.
Non-GAAP Financial Measures
Pinnacle uses the following non-GAAP financial measures as defined by the
- Adjusted Gross Profit
- Adjusted Gross Profit as a % of sales (Adjusted Gross Profit Margin)
- Adjusted EBITDA
- Adjusted Earnings Before Interest and Taxes (Adjusted EBIT)
- Adjusted Net Interest Expense
- Adjusted Net Earnings
- Adjusted Diluted Earnings Per Share
- Adjusted Effective Income Tax Rate
Adjusted Gross Profit
Pinnacle defines Adjusted Gross Profit as gross profit before accelerated depreciation related to restructuring activities, certain non-cash items, acquisition, merger and other restructuring charges and other adjustments. The Company believes that the presentation of Adjusted Gross Profit is useful to investors in the evaluation of the operating performance of companies in similar industries. The Company believes this measure is useful to investors because it increases transparency and assists investors in understanding the underlying performance of the Company and in the analysis of ongoing operating trends. In addition, Adjusted Gross Profit is one of the components used to evaluate the performance of Company’s management. Such targets include, but are not limited to, measurement of sales efficiency, productivity measures and recognition of acquisition synergies.
Pinnacle defines Adjusted EBITDA as earnings before interest expense, taxes, depreciation and amortization (“EBITDA”), further adjusted to exclude certain non-cash items, non-recurring items and certain other adjustment items permitted in calculating Covenant Compliance EBITDA under the Senior Secured Credit Facility and the indentures governing the Senior Notes. Adjusted EBITDA does not include adjustments for equity-based compensation and certain other adjustments related to acquisitions, both of which are permitted in calculating Covenant Compliance EBITDA.
Management uses Adjusted EBITDA as a key metric in the evaluation of underlying Company performance, in making financial, operating and planning decisions and, in part, in the determination of cash bonuses for its executive officers and employees. The Company believes this measure is useful to investors because it increases transparency and assists investors in understanding the underlying performance of the Company and in the analysis of ongoing operating trends. Additionally, Pinnacle believes the presentation of Adjusted EBITDA provides investors with useful information, as it is an important component in measuring covenant compliance in accordance with the financial covenants and determining our ability to service debt and meet any payment obligations. In addition, Pinnacle believes that Adjusted EBITDA is frequently used by analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results. The Company has historically reported Adjusted EBITDA to analysts and investors and believes that its continued inclusion provides consistency in financial reporting and enables analysts and investors to perform meaningful comparisons of past, present and future operating results. Adjusted EBITDA should not be considered as an alternative to operating or net earnings (loss), determined in accordance with GAAP, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows, or as a measure of liquidity.
EBITDA and Adjusted EBITDA do not represent net earnings or (loss) or cash flow from operations as those terms are defined by Generally Accepted Accounting Principles (“GAAP”) and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. In particular, the definitions of Adjusted EBITDA in the Senior Secured Credit Facility and the indentures allow Pinnacle to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net earnings or loss. However, these are expenses that may recur, vary greatly and are difficult to predict. While EBITDA and Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.
Adjusted Earnings before Interest and Taxes (Adjusted EBIT)
Adjusted Earnings Before Interest and Taxes is provided because Pinnacle believes it is useful information in understanding our EBIT results by improving the comparability of year-to-year results. Additionally, Adjusted EBIT provides transparent and useful information to management, investors, analysts and other parties in evaluating and assessing the Company and its segments, primary operating results from period to period after removing the impact of unusual, non-operational or restructuring-related activities that affect comparability. Adjusted EBIT is one of the measures management uses for planning and budgeting, monitoring and evaluating financial and operating results and in the analysis of ongoing operating trends.
Adjusted Net Interest Expense
Adjusted Net Interest Expense is provided to assist the reader by eliminating charges which result from refinancing activities or unusual transactions. Management believes that the Adjusted Net Interest Expense measure is useful information to investors in order to demonstrate a measure of interest expense that is associated with the ordinary course of business operations and that it is more comparable to interest expense in prior periods. Pinnacle uses Adjusted Net Interest Expense to conduct and evaluate its business in order to evaluate the effectiveness of the corporation’s financing strategies and to analyze trends in interest expense, absent the effect of unusual transactions.
Adjusted Net Earnings, Adjusted Effective Income Tax Rate and Adjusted Diluted Earnings per Share
Adjusted Net Earnings, Adjusted Effective Income Tax Rate and the related Adjusted Diluted Earnings per Share metrics are provided to present the reader with the after-tax impact of Adjusted EBIT and Adjusted Interest Expense, net in order to improve the comparability and understanding of the related GAAP measures. Adjusted Net Earnings, Adjusted Effective Tax Rate and Adjusted Diluted Earnings per Share provide transparent and useful information to management, investors, analysts and other parties in evaluating and assessing our primary operating results from period to period after removing the impact of unusual, non-operational or restructuring-related activities that affect comparability. Adjusted Net Earnings, Adjusted Effective Income Tax Rate and Adjusted Diluted Earnings per Share are measures used by management for planning and budgeting, monitoring and evaluating financial and operating results.
Conference Call Information
The Company will host a conference call on
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 filings, including our Form 10-K, with the