Pinnacle Foods Inc. Reports 1st Quarter Fiscal 2014 Results
Company Reaffirms Guidance for Double-Digit EPS Growth for the Full Year
(PARSIPPANY, NJ) May 14, 2014 - Pinnacle Foods Inc. (NYSE: PF) today reported its financial results for the first quarter ended March 30, 2014 and reaffirmed its guidance for double-digit EPS growth for the year
Consolidated net sales in the first quarter ended March 30, 2014 increased 5% versus year-ago, largely reflecting the benefit of the Wish-Bone acquisition, partially offset by the unfavorable impacts of a later Easter in 2014 and a decline in sales at the Company's Specialty Foods division. Net sales for North America Retail, which is comprised of the Birds Eye Frozen and Duncan Hines Grocery segments, increased 7.6% versus year-ago, fueled by the benefit of Wish-Bone.
GAAP diluted earnings per share increased 21% to $0.35 in the first quarter of 2014, compared to $0.29 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 approximately 6% to $0.36, compared to diluted earnings per share of $0.34 in the year-ago period.
Commenting on the results, Pinnacle Foods Chief Executive Officer Bob Gamgort stated, "We are pleased with our performance in the quarter and continue to expect 2014 to be another year of double-digit EPS growth. Our focus on driving margin improvement through productivity and enhanced product mix, while maintaining our lean operating structure and driving strong free cash flow, continued to serve us well during a quarter in which the industry continued to be pressured for growth. Despite the industry headwinds, we again outpaced the performance of our composite categories, driving another quarter of market share growth."
On May 12, 2014, Pinnacle announced that it signed a definitive agreement for the sale of the Company to Hillshire Brands for a combination of cash and Hillshire common stock. The transaction, which is subject to customary regulatory and shareholder approvals, is expected to close by the end of September 2014.
First Quarter Consolidated Results
Net sales in the first quarter of 2014 increased 5.1% to $644.0 million, compared to net sales of $613.0 million in the first quarter of 2013, primarily reflecting a 7.4% benefit from Wish-Bone, partially offset by the impacts of lower volume/mix of 1.2%, lower net pricing of 0.8% related to increased new product introductory costs, and unfavorable foreign currency translation of 0.3%. The Easter-related shift of sales from the first quarter to the second quarter of 2014 unfavorably impacted the sales comparison by approximately 2%.
North America Retail net sales increased 7.6% to $559.2 million in the first quarter of 2014, compared to $519.7 million in the year-ago period, reflecting an 8.7% benefit from Wish-Bone and slightly higher volume/mix of 0.1%, including the unfavorable impact of the Easter shift. Also impacting the comparison were lower net pricing of 0.8% related to higher new product introductory costs and unfavorable foreign currency translation of 0.4%.
Adjusted EBITDA on a pro forma basis advanced 9.1% to $113.1 million in the first quarter of 2014, compared to $103.7 million in the first quarter of 2013. This performance reflected the growth in net sales and gross margin expansion of 70 basis points, driven by the combined benefit of productivity and improved product mix in excess of inflation. Partially offsetting this growth were increased administrative expenses, largely reflecting higher equity-based compensation expense. 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 approximately 12% versus year-ago to $90.1 million in the first quarter of 2014, compared to $80.7 million in the first quarter of 2013. Excluding items affecting comparability, EBIT on a pro forma basis increased approximately 10% to $92.7 million in the first quarter of 2014, compared to $84.4 million in the year-ago period.
Net earnings in the first quarter advanced to $40.7 million, or $0.35 per diluted share, compared with net earnings of $24.8 million, or $0.29 per diluted share, in the year-ago period. Excluding items affecting comparability, on a pro forma basis, net earnings for the first quarter increased approximately 7% to $42.3 million, or $0.36 per diluted share, compared to net earnings of $39.5 million, or $0.34 per diluted share, in the year-ago period. This performance primarily reflected the growth in EBIT, partially offset by higher interest expense associated with debt assumed to fund the Wish-Bone acquisition. The unfavorable impact of the Easter shift approximated $0.02 per diluted share in the quarter.
Net cash provided by operating activities advanced significantly in the first quarter of 2014 to $94 million, compared to $68 million in the year-ago period, largely reflecting the growth in Earnings before income taxes.
First Quarter Segment Results
Birds Eye Frozen
Net sales for the Birds Eye Frozen segment increased 0.6% to $294.3 million in the first quarter of 2014, compared to $292.5 million in the year-ago period, reflecting a 0.7% increase from volume/mix, partially offset by lower net pricing of 0.1%. By brand, growth of Birds Eye Voila! skillet meals, Mrs. Paul's and Van de Kamp's seafood and Hungry-Man entrees, including new Hungry-Man Selects varieties, was partially offset by lower sales of Birds Eye vegetables, due to the later Easter and new product introductory expenses behind new Birds Eye Steamfresh varieties.
EBIT for the Birds Eye Frozen segment declined approximately 4% to $46.7 million in the first quarter of 2014, compared to $48.9 million in first quarter of 2013. Excluding items affecting comparability, EBIT declined approximately 5% to $47.1 million, largely due to commodity and logistics cost inflation and the impact of the Easter shift, partially offset by productivity and timing of marketing investment.
Duncan Hines Grocery
Net sales for the Duncan Hines Grocery segment advanced 16.6% to $264.9 million in the first quarter of 2014, compared to $227.2 million in the year-ago period, reflecting a 19.8% benefit from Wish-Bone, partially offset by lower net pricing of 1.8%, a decrease from volume/mix of 0.5% and unfavorable foreign currency translation of 0.9%. By brand, sales growth from Wish-Bone salad dressings, Armour canned meat and Nalley chili offset sales declines related to Easter timing for Duncan Hines baking products and Vlasic pickles, as well as new product introductory expenses behind our Duncan Hines Velvets and Decadent Salted Caramel Brownies varieties.
EBIT for the Duncan Hines Grocery segment advanced 45% to $42.7 million in the first quarter of 2014, compared to $29.4 million in the year-ago period. Excluding items affecting comparability, EBIT advanced approximately 41% to $44.8 million, largely due to the benefit of Wish-Bone, favorable commodity prices and productivity, partially offset by the impact of the Easter shift.
Net sales for the Specialty Foods segment declined approximately 9% to $84.9 million in the first quarter of 2014, compared to $93.3 million in the first quarter of 2013, due to lower volume/mix of 8.7% and lower net pricing of 1.0%, partially offset by a 0.6% benefit from the Wish-Bone foodservice business. For the base business, lower sales of private label canned meat were only partially offset by growth in snacks.
EBIT for the Specialty Foods segment decreased to $7.1 million in the first quarter of 2014, compared to $8.2 million in the first quarter of 2013, primarily reflecting the lower sales of private label canned meat in a heightened competitive bidding environment.
Fiscal Year 2014 Outlook
The Company reaffirmed its adjusted EPS guidance for fiscal 2014 in the range of $1.70 - $1.75, or growth of 12% to 15% versus year-ago, after giving effect to stock-based compensation expense in both years. This guidance continues to incorporate the following unchanged assumptions:
Input cost inflation of approximately 2%;
Productivity in the range of 3-4% of cost of products sold;
Interest expense of approximately $100 million;
An effective tax rate of approximately 38.9%; and
Diluted weighted average shares of 117.2 million.
Conference Call Information
The Company will host an investor conference call on Wednesday, May 14, 2014 at 9:30AM (ET) to discuss the results of the quarter. To access the call, investors and analysts can dial (866) 793-1344 in the U.S. and Canada or (703) 639-1315 from outside the U.S. and Canada and reference conference name: Pinnacle Foods Q1 Earnings Call. A replay of the call will be available, beginning May 14, 2014 at 1:00 PM (ET) until May 28, 2014, 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 1618983. 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 a Top 1000 Company ranked on Fortune Magazine's 2013 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 4,400 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 13 major categories in which they compete. Our Duncan Hines Grocery Division 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 Birds Eye Frozen Division manages brands such as Birds Eye®, 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 Specialty Foods Division 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 http://www.pinnaclefoods.com.
Forward Looking Statements
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 substantial 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 March 6, 2014 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 the presentation.