Pinnacle Foods Inc. Reports 1st Quarter Fiscal 2015 Results

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Company Reaffirms Guidance for Full-Year EPS Growth in the Range of 7-10%

PARSIPPANY, NJ (April 30, 2015) - Pinnacle Foods Inc. (NYSE: PF) today reported its financial results for the first quarter ended March 29, 2015 and reaffirmed its outlook for full-year adjusted diluted earnings per share in the range of $1.86 to $1.91, representing growth of 7-10% versus year-ago.

Consolidated net sales in the first quarter of 2015 increased 3.3% versus year-ago, reflecting the benefits of the Gardein acquisition, modest volume/mix growth on the base business and higher net price realization largely reflecting timing of new product introductory costs. Net sales for North America Retail, which is comprised of the Birds Eye Frozen and Duncan Hines Grocery segments, increased 3.6% versus year-ago. The earlier timing of Easter in 2015, which shifted sales into the first quarter from the second quarter, favorably impacted the first quarter net sales comparisons by approximately 1%.

GAAP diluted earnings per share totaled $0.35 in the first quarter of 2015, unchanged from the year-ago period. Excluding items affecting comparability, which are described in the accompanying reconciliation tables, diluted earnings per share advanced 8.3% to $0.39, compared to $0.36 in the year-ago period.

Commenting on the results, Pinnacle Foods Chief Executive Officer Bob Gamgort stated, "We are pleased with our solid start to 2015. Market share growth across our portfolio—particularly on our Birds Eye franchise—enabled us to offset weak composite category performance, and we delivered modest gross margin expansion in a quarter in which input cost inflation exceeded productivity. We are excited about our innovation for this year, much of which will be launched in the second quarter, and we remain confident in our previous outlook for 7% to 10% growth in EPS for the year."

First Quarter Consolidated Results

Net sales in the first quarter of 2015 increased 3.3% to $665.3 million, compared to net sales of $644.0 million in the year-ago period. This growth reflected a 2.4% benefit from Gardein, higher net price realization of 0.8%, due to the timing of new product introductory costs, and higher volume/mix of 0.4%, partially offset by unfavorable foreign currency translation of 0.3%. The earlier timing of Easter in 2015 favorably impacted the first quarter net sales comparison by approximately 1%.

North America Retail net sales increased 3.6% to $579.1 million in the first quarter of 2015, compared to $559.2 million in the year-ago period, reflecting a 2.8% benefit from Gardein, higher net price realization of 0.8%, due to the timing of new product introductory costs, and higher volume/mix of 0.4%, partially offset by unfavorable foreign currency translation of 0.4%. The earlier timing of Easter in 2015 favorably impacted the North America Retail net sales comparison by approximately 1%.

Gross profit in the first quarter of 2015 increased 3.0% versus year-ago to $171.7 million, or 25.8% of net sales, compared to gross profit of $166.7 million, or 25.9% of net sales, in the year-ago period. Excluding items affecting comparability, gross profit advanced 3.9% to $175.2 million and, as a percentage of net sales, gross profit expanded by 15 basis points to 26.3%. This performance reflected the benefits of continued strong productivity, higher net price realization and favorable product mix, almost entirely offset by input cost inflation that, as expected, exceeded productivity in the quarter.

Earnings before interest and taxes (EBIT) in the first quarter of 2015 decreased to $88.5 million, compared to $90.1 million in the first quarter of 2014. Excluding items affecting comparability, EBIT in the first quarter advanced 3% to $95.5 million, compared to $92.7 million in 2014, largely reflecting the growth in gross profit, partially offset by higher marketing and selling expenses. Adjusted EBITDA advanced 2.9% to $116.3 million in the first quarter of 2015, compared to $113.1 million in the first 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 11.8% to $21.5 million, compared to $24.3 million in the year-ago period. This improvement largely reflected the benefits of the $200 million debt reduction in the third quarter of 2014 and the related 25 basis point interest rate step-down on the Company's term loans. The effective tax rate for the quarter was 38.0%, compared to 38.1% in the year-ago period, excluding items affecting comparability.

Net earnings in the first quarter advanced to $41.5 million, compared with net earnings of $40.7 million in the year-ago period. Excluding items affecting comparability, net earnings for the first quarter increased 8.4% to $45.9 million, or $0.39 per diluted share, compared to net earnings of $42.3 million, or $0.36 per diluted share, in the year-ago period.

Net cash provided by operating activities totaled $71 million in the first quarter of 2015, compared to net cash provided by operating activities of $94 million in the year-ago quarter, largely reflecting higher working capital in the first quarter of 2015 due to the timing of sales related to the earlier Easter Holiday and incremental working capital related to acquisitions.

First Quarter Segment Results

Birds Eye Frozen

Net sales for the Birds Eye Frozen segment advanced 8.0% to $317.9 million in the first quarter of 2015, compared to $294.3 million in the year-ago period. This performance reflected a 5.2% benefit from the Gardein acquisition, increased volume/mix of 1.8% and higher net price realization of 1.0%, primarily driven by the timing of new product introductory costs. The earlier timing of Easter in 2015 benefitted the first quarter net sales comparison by approximately 2%.

Net sales growth for the quarter was registered across all the Leadership Brands, driven by the continued strength of the Birds Eye vegetables and Birds Eye Voila! skillet meals business and growth of Mrs. Paul's and Van de Kamp's frozen prepared seafood, including the benefit of the introduction during the quarter of flavor encrusted fillet varieties. Partially offsetting this growth were lower sales of the Foundation Brands.

EBIT for the Birds Eye Frozen segment declined 7.4% to $43.3 million in the first quarter of 2015, compared to $46.7 million in the first quarter of 2014. Excluding items affecting comparability, EBIT decreased 0.8% to $46.8 million, driven by input cost inflation and higher marketing investment, partially offset by the net sales growth and productivity savings.

Duncan Hines Grocery

Net sales for the Duncan Hines Grocery segment declined 1.4% to $261.2 million in the first quarter of 2015, compared to $264.9 million in the year-ago period, due to lower volume/mix of 1.2% and unfavorable foreign currency translation of 0.7%, partially offset by higher net price realization of 0.5% largely due to the timing of new product introductory costs. The earlier timing of Easter in 2015 provided a slight benefit to the first quarter net sales comparison.

Net sales growth in the quarter was registered across all the Leadership Brands, driven by Duncan Hines baking products, Log Cabin and Mrs. Butterworth's syrups and Vlasic pickles, including distribution expansion of the new Vlasic Bold & Spicy line. This growth was offset by lower sales of the Foundation Brands, including the Company's business in Canada.

EBIT for the Duncan Hines Grocery segment advanced 1.3% to $43.2 million in the first quarter of 2015, compared to $42.7 million in the year-ago period. Excluding items affecting comparability, EBIT advanced 3.9% to $46.6 million, driven by productivity savings, favorable product mix and lower marketing spending, partially offset by the impacts of the net sales decline and input cost inflation.

Specialty Foods

Net sales for the Specialty Foods segment advanced 1.6% to $86.2 million in the first quarter of 2015, compared to $84.9 million in the first quarter of 2014, due to higher net price realization of 1.1% and higher volume/mix of 0.5%, largely reflecting higher sales of private label canned meat.

EBIT for the Specialty Foods segment increased 8.9% to $7.7 million in the first quarter of 2015, compared to $7.1 million in the first quarter of 2014. Excluding items affecting comparability, EBIT advanced 10.1% to $7.9 million, largely reflecting the benefits of the growth in net sales and lower intangible amortization, partially offset by higher logistics costs.

Outlook for 2015

The Company continues to expect diluted EPS for 2015 in the range of $1.86 to $1.91, excluding items affecting comparability. This outlook represents 7-10% growth and includes the following unchanged assumptions:

  • Input cost inflation for the year is estimated in the range of 3.0% to 3.5%, with inflation in the first half of the year expected to be higher than in the second half.
  • Productivity for the year is estimated in the range of 3.0% to 4.0% of cost of products sold, with savings expected to be greater in the second half of the year versus the first half.
  • Interest expense for the year is estimated to approximate $90 million, largely reflecting the benefits of debt reduction in 2014 and the related interest rate step-down.
  • The effective tax rate for the year is estimated at 38.0%.
  • The weighted average diluted share count for the year is estimated at approximately 117 million.

Conference Call Information

The Company will host an investor conference call on Thursday, April 30, 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 Q1 Earnings Call. A replay of the call will be available, beginning April 30, 2015 at 1:00 PM (ET) until May 14, 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 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 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 entrées, Aunt Jemima® frozen breakfasts, Lender's® frozen and refrigerated bagels, and Celeste® frozen pizza. 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.

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 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.