ENP Newswire - 14 August 2014
Release date- 14082014 - PARSIPPANY, NJ - Pinnacle Foods Inc. (NYSE: PF) today reported its financial results for the second quarter ended June 29, 2014 and reaffirmed its guidance for double-digit EPS growth for the year.
Net sales increased approximately 9% versus year-ago in the second quarter, primarily reflecting the benefit of the Wish-Bone acquisition, and earnings per share advanced 22%, on a pro forma basis excluding items affecting comparability.
Net sales for North America Retail, which is comprised of the Birds Eye Frozen and Duncan Hines Grocery segments, increased 11% versus year-ago, driven by Wish-Bone and strength across the Company's Leadership Brand portfolio, partially offset by lower sales of the Company's Foundation Brand portfolio.
GAAP diluted earnings per share increased to $0.30 in the second quarter of 2014, compared to a loss per share of $0.28 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 22% to $0.33, compared to diluted earnings per share of $0.27 in the year-ago period.
Commenting on the results, Pinnacle Foods Chief Executive Officer Bob Gamgort stated, 'We continue to execute well in an increasingly challenging environment. Our business model has proven to be resilient in a food industry characterized by weak growth and heavier promotional spending. We have been able to strike the right balance between investing in our brands, remaining price competitive and delivering strong earnings growth, and we are pleased that we delivered another quarter of market share growth.'
The Company also announced that, subsequent to the end of the second quarter, it reduced indebtedness by $200 million and now expects to achieve a 25 basis point step down in its term loan interest rate at the end of the fiscal third quarter of 2014, one quarter earlier than previously anticipated. In addition, the Company recently announced a 12% increase in its quarterly dividend to $0.235 per share, effective with its upcoming third quarter dividend to be paid in October 2014. This increase, which is consistent with the Company's target of achieving a payout ratio of 50% of net earnings, reflects the Company's continuing strong cash flow performance and confidence in its business model.
Second Quarter Consolidated Results
Net sales in the second quarter of 2014 increased 8.6% to $617.8 million, compared to net sales of $569.0 million in the second quarter of 2013, primarily due to a 9.6% benefit from the Wish-Bone acquisition and a 2.0% increase from higher volume/mix, largely reflecting the benefit of the Easter-related shift of sales from the first quarter to the second quarter of 2014. Partially offsetting this growth was lower net pricing of 2.8%, stemming from Easter-related promotional activity and trade investments made during the quarter to enhance competitiveness at retail. Also impacting the comparison was unfavorable foreign currency translation of 0.2%.
North America Retail net sales increased 11.0% to $536.2 million in the second quarter of 2014, compared to $482.9 million in the year-ago period, reflecting an 11.2% benefit from the Wish-Bone acquisition and a 3.2% increase from higher volume/mix, including the Easter-related sales shift, partially offset by lower net pricing of 3.2% and unfavorable foreign currency translation of 0.2%. The decrease in net pricing was largely due to the aforementioned Easter-related promotional activity and trade investments.
Adjusted EBITDA on a pro forma basis advanced 17.5% to $105.9 million in the second quarter of 2014, compared to $90.1 million in the second quarter of 2013. This performance reflected the growth in net sales, gross margin expansion of 70 basis points, and lower administrative expenses, partially offset by higher consumer marketing investment. The gross margin expansion was driven by productivity savings and favorable mix, partially offset by lower net pricing and inflation. 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 significantly to $81.9 million in the second quarter of 2014, compared to $11.0 million in the second quarter of 2013. Excluding items affecting comparability, EBIT on a pro forma basis increased approximately 21% to $86.3 million in the second quarter of 2014, compared to $71.3 million in the year-ago period.
Interest expense for the quarter on an adjusted pro forma basis increased 24% to $24.5 million, driven by debt incurred with the Wish-Bone acquisition. On the same basis, the effective tax rate for the quarter was 38.1%, compared to 39.5% in the prior year period, due to a benefit in the current quarter from a change in state tax legislation.
Net earnings in the second quarter advanced to $35.6 million compared with a net loss of $31.8 million in the year-ago period. Excluding items affecting comparability, on a pro forma basis, net earnings for the second quarter increased approximately 23% to $38.3 million compared to net earnings of $31.2 million in the year-ago period.
Net cash provided by operating activities more than doubled in the second quarter of 2014 to $93 million, compared to $44 million in the year-ago period. The strong cash flow performance reflected growth in earnings before income taxes and improvement in working capital in 2014.
Second Quarter Segment Results
Birds Eye Frozen
Net sales for the Birds Eye Frozen segment increased approximately 1% to $246.2 million in the second quarter of 2014, compared to $244.0 million in the year-ago period. The performance was due to a 5.0% increase from volume/mix, including the Easter-related sales shift for Birds Eye vegetables, partially offset by lower net pricing of 4.1%, largely reflecting the impact of Easter-related promotional spending and trade investments to enhance competitiveness at retail for Birds Eye vegetables and Birds Eye Voila! skillet meals. These two Leadership Brands drove the net sales growth in the quarter, partially offset by lower sales of Celeste pizza, Aunt Jemima breakfast products, and Mrs. Paul's and Van de Kamp's seafood. During the quarter, Birds Eye introduced a Birds Eye Steamfresh kale variety and three new varieties of Birds Eye Steamfresh Chef's Favorites, while Birds Eye Voila! continued the expansion of its Family Size line.
EBIT for the Birds Eye Frozen segment increased approximately 1% to $37.1 million in the second quarter of 2014, compared to $36.5 million in second quarter of 2013. Excluding items affecting comparability, EBIT declined approximately 5%, as the benefits of productivity savings and net sales growth were more than offset by trade investments made during the quarter and higher commodity and logistics costs.
Duncan Hines Grocery
Net sales for the Duncan Hines Grocery segment advanced approximately 21% to $290.0 million in the second quarter of 2014, compared to $238.8 million in the year-ago period, due to a 22.6% benefit from the Wish-Bone acquisition and higher volume/mix of 1.3%. Partially offsetting these growth drivers were lower net pricing of 2.0%, reflecting the impacts of Easter-related promotional spending and a heightened promotional environment in the Company's Canadian business, as well as unfavorable foreign currency translation of 0.5%.
The growth in net sales was primarily driven by the Leadership Brands-namely, Wish-Bone salad dressings, Duncan Hines baking products and Vlasic pickles-due, in part, to the benefit of the later Easter holiday. These growth drivers were partially offset by lower sales from the Foundation Brands and the Company's Canadian business. During the quarter, Duncan Hines continued to expand its Decadent line and seasonal offerings with the introductions of Decadent Black & White Cupcake kit and Duncan Hines Limited Edition Summer Velvets.
EBIT for the Duncan Hines Grocery segment advanced 56% to $46.3 million in the second quarter of 2014, compared to $29.7 million in the year-ago period. Excluding items affecting comparability, EBIT advanced approximately 43% to $48.6 million, driven by the net sales growth, including the benefits of Wish-Bone, productivity savings and lower commodity prices, partially offset by higher logistics costs and increased consumer marketing.
Net sales for the Specialty Foods segment declined approximately 5% to $81.6 million in the second quarter of 2014, compared to $86.2 million in the second quarter of 2013, due to lower volume/mix of 4.6% and lower net pricing of 1.7%, partially offset by a 1.0% benefit from the Wish-Bone foodservice business. For the base business, growth in snacks was more than offset by lower sales of private label canned meat.
EBIT for the Specialty Foods segment increased 30% to $6.3 million in the second quarter of 2014, compared to $4.9 million in the second quarter of 2013. Excluding items affecting comparability, EBIT advanced approximately 25%, driven by productivity savings, reduced commodity prices and favorable mix.
Outlook for the Balance of the Year
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. The Company continues to expect input cost inflation for 2014 of approximately 2%, productivity in the range of 3-4% of cost of products sold, and a diluted weighted average share count of 117.2 million. Given the benefits realized in the first half, the Company now expects its effective tax rate for the year to be slightly below its previous guidance of 38.9%.
Due to the termination of the Company's merger agreement with Hillshire Brands, Pinnacle received a $163 million termination fee at the beginning of the third quarter of fiscal 2014. The fee, in concert with cash on hand, was used to reduce debt by $200 million. As a result of the debt pay-down and the Company's anticipated ongoing strong cash flow, Pinnacle expects its net leverage ratio at the end of the third quarter to fall below the 4.25x threshold that will trigger a 25 basis point reduction in the interest rate on its term loans. The combination of the debt reduction and expected interest rate step-down would result in net interest expense for 2014 to be slightly below the $100 million previously forecasted. The Company plans to reinvest the interest savings in 2014 back into the business.
Conference Call Information
The Company will host an investor conference call on Wednesday, August 13, 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 Q2 Earnings Call. A replay of the call will be available, beginning August 13, 2014 at 1:00 PM (ET) until August 27, 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.
Pinnacle Foods Contact
Sr. Vice President, Investor Relations & Communications
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 2014 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 this announcement, except as required by applicable law.