Pinnacle Posts 2015 Results, Expects Strong Year Ahead
Consolidated net sales rung up by Pinnacle Foods Inc. during 2015 increased by 2.5% to $2.66 billion, compared to receipts of $2.59 billion in fiscal 2014, the Parsippany, New Jersey, USA-based company reported on February 25. This growth reflected a 2.3% benefit from the Gardein acquisition and higher net price realization of 1.3%, partially offset by lower volume/mix of 0.7% and unfavorable foreign currency translation of 0.4%.
Net sales for Pinnacle’s North America Retail business, which is comprised of the Birds Eye Frozen and Duncan Hines Grocery segments, advanced 3.3%, reflecting a 2.6% benefit from the purchase of plant-based frozen protein products manufacturer Gardein, and higher net price realization of 1.3%, partially offset by unfavorable foreign currency translation of 0.4% and lower volume/mix of 0.2%.
Gross profit for the year increased 8.7% to $740.5 million, or 27.9% of net sales, compared to gross profit of $681.2 million, or 26.3% of net sales, in the year-ago period. Excluding items affecting comparability, gross profit advanced 5.4% to $749.8 million and, as a percentage of net sales, gross profit margin expanded by approximately 80 basis points to 28.2%. This performance reflected the benefit of productivity, higher net price realization and favorable product mix, partially offset by input cost inflation and the unfavorable impact of foreign exchange.
Earnings before interest and taxes (EBIT) declined to $424.7 million for the year, compared to $512.3 million in 2014, due to the prior year benefit of $163 million associated with the termination of the company's merger agreement with The Hillshire Brands Company. Excluding the termination fee and other items affecting comparability, EBIT increased 4.6% to $443.1 million, reflecting the growth in gross profit, partially offset by higher selling, general and administrative expenses, including the impact of Gardein. Also impacting the growth in EBIT was the year-ago benefit of a vacation policy change totaling $6.5 million.
Fourth Quarter Results
Net sales in the fourth quarter of 2015 increased 2.4% to $722.5 million, compared to $705.3 million in 2014. This growth reflected a 1.6% benefit versus year-ago from approximately six extra weeks of Gardein sales in 2015, as well as higher net price realization of 2.0%. Partially offsetting this growth were lower volume/mix of 0.8% and unfavorable foreign currency translation of 0.4%.
North America Retail net sales advanced 2.7% to $639.6 million in the fourth quarter of 2015, compared to $622.7 million in the year-ago period, reflecting a 1.9% benefit from Gardein and higher net price realization of 2.1%, partially offset by lower volume/mix of 0.8% and unfavorable foreign currency translation of 0.5%.
Gross profit in the fourth quarter of 2015 increased 18.3% to $222.8 million, or 30.8% of net sales, compared to gross profit of $188.4 million, or 26.7% of net sales, in the year-ago period. Excluding items affecting comparability, gross profit advanced 7.9% to $224.0 million and, as a percentage of net sales, gross profit margin expanded by approximately 160 basis points to 31.0%. This performance reflected the benefit of productivity, higher net price realization, favorable product mix and Wish-Bone (salad dressings) synergies, partially offset by input cost inflation and the unfavorable impact of foreign exchange.
Birds Eye Frozen Performs Well
Net sales for the Birds Eye Frozen segment advanced 8.3% to $343.8 million in the fourth quarter of 2015, compared to $317.4 million in the year-ago period, reflecting growth of 4.7% from the base business and a benefit of 3.6% from the Gardein acquisition. The strong base business performance reflected higher volume/mix of 2.5% and higher net price realization of 2.2%.
Solid growth of the Birds Eye franchise and Mrs. Paul's and Van de Kamp's seafood products was partially offset by lower sales of the segment's Foundation Brand portfolio. Innovation launched earlier in the year – namely, Birds Eye Flavor Full vegetables, Birds Eye Protein Blends side dishes, Birds Eye Disney-themed side dishes for kids, and premium-tier Birds Eye Voila! Varieties – fueled the growth of the Birds Eye franchise in the quarter.
EBIT for the Birds Eye Frozen segment increased approximately 44% to $78.3 million in the fourth quarter of 2015, compared to $54.3 million in the fourth quarter of 2014. Excluding items affecting comparability, EBIT advanced 12.9% to $80.1 million, reflecting the strong net sales growth, productivity savings and higher net price realization, partially offset by input cost inflation, higher consumer marketing and the impact of the vacation policy benefit in the prior year.
Boulder Brands Acquisition
On January 15, 2016, Pinnacle Foods completed its previously announced acquisition of Boulder Brands. As such, Boulder will be consolidated with Pinnacle for 49 weeks in 2016, due to the mid-January acquisition closing and transitioning Boulder to Pinnacle's fiscal calendar, which ends a week earlier on December 25, 2016. During this time period, the company expects the Boulder Brands acquisition to contribute approximately $0.05 to adjusted diluted earning per share.
Outlook for 2016
Including the benefit of the Boulder Brands acquisition, the company expects 2016 to be another year of above-algorithm growth, with adjusted diluted earnings per share in the range of $2.08 to $2.13.
Capital expenditures for the full year are expected to be in the range of $135 million to $145 million, including Boulder Brands and approximately $30 million for previously disclosed Gardein capacity expansion.
"We are excited about our recent Boulder Brands acquisition, which provides a stronger presence in faster-growing health and wellness categories and a rich source of both acquisition synergies and other cost savings opportunities,” said Pinnacle Foods CEO Bob Gamgort. “In 2016, in addition to improving Boulder's cost structure, our focus will be on streamlining the portfolio and building the foundation for accelerated growth in 2017. As a result, we expect Boulder to be modestly accretive this year, with significant accretion thereafter.”