Pinnacle Foods Q1 Adj Profit Tops View, But Sales Miss; Backs 2014 Outlook

(RTTNews) - Convenience foods company Pinnacle Foods, Inc. (PF), which is being acquired by Hillshire Brands Co. (HSH), reported Wednesday a profit for the first quarter that surged 64 percent from last year, reflecting lower interest expense, improved gross margins and sales growth.

Stripping down the charges, adjusted earnings per share topped analysts' expectations by a penny, while quarterly net sales missed their estimates. The company also reaffirmed its earnings guidance for the full-year 2014.

On Monday, Hillshire Brands agreed to acquire Pinnacle Foods in a cash and stock deal valued at $6.6 billion, including outstanding net debt. The deal, unanimously approved by the boards of directors of both companies, is expected to close by September 2014. The combination is expected to be immediately accretive to earnings.

"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," CEO Bob Gamgort said in a statement.

The maker of Birds Eye frozen foods, Duncan Hines baking mixes and frostings, and Vlasic shelf-stable pickles reported net earnings of $40.75 million or $ 0.35 per share for the first quarter, higher than $24.80 million or $0.29 per share in the prior-year quarter.

Excluding items, proforma net earnings for the quarter was $42.34 million or $0.36 per share, compared to $39.50 million or $0.34 per share in the year-ago quarter.

On average, 11 analysts polled by Thomson Reuters expected the company to report earnings of $0.35 per share for the quarter. Analysts' estimates typically exclude one-time items.

The company noted that the unfavorable impact of the Easter shift was about $0.02 per share in the quarter.

Net sales for the quarter increased 5.1 percent to $644.04 million from $612.98 million in the same quarter last year, but missed seven Wall Street analysts' consensus estimate of $649.30 million.

The sales growth primarily reflected a 7.4 percent benefit from Wish-Bone acquisition, partially offset by the unfavorable impacts of a later Easter in 2014 and a decline in sales at the specialty foods division.

The company completed the $575 million acquisition of the Wish-Bone salad dressings business from Anglo-Dutch consumer goods giant Unilever Plc. (UL, ULVR.L, UN) in October 2013.

North America retail net sales increased 7.6 percent to $559 million from last year, as Duncan Hines Grocery net sales improved 16.6 percent to $265 million, reflecting a 19.8 percent benefit from Wish-Bone, and Birds Eye Frozen net sales edged up 0.6 percent to $294 million from a year ago. Net sales for the specialty foods declined 9 percent to $85 million from last year.

Gross profit margin for the quarter improved 60 basis points to 25.9 percent from last year's 25.3 percent.

Interest expense declined to $24.37 million from $40.02 million in the year-ago quarter.

Looking ahead to fiscal 2014, Pinnacle Foods continues to expect double-digit adjusted earnings growth to the range of $1.70 to $1.75 per share. Street is currently looking for full-year 2014 earnings of $1.74 per share.

"We are pleased with our performance in the quarter and continue to expect 2014 to be another year of double-digit EPS growth," Gamgort added.

PF closed Tuesday's regular trading session at $34.00, down $0.23 on a volume of 9.33 million shares.