Pinnacle Foods Inc. Reports Q4 and Full Year 2014 Results
Company Provides EPS Guidance for Fiscal 2015 Representing 7-10% Growth
PARSIPPANY, NJ (February 24, 2015) - Pinnacle Foods Inc. (NYSE: PF) today reported its financial results for the fourth quarter and full year ended December 28, 2014, delivering significant growth in diluted earnings per share for the year. The Company also provided its outlook for fiscal 2015, including Adjusted diluted earnings per share in the range of $1.86 to $1.91, representing growth of 7-10%.
Highlights of 2014 include:
- Grew consolidated net sales 5.2% and North America Retail net sales 6.9%
- Gained composite market share in 2014, growing or holding share in 9 of 13 categories
- Expanded Adjusted gross margin by approximately 50 basis points through continued strong productivity and favorable product mix, despite higher-than-anticipated inflation
- Delivered 13% growth in Adjusted EBIT and grew Adjusted EBITDA by 11% to $504 million
- Grew Adjusted pro forma diluted EPS by 14.5% to $1.74, representing the top of the Company's guidance range
- Acquired Garden Protein International Inc., the rapidly-growing manufacturer of the plant-based protein brand gardein, and the Centralia, Illinois manufacturing site of Gilster Mary Lee, the primary manufacturing operation for Duncan Hines
- Drove net cash provided by operating activities to approximately $400 million, excluding the benefit of the termination fee totaling $153 million, net of expenses, associated with the terminated merger agreement with The Hillshire Brands Company
- Reduced debt by approximately $200 million and achieved a year-end net leverage ratio of 4.23x
- Successfully executed two secondary offerings, dramatically increasing public float and liquidity
- Added two new independent directors to the Company's Board
Commenting on the results, Pinnacle Foods Chief Executive Officer Bob Gamgort stated, "We are pleased with the strong results we delivered in our second year as a public company – achieving double-digit EPS growth, expanding gross margin and generating exceptional cash flow that enabled us to reduce leverage and return over $100 million in cash to our shareholders through dividends. We navigated successfully through an eventful year in which we made two modest, but highly strategic, acquisitions and managed through the disruption of a terminated merger agreement, while continuing to build market share in a highly competitive industry. The 2015 guidance that we are providing today reflects the confidence we have in the ability of our business model and team to continue to create shareholder value."
Full-Year Fiscal 2014 Results
Consolidated net sales for the year increased 5.2% to $2.59 billion, compared to $2.46 billion in fiscal 2013, reflecting a 6.2% benefit from acquisitions and a 0.3% increase from higher volume/mix, partially offset by lower net price realization of 1.1% and unfavorable foreign currency translation of 0.2%.
Net sales for the Company's North America Retail business, which is comprised of the Birds Eye Frozen and Duncan Hines Grocery segments, advanced 6.9%, reflecting a 7.1% benefit from acquisitions and a 1.2% increase from higher volume/mix, partially offset by lower net price realization of 1.1% and unfavorable foreign currency translation of 0.3%. Strong net sales growth was registered for the Birds Eye frozen vegetable and Voila! skillet meal businesses, Hungry-Man frozen entrees, Vlasic pickles and Armour canned meat, while Aunt Jemima frozen breakfast products and Duncan Hines baking products declined.
Gross profit for the year increased 4.1% to $681.2 million, or 26.3% of net sales, compared to gross profit of $654.2 million, or 26.6% of net sales, in 2013. Excluding items affecting comparability, gross profit advanced 7.1% to $711.3 million and, as a percentage of net sales, gross profit expanded by approximately 50 basis points to 27.5%. This performance largely reflected strong productivity savings and favorable product mix, partially offset by the impacts of inflation and lower net price realization.
EBIT advanced significantly to $512.3 million for the year, compared to $293.0 million in 2013, significantly driven by the Hillshire merger termination fee. Excluding this fee and other items affecting comparability, EBIT increased 13% to $423.4 million, compared to $374.2 million in 2013, primarily reflecting the growth in net sales, gross margin expansion and the benefit of a vacation policy change amounting to $6.5 million in the fourth quarter of 2014 to more closely align with market practices. Partially offsetting these factors was higher consumer marketing investment.
Adjusted EBITDA advanced 11.4% to $504.0 million in 2014, compared to $452.4 million in 2013. Adjusted EBIT and Adjusted EBITDA are Non-GAAP measures defined below under "Non-GAAP Financial Measures" and reconciled to GAAP measures in the tables that accompany this release.
GAAP net earnings advanced significantly to $248.4 million in 2014, compared to $89.3 million in 2013, driven by the benefit of the merger termination fee. On a pro forma basis excluding items affecting comparability, net earnings advanced approximately 15% to $203.4 million, or $1.74 per diluted share, compared to net earnings of $177.4 million, or $1.52 per diluted share, in the year-ago period. This performance reflected the strong growth in EBIT and a lower effective tax rate, partially offset by higher interest expense associated with the Wish-Bone acquisition.
Net cash provided by operating activities increased significantly to $551 million in 2014, or approximately $400 million excluding the benefit of the merger termination fee, compared to $262 million in 2013, driven by the growth in net earnings and improvement in working capital.
Fourth Quarter Consolidated Results
Net sales in the fourth quarter of 2014 decreased 0.6% to $705.3 million, compared to net sales of $709.3 million in the fourth quarter of 2013. This performance reflected a 1.0% benefit from the Gardein acquisition and a 0.2% increase from higher net price realization, more than offset by lower volume/mix of 1.6%, driven by the expected decline at the Specialty Foods segment, and unfavorable foreign currency translation of 0.2%.
North America Retail net sales increased 0.9% to $622.7 million in the fourth quarter of 2014, compared to net sales of $617.2 million in the year-ago period. This performance reflected a 1.1% benefit from the Gardein acquisition and a 0.2% increase from higher net price realization, partially offset by lower volume/mix of 0.2% and unfavorable foreign currency translation of 0.2%.
Gross profit decreased 4.6% to $188.4 million, or 26.7% of net sales, in the fourth quarter of 2014, compared to gross profit of $197.6 million, or 27.9% of net sales, in the year-ago period. Excluding items affecting comparability, gross profit advanced 1.6% to $207.5 million and, as a percentage of net sales, gross profit expanded by approximately 60 basis points to 29.4%. This performance reflected the benefits of continued strong productivity, slightly higher net price realization and the impact of $2.7 million from the aforementioned vacation policy change, partially offset by higher-than-anticipated inflation associated with trucking and rail capacity constraints.
EBIT declined to $93.6 million in the fourth quarter of 2014, compared to $116.5 million in the fourth quarter of 2013. This decline was driven by items affecting comparability, including a fourth quarter non-cash compensation charge of approximately $24 million associated with the accelerated vesting of equity compensation triggered by the decline in Blackstone ownership following the secondary offering in November. Excluding this charge and other items affecting comparability, EBIT increased 7.5% to $142.5 million in the fourth quarter of 2014, compared to $132.5 million in 2013, driven by the growth in Adjusted gross profit and lower selling, general and administrative expenses, driven by the impact of $3.8 million from the vacation policy change. Adjusted EBITDA advanced 6.6% to $163.1 million in the fourth quarter of 2014, compared to $153.0 million in the fourth quarter of 2013.
Net interest expense for the quarter, excluding items affecting comparability, declined 8.0% to $22.4 million, compared to $24.3 million in the year-ago period, primarily driven by the previously-disclosed $200 million debt reduction in the third quarter and the related 25 basis point term loan interest rate step-down. On the same basis, the effective tax rate for the quarter declined to 37.4%, compared to 39.0% in the year-ago period, due to changes in federal legislation and a reduction in state taxes.
Net earnings in the fourth quarter declined to $36.1 million, compared to $55.7 million in the year-ago period. Excluding items affecting comparability, net earnings for the fourth quarter increased approximately 14% to $75.2 million, or $0.64 per diluted share, compared to net earnings of $66.0 million, or $0.57 per diluted share, in the year-ago period.
Net cash provided by operating activities totaled $138 million in the fourth quarter of 2014, compared to net cash provided by operating activities of $121 million in the year-ago quarter.
Fourth Quarter Segment Results
Birds Eye Frozen
Net sales for the Birds Eye Frozen segment increased 4.9% to $317.4 million in the fourth quarter of 2014, compared to $302.4 million in the prior-year period. This performance reflected a 2.3% benefit from the Gardein acquisition, higher volume/mix of 2.0% and higher net price realization of 0.6%. Growth in the Birds Eye frozen vegetable and Voila! skillet meal businesses, reflecting continued distribution expansion and strong growth of Voila! Family Size varieties, along with strength of Hungry-Man frozen entrees, driven by success of the new Hungry-Man Selects line, was partially offset by lower sales of Mrs. Paul's and Van de Kamp's frozen prepared seafood.
EBIT for the Birds Eye Frozen segment declined approximately 20% to $54.3 million in the fourth quarter of 2014, compared to $68.2 million in fourth quarter of 2013. Excluding items affecting comparability, EBIT increased 2.8% to $71.0 million, driven by the growth in net sales, productivity savings and the vacation policy change, partially offset by higher logistics costs and packaging investments.
Duncan Hines Grocery
Net sales for the Duncan Hines Grocery segment declined 3.0% to $305.4 million in the fourth quarter of 2014, compared to $314.7 million in the year-ago period, due to lower volume/mix of 2.1%, reduced net price realization of 0.4% and unfavorable foreign currency translation of 0.5%. Strong growth in Vlasic pickles, including the introduction of Vlasic Bold & Spicy, was more than offset by lower sales of Duncan Hines baking products, due to category softness, despite the brand growing market share for the quarter and the year.
EBIT for the Duncan Hines Grocery segment advanced approximately 9% to $51.5 million in the fourth quarter of 2014, compared to $47.0 million in the year-ago period. Excluding items affecting comparability, EBIT advanced 10% to $68.4 million, driven by productivity savings, lower marketing spending and the vacation policy change, partially offset by the decline in net sales and higher logistics costs.
Net sales for the Specialty Foods segment decreased 10.3% to $82.6 million in the fourth quarter of 2014, compared to $92.1 million in the fourth quarter of 2013, due to lower volume/mix of 10.9%, largely reflecting the timing of private label canned meat sales versus the prior year, partially offset by higher net price realization of 0.6%.
EBIT for the Specialty Foods segment decreased approximately 15% to $7.5 million in the fourth quarter of 2014, compared to $8.9 million in the fourth quarter of 2013. Excluding items affecting comparability, EBIT advanced 1.6% to $9.1 million, largely driven by productivity savings and the vacation policy change, partially offset by the decline in net sales and higher logistics costs.
Outlook for 2015
The Company expects Adjusted diluted EPS for 2015 to be in the range of $1.86 to $1.91, excluding items affecting comparability. This outlook, which represents 7-10% growth, includes the following assumptions:
- Input cost inflation for the year is estimated at approximately 3.0% to 3.5%, with first quarter inflation estimated to be the highest of the year.
- Productivity for the year is estimated in the range of 3.0% to 4.0% of cost of products sold, with savings again 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 Tuesday, February 24, 2015 at 8:30AM (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 Q4 Earnings Call. A replay of the call will be available, beginning February 24, 2015 at 1:00 PM (ET) until March 11, 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 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 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.
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.