Pinnacle Foods Reports Second Quarter Fiscal 2017 Results
Company Maintains Full Year Guidance at Low End of Range
Diluted earnings per share in the second quarter of 2017, including items affecting comparability, decreased to
Net sales in the second quarter of 2017 decreased 1.6% versus year-ago, largely due to a 2.6% unfavorable impact associated with the second quarter 2017 business exit, including the recall, of certain Aunt Jemima retail and foodservice frozen breakfast products (the AJ exit), as well as a 0.9% unfavorable impact associated with both the Boulder UK business wind-down and SKU rationalization program implemented in the second half of 2016. Taken together, these factors more than offset strong underlying net sales growth of 1.9% in the quarter. In-market performance remained very strong, with retail consumption versus year-ago up 3.6% (or 4.5%, excluding Aunt Jemima) and market share advancing 0.7 share points, marking the Company’s 13th consecutive quarter of share growth versus year-ago.
Commenting on the results,
Second Quarter Consolidated Results
Net sales in the second quarter of 2017 declined 1.6% to
Gross profit in the second quarter of 2017 declined to
Adjusted Gross Profit in the quarter declined to
Earnings before interest and taxes (EBIT) in the second quarter of 2017 decreased to
Net interest expense for the quarter decreased to
The effective tax rate (ETR) for the second quarter of 2017 was a negative 19.9%, compared to 36.7% in the year-ago period, driven by items affecting comparability. The Adjusted ETR for the quarter was 26.2% compared to 37.0% in the year-ago period, largely reflecting the benefits in the second quarter of 2017 of the new accounting standard for stock-based compensation and favorable state tax legislation.
Net earnings in the second quarter decreased to
Net cash provided by operating activities totaled
Second Quarter Segment Results
Net sales for the Frozen segment increased 2.5% to
Net sales performance in the Frozen segment was fueled by double-digit growth of both Birds Eye vegetables and Birds Eye meals, including the launch of five new innovation platforms in the quarter—namely Birds Eye Veggie Made Pasta, Birds Eye Veggie Made Mashed, Birds Eye Superfood Blends, Birds Eye Organic and
In-market performance for the segment continued to be very strong, with retail consumption advancing 2.1% (or 3.9%, excluding Aunt Jemima) in a category composite that was up 1.5%. This strong consumption performance drove market share for the segment up 0.4 share points, with Birds Eye vegetables and Birds Eye meals posting share gains of 0.9 points and 1.2 points, respectively.
EBIT for the Frozen segment was a loss of
Net sales for the Grocery segment decreased 1.8% to
The Duncan Hines brand registered a double-digit net sales increase in the quarter, fueled by the recent launch of Perfect Size for 1, an ultra-convenient, single-serve baking solution made with real, simple ingredients that are baked in a mug, in the microwave, in one minute. This growth was more than offset by declines for Vlasic pickles and Wish-Bone dressings.
In-market performance for the Grocery segment was strong, with retail consumption versus year-ago up approximately 5%, in a category composite that was essentially even with year-ago. Market share for the quarter advanced 0.5 share points versus year-ago, driven by a share gain of 5.9 points for Duncan Hines baking products and, to a lesser extent, share growth for Armour canned meat, partially offset by Vlasic pickles and Wish-Bone salad dressings, both of which experienced aggressive competitive pricing pressure.
EBIT for the Grocery segment increased 15.0% to
Net sales for the Boulder segment of
Driving the net sales performance were double-digit increases for gardein, Earth Balance and Evol, despite the impact of the SKU rationalization program, offset by the
EBIT for the Boulder segment more than doubled to
Net sales for the Specialty segment declined 15.1% to
EBIT for the Specialty segment was a loss of
Outlook for the Balance of the Year
Forecasted Adjusted Diluted EPS metrics provided below are non-GAAP measures. The Company does not provide guidance for the most directly comparable GAAP measure, diluted EPS, and we similarly cannot provide a reconciliation between our forecasted Adjusted Diluted EPS and diluted EPS metrics without unreasonable effort due to the unavailability of reliable estimates for certain items, such as non-cash gains or losses resulting from mark-to-market adjustments of hedging activities and foreign currency impacts. These items are not within our control and may vary greatly between periods and could significantly impact future financial results.
The Company maintained its guidance for Adjusted Diluted EPS for 2017 in a range of
The benefit of the 53rd week is expected to add approximately 1% to net sales and
$0.03to Adjusted Diluted EPS for the year. This impact will benefit the fourth quarter of 2017.
- Input cost inflation for the year continues to be estimated in the range of 2.5% to 3.0%.
Productivity for the year is now estimated to be at the top or slightly ahead of the Company’s 3.5% to 4.0% of cost of products sold range, excluding Boulder Brands acquisition synergies of at least
$15 millionthat will benefit both gross margin and SG&A overhead.
Adjusted Net Interest Expense is now forecasted to be slightly below
- Adjusted ETR for the year, including the benefit of the new accounting standard for stock-based compensation, is now estimated in the range of 33.0% to 33.4%, with the second half ETR significantly higher than the first half.
The strategic investments that impacted the second quarter are also expected to impact the balance of the year, primarily the third quarter, by
- The weighted average diluted share count for the year continues to be estimated at approximately 120 million shares, with the second half higher than the first half.
Capital expenditures for the year remain estimated in the range of
$115 million to $125 million.
Non-GAAP Financial Measures
Pinnacle uses the following non-GAAP financial measures as defined by the
- Adjusted Gross Profit
- Adjusted Gross Profit as a % of sales (Adjusted Gross Profit Margin)
- Adjusted EBITDA
- Adjusted Earnings Before Interest and Taxes (Adjusted EBIT)
- Adjusted Net Interest Expense
- Adjusted Net Earnings
- Adjusted Diluted Earnings Per Share
- Adjusted Effective Income Tax Rate (Adjusted ETR)
Adjusted Gross Profit
Pinnacle defines Adjusted Gross Profit as gross profit before accelerated depreciation related to restructuring activities, certain non-cash items, acquisition, merger and other restructuring charges and other adjustments. The Company believes that the presentation of Adjusted Gross Profit is useful to investors in the evaluation of the operating performance of companies in similar industries. The Company believes this measure is useful to investors because it increases transparency and assists investors in understanding the underlying performance of the Company and in the analysis of ongoing operating trends. In addition, Adjusted Gross Profit is one of the components used to evaluate the performance of Company’s management. Such targets include, but are not limited to, measurement of sales efficiency, productivity measures and recognition of acquisition synergies.
Pinnacle defines Adjusted EBITDA as earnings before interest expense, taxes, depreciation and amortization (“EBITDA”), further adjusted to exclude certain non-cash items, non-recurring items and certain other adjustment items permitted in calculating Covenant Compliance EBITDA under the Senior Secured Credit Facility and the indentures governing the Senior Notes. Adjusted EBITDA does not include adjustments for equity-based compensation and certain other adjustments related to acquisitions, both of which are permitted in calculating Covenant Compliance EBITDA.
Management uses Adjusted EBITDA as a key metric in the evaluation of underlying Company performance, in making financial, operating and planning decisions and, in part, in the determination of cash bonuses for its executive officers and employees. The Company believes this measure is useful to investors because it increases transparency and assists investors in understanding the underlying performance of the Company and in the analysis of ongoing operating trends. Additionally, Pinnacle believes the presentation of Adjusted EBITDA provides investors with useful information, as it is an important component in measuring covenant compliance in accordance with the financial covenants and determining our ability to service debt and meet any payment obligations. In addition, Pinnacle believes that Adjusted EBITDA is frequently used by analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results. The Company has historically reported Adjusted EBITDA to analysts and investors and believes that its continued inclusion provides consistency in financial reporting and enables analysts and investors to perform meaningful comparisons of past, present and future operating results. Adjusted EBITDA should not be considered as an alternative to operating or net earnings (loss), determined in accordance with GAAP, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows, or as a measure of liquidity.
EBITDA and Adjusted EBITDA do not represent net earnings or (loss) or cash flow from operations as those terms are defined by Generally Accepted Accounting Principles (“GAAP”) and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. In particular, the definitions of Adjusted EBITDA in the Senior Secured Credit Facility and the indentures allow Pinnacle to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net earnings or loss. However, these are expenses that may recur, vary greatly and are difficult to predict. While EBITDA and Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.
Adjusted Earnings before Interest and Taxes (Adjusted EBIT)
Adjusted Earnings Before Interest and Taxes is provided because Pinnacle believes it is useful information in understanding our EBIT results by improving the comparability of year-to-year results. Additionally, Adjusted EBIT provides transparent and useful information to management, investors, analysts and other parties in evaluating and assessing the Company and its segments, primary operating results from period to period after removing the impact of unusual, non-operational or restructuring-related activities that affect comparability. Adjusted EBIT is one of the measures management uses for planning and budgeting, monitoring and evaluating financial and operating results and in the analysis of ongoing operating trends.
Adjusted Net Interest Expense
Adjusted Net Interest Expense is provided to assist the reader by eliminating charges which result from refinancing activities or unusual transactions. Management believes that the Adjusted Net Interest Expense measure is useful information to investors in order to demonstrate a measure of interest expense that is associated with the ordinary course of business operations and that it is more comparable to interest expense in prior periods. Pinnacle uses Adjusted Net Interest Expense to conduct and evaluate its business in order to evaluate the effectiveness of the corporation’s financing strategies and to analyze trends in interest expense, absent the effect of unusual transactions.
Adjusted Net Earnings, Adjusted Effective Income Tax Rate and Adjusted Diluted Earnings per Share
Adjusted Net Earnings, Adjusted Effective Income Tax Rate and the related Adjusted Diluted Earnings per Share metrics are provided to present the reader with the after-tax impact of Adjusted EBIT and Adjusted Interest Expense, net in order to improve the comparability and understanding of the related GAAP measures. Adjusted Net Earnings, Adjusted Effective Tax Rate and Adjusted Diluted Earnings per Share provide transparent and useful information to management, investors, analysts and other parties in evaluating and assessing our primary operating results from period to period after removing the impact of unusual, non-operational or restructuring-related activities that affect comparability. Adjusted Net Earnings, Adjusted Effective Income Tax Rate and Adjusted Diluted Earnings per Share are measures used by management for planning and budgeting, monitoring and evaluating financial and operating results.
Conference Call Information
The Company will host a conference call on
Pinnacle Foods Contact
Sr. Vice President, Investor Relations
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 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 filings, including our Form 10-K, with the