Pinnacle Foods Inc. Reports 2nd Quarter Fiscal 2013 Results and Raises EPS Guidance Due to Acquisition of Wish-Bone®

PARSIPPANY, N.J., Aug. 14, 2013 /PRNewswire/ -- Pinnacle Foods Inc. (NYSE: PF) today reported strong growth in net earnings and diluted EPS, excluding items affecting comparability, for the second quarter ended June 30, 2013 and raised its annual guidance for fiscal 2013 to reflect its recently-announced acquisition of Wish-Bone^®. 

Consolidated net sales for the second quarter of 2013 declined approximately 3% to $569 million, driven by the Company's Specialty Foods segment, including its planned exit of low-margin, unbranded businesses, as well as the impact of an earlier Easter in 2013. Net sales for North America Retail, which is comprised of the Birds Eye Frozen and Duncan Hines Grocery segments, declined 1.6% versus year-ago in the quarter and were even with year-ago for the first six months of 2013.  Pinnacle's retail consumption for the first six months of 2013 slightly outpaced the performance of its composite categories, which declined approximately 1% versus year-ago, based on data from IRI.

As previously disclosed, results in the second quarter included charges relating to the April 3, 2013 close of the Company's initial public offering, subsequent debt refinancing actions and other items affecting comparability. Combined, these charges impacted financial results by $62 million on an after-tax basis in the quarter.  

On a GAAP basis, the Company reported a net loss in the second quarter of 2013 of $31.8 million, or $0.28 per share, compared to a net loss of $10.6 million, or $0.13 per share, in the year-ago period.  Excluding the items listed above, on a pro forma basis which is described below, net earnings for the second quarter advanced 65% to $33.7 million, or $0.29 per diluted share, compared to net earnings of $20.4 million, or $0.17 per diluted share, in the year-ago period.

Commenting on the results, Pinnacle Foods Chief Executive Officer Bob Gamgort stated, "We delivered another quarter of strong earnings growth as we expanded gross margins through effective productivity programs and ongoing improvement in product mix.  We held share across the composite of our categories; however, our net sales were impacted by overall category weakness, partially due to the earlier timing of Easter. Our strong earnings performance in the first half of 2013 has enabled us to strengthen investment spending in the back half to remain fully competitive in several key categories."

Gamgort continued, "We are excited to add Wish-Bone^® to our portfolio and expect it to be slightly accretive to EPS in 2013.  Wish-Bone^® is a great fit with our successful strategy of 'Reinvigorating Iconic Brands' and enhances our ability to offer consumers meal solutions across our broad portfolio." 

Second Quarter Consolidated Results

Net sales in the second quarter declined 3.3% to $569.0 million, compared to net sales of $588.6 million in the second quarter of 2012.  This performance was driven by a 12.0% decline in the Specialty Foods segment, including the planned exit of low-margin, unbranded businesses, and the unfavorable impact on our North America Retail business of the earlier timing of Easter in 2013.

North America Retail sales declined 1.6% to $482.9 million in the second quarter of 2013, compared to $490.7 million in the year-ago period, due to a decline in volume/mix of 3.2%, partially offset by higher net pricing of 1.6%.  Approximately half of the North America Retail net sales decline was due to the earlier timing of Easter.

Adjusted EBITDA on a pro forma basis advanced 10.2% to $93.2 million in the second quarter of 2013, compared to $84.6 million in the second quarter of 2012.  This growth reflected higher gross profit due to the benefits of productivity savings, higher net pricing and favorable product mix, which more than offset lower volume and modest input cost inflation.  Adjusted EBITDA is a Non-GAAP measure defined below under "Non-GAAP Financial Measures," and is reconciled to net earnings (loss) in the tables that accompany this release. 

On a GAAP basis, earnings before interest and taxes (EBIT) declined to $11.0 million in the second quarter of 2013, compared to $42.0 million in the second quarter of 2012, largely reflecting the aforementioned charges related to the Company's IPO, debt refinancing and other items affecting comparability in both periods.    Excluding these items, EBIT on a pro forma basis increased 13.8% to $74.5 million in the second quarter of 2013, compared to $65.4 million in the second quarter of 2012. 

On an adjusted pro forma basis, net earnings for the second quarter of fiscal 2013 advanced 65% to $33.7 million, or $0.29 per diluted share, due to the growth in EBIT and a 41% decline in net interest expense reflecting interest savings from the company's IPO and debt refinancing, partially offset by a higher effective tax rate in 2013, resulting from a change in state tax legislation that lowered the Company's tax provision in the second quarter of 2012.

Net cash provided by operating activities in the second quarter of 2013 was $44.4 million, compared to $33.8 million in the year-ago period.

In addition to its GAAP financial results, the Company is also providing its financial results on an adjusted pro forma basis, excluding items affecting comparability and assuming the IPO occurred on the first day of fiscal 2012 and the refinancing occurred on the first day of fiscal 2013.  The Company believes that the adjusted pro forma basis is helpful to management and investors in evaluating its operating performance excluding the variability of these factors. Reconciliations to GAAP financial measures are included in the tables that accompany this release. 

Second Quarter Segment Results

Birds Eye Frozen

Net sales for the Birds Eye Frozen segment increased 1.2% to $244.0 million in the second quarter of 2013, compared to $241.1 million in the year-ago period.  This performance reflected higher net pricing of 3.3%, driven by timing of promotional spending related to Easter, partially offset by a decline of 2.1% from lower volume/mix.  The earlier timing of Easter this year reduced the net sales comparison by approximately 0.7 percentage points.  The increase in sales in the quarter was driven by growth of Birds Eye^® Voila!^® complete bagged meals, including the Chipotle Chicken line extension introduced last quarter, Mrs. Paul's^® and Van de Kamp's^® seafood, driven by Spicy Fish Fillet Sandwiches introduced last quarter, and core Birds Eye^® vegetables including initial shipments of Birds Eye^® Recipe Ready, a new line of pre-chopped and blended vegetables designed to enable faster preparation of top meal dishes.   Partially offsetting these positive drivers in the quarter was a decline for Aunt Jemima^® frozen breakfast products and Birds Eye Steamfresh^® vegetables.

EBIT for the Birds Eye Frozen segment increased 22.1% to $36.5 million in the second quarter of 2013, compared to $29.9 million in second quarter of 2012.   Excluding items affecting comparability in both periods, EBIT advanced 12.8% to $39.8 million, due to higher gross profit primarily driven by productivity savings and higher net pricing.    

Duncan Hines Grocery

Net sales for the Duncan Hines Grocery segment declined 4.3% to $238.8 million in the second quarter of 2013, compared to $249.6 million in the year-ago period, due to a 4.1% decline in volume/mix and lower net pricing of 0.2%.   Approximately 0.6 percentage points of the net sales decline was due to the earlier timing of Easter in 2013.  The sales performance for the segment reflected growth of Mrs. Butterworth's^® and Log Cabin^® syrups, Duncan Hines^®Comstock^® and Wilderness^® pie and pastry fruit fillings and the Company's Canadian business, which was more than offset by lower sales of Vlasic^® pickles, due to timing of shipments related to a larger seasonal retail inventory build in the year-ago quarter, and Duncan Hines^® frostings, due to heightened competitive activity and comparison against last year's introduction of Duncan Hines^® Frosting Creations^®.

EBIT for the Duncan Hines Grocery segment advanced 21.3% to $29.7 million in the second quarter of 2013, compared to $24.5 million in the year-ago period.  Excluding items affecting comparability in both periods, EBIT advanced 10.3% to $34.8 million, due to higher gross profit driven by lower commodity costs and productivity savings.

Specialty Foods

Net sales for the Specialty Foods segment declined 12.0% to $86.2 million in the second quarter of 2013, compared to $97.9 million in the second quarter of 2012, reflecting the planned exit of low-margin, unbranded businesses and lower sales of private label canned meat partially due to timing. 

EBIT for the Specialty Foods segment declined 7.4% to $4.9 million in the second quarter of 2013, compared to $5.3 million in the second quarter of 2012.  Excluding items affecting comparability in both periods, EBIT declined 10.9% to $5.3 million, largely due to the decline in canned meat sales.

Six Months Consolidated Results

Consolidated net sales in the first six months of 2013 declined 1.9% to $1.18 billion, compared to net sales of $1.21 billion in the year-ago period, primarily reflecting the planned exit of low-margin, unbranded Specialty businesses.  Net sales in the Company's North America Retail business were flat with year-ago, and Pinnacle's retail consumption, as measured by IRI, slightly outpaced the performance of its composite categories, which declined by approximately 1% versus year-ago for the six months ended June 30, 2013. 

Adjusted EBITDA on a pro forma basis advanced 13.5% to $197.1 million in the first six months of 2013, compared to $173.7 million in the year-ago period. 

Excluding items affecting comparability in both periods, pro forma EBIT increased 16.8% to $159.1 million in the first six months of 2013, compared to $136.2 million in the year-ago period.  On the same basis, pro forma net earnings advanced 80% to $73.3 million, or $0.63 per diluted share, in the first six months of 2013, compared to net earnings of $40.8 million, or $0.35 per diluted share, in the year-ago period.

Net cash provided by operating activities in the first six months of 2013 was $112.1 million, compared to $67.7 million in the year-ago period.

Outlook for Full Year 2013

The Company expects the addition of Wish-Bone^®, which it anticipates will close late in the third quarter or early in the fourth quarter of 2013, to be accretive to EPS in 2013 by $0.01 to $0.02.  As such, the Company raised its guidance range for full year EPS to $1.53 to $1.57, from the previous range of $1.49 to $1.55. The updated EPS guidance also incorporates the Company's current expectation for a diluted weighted average share count for the year of 116.5 million, versus the previous expectation of 117.4 million, as well as the Company's increased investment spending in the second half of the year to remain fully competitive.

Conference Call Information

The Company will host an investor conference call on Wednesday, August 14, 2013 at 9:30AM (ET) to discuss the results of the quarter.  To access the call, investors and analysts can dial (866) 802-4321 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 14, 2013 at 1:00 PM (ET) until August 30, 2013, 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 1607444.  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 a Top 1000 Company as ranked by Fortune Magazine. 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 12 major categories in which they compete. Our Duncan Hines Grocery Division manages brands such as Duncan Hines^® baking mixes and frostings, Vlasic^® shelf-stable pickles, 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 final prospectus filed with the Securities and Exchange Commission on March 28, 2013 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 the presentation.

Non-GAAP Financial Measures

Pinnacle Foods Inc. uses the following non-GAAP financial measures as defined by the Securities and Exchange Commission in our financial communications.  These non-GAAP financial measures should be considered in addition to the GAAP reported measures and should not be considered replacements for the GAAP measures.

• North America Retail Net Sales
• Adjusted Gross Profit
• Adjusted EBITDA
• Adjusted Earnings before Interest and Taxes (Adjusted EBIT)
• Adjusted interest expense, net
• Adjusted net earnings
• Adjusted earnings per share

North America Retail Net Sales

North America Retail Net Sales is the sum of the net sales of the Birds Eye Frozen segment and the net sales of the Duncan Hines Grocery segment.  We refer to this to measure net sales performance of our retail focused branded business in contrast to our Specialty Foods segment where over the last several years we have de-emphasized certain low margin foodservice and private label businesses.

Items Impacting Gross Profit and Earnings

Adjusted Gross Profit

Adjusted gross profit is defined as gross profit before accelerated depreciation related to restructuring activities, certain non-cash items, acquisition, merger and other restructuring charges and other adjustments.  We believe that the presentation of Adjusted gross profit is useful to investors because it is consistent with our definition of Adjusted EBITDA (defined below), a measure frequently used by securities analysts, investors and other interested parties in their evaluation of the operating performance of companies in industries similar to ours. In addition, we also use targets based on Adjusted gross profit as one of the components used to evaluate our management's performance.

Adjusted EBITDA

The Company's metric of Adjusted EBITDA, which is used in creating targets for the bonus and equity portions of our compensation plans, is equivalent to Covenant Compliance EBITDA under our debt agreements.

Pinnacle believes that the presentation of Adjusted EBITDA provides investors with useful information, as it is important in measuring covenant compliance in accordance with the financial covenants and determining our ability to engage in certain transactions in compliance with our debt facilities and it is a metric used internally by our Board of Directors and senior management.

Adjusted EBITDA is a non-GAAP measure and may not be comparable to similarly named measures used by other companies.  You should not consider Adjusted EBITDA as an alternative to operating or net earnings (loss), determined in accordance with GAAP, as an indicator of Pinnacle's operating performance, or 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.

Adjusted EBITDA is defined as earnings (loss) before interest expense, taxes, depreciation and amortization ("EBITDA"), further adjusted to exclude non-cash items, non-recurring items and other adjustment items permitted in calculating Adjusted under the Senior Secured Credit Facility and the indentures governing the Senior Notes.

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 us 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.

Our ability to comply with the financial covenants and engage in certain transactions in compliance with our debt agreements in future periods will depend on events beyond our control, and we cannot assure you that we will meet those ratios. A breach of any of these covenants in the future could result in a default under, or an inability to undertake certain activities in compliance with, the Senior Secured Credit Facility and the indentures governing the Senior Notes, at which time the lenders could elect to declare all amounts outstanding under the Senior Secured Credit Facility to be immediately due and payable. Any such acceleration would also result in a default under the indentures governing the Senior Notes.

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.

Adjusted Interest Expense, Net

Adjusted interest expense, net is provided to assist the reader by eliminating mark to market adjustments and the charges which result from refinancing activities.

Adjusted Net Earnings

Adjusted Earnings Per Share

Adjusted net earnings and the related adjusted earnings per share 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.

(1) Reflects Adjusted Statements of Operations amounts, assuming IPO and 2013 Refinancing occurred on the first day of Fiscal 2013.

(2) Represents employee severance ($2.7MM), restructuring charges related to plant closures ($2.2MM), principally our Millsboro, Delaware facility, business optimization expenses related to the expansion of direct sales coverage for retailer headquarters to more than 50% of our U.S. retail business ($1.7MM), along with other IPO related expenses.

(3) Represents non-cash equity-related compensation charges ($3.2MM) along with unrealized mark-to-market losses resulting from hedging activities ($0.4MM).

(4) Represents premiums paid on the redemption of Senior Notes ($34.2MM) and management/advisory fees and expenses paid to an affiliate of Blackstone ($18.5MM) which includes the termination of the Blackstone management fee agreement as a result of the IPO.  Interest expense of $22.5MM includes charges associated with the 2013 refinancing, such as write offs of deferred financing costs, original issue discount and financing fees.

(1) Proforma data reflects Adjusted Statements of Operations amounts, assuming IPO occurred on the first day of Fiscal 2012.

(2) Represents restructuring charges related to plant closures ($3.6MM), principally our Millsboro, Delaware facility, due diligence investigations and other special projects ($1.3MM) along with employee severance and other acquisition related expenses.

(3) Represents unrealized mark-to-market losses ($3.4MM) resulting from hedging activities and non-cash equity-related compensation charges.

(4) Represents premiums paid on the redemption/repurchase of Senior Notes ($10.8MM) and management/advisory fees and expenses paid to an affiliate of Blackstone ($1.0MM).  Interest expense of $14.8MM includes charges associated with the 2013 refinancing, such as write offs of deferred financing costs, original issue discount and financing fees.

(1) Reflects Adjusted Statements of Operations amounts, assuming IPO and 2013 Refinancing occurred on the first day of Fiscal 2013.

(2) Represents restructuring charges related to plant closures ($4.1MM), principally our Millsboro, Delaware facility, business optimization expenses related to the expansion of direct sales coverage for retailer headquarters to more than 50% of our U.S. retail business ($3.3MM), employee severance ($2.9MM), along with other IPO related expenses.

(3) Represents non-cash equity-related compensation charges ($3.3MM) along with unrealized mark-to-market losses resulting from hedging activities ($0.1MM).

(4) Represents premiums paid on the redemption of Senior Notes ($34.2MM) and management/advisory fees and expenses paid to an affiliate of Blackstone ($19.2MM) which includes the termination of the Blackstone management fee agreement as a result of the IPO.