Pinnacle Foods Q3 Adj Profit Meets View, But Sales Miss; Tightens 2014 Outlook

(RTTNews) - Convenience foods company Pinnacle Foods, Inc. (PF), which terminated its acquisition by Hillshire Brands Co. (HSH), reported Wednesday a profit for the third quarter that soared from last year, benefited by a hefty merger termination fee from Hillshire and sales growth.

Stripping down the fee, adjusted earnings per share matched analysts' expectations, while quarterly net sales topped their estimates. The company also tightened its earnings guidance range for the full-year 2014.

"We continue to execute well, delivering another quarter of volume and market share growth. Our gross margin performance remained solid, despite higher-than-anticipated inflation and a highly competitive pricing environment, due to improved mix and robust productivity," 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 $135.96 million or $1.16 per share for the third quarter, sharply higher than $40.69 million or $0.35 per share in the prior-year quarter.

Results for the latest quarter include the benefit of a $163 million fee associated with the termination of its merger agreement with Hillshire Brands. The fee, net of expenses, along with cash on hand, was used to reduce indebtedness by $200 million.

Excluding items, proforma net earnings for the quarter was $47.65 million or $0.41 per share, compared to $40.76 million or $0.35 per share in the year-ago quarter.

On average, 12 analysts polled by Thomson Reuters expected the company to report earnings of $0.41 per share for the quarter. Analysts' estimates typically exclude one-time items.

Net sales for the quarter increased 9.0 percent to $624.01 million from $572.46 million in the same quarter last year, and topped eight Wall Street analysts' consensus estimate of $620.20 million.

The sales growth primarily reflected a 7.9 percent benefit from Wish-Bone acquisition, and a 2.5 percent increase from higher volume/mix, partially offset by lower net price realization of 1.2 percent.

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 9.6 percent to $529 million from last year, as Duncan Hines Grocery net sales improved 20.9 percent to $271 million, reflecting a 19.5 percent benefit from Wish-Bone, while Birds Eye Frozen net sales remained flat with last year at $257.41 million. Net sales for the specialty foods grew 5.7 percent to $95.44 million from last year.

Excluding the benefit of Wish-Bone, net sales for North America Retail increased only about 1 percent.

However, gross profit margin for the quarter contracted 120 basis points to 26.3 percent from last year's 27.5 percent.

Looking ahead to fiscal 2014, Pinnacle Foods continues to expect double-digit adjusted earnings growth of 13 to 14 percent, but tightened its guidance range to $1.71 to $1.74 per share from the prior forecast of $1.70 to $1.75 per share. Street is currently looking for full-year 2014 earnings of $1.74 per share.

PF closed Tuesday's regular trading session at $33.36, down $0.23 on a volume of 0.57 million shares.