PARSIPPANY, N.J. — Frozen is a focus of recent innovation from Pinnacle Foods Inc. The company has unveiled two new product lines and new varieties for existing product lines in the freezer aisle, said Mark Clouse, chief executive officer.
New platforms include Birds Eye Signature Skillets frozen meals, featuring such ingredients as prime rib and shitake mushrooms. Pinnacle describes the products as a better-for-you restaurant experience at home. Also new is Veggie Made Rice, a line of side dishes made from vegetables, such as cauliflower, described as a convenient, low-carbohydrate alternative to rice.
The company also has expanded its line of Steamfresh Flavor Full frozen vegetables with four new varieties, including three potato offerings, and introduced eight new varieties of Hungry-Man frozen meals, six of which have a premium positioning.
“Clearly our frozen segment has been quite active on the innovation front, particularly against Birds Eye, and we feel really good about the momentum we’ve built heading into the important holiday season,” Mr. Clouse said during an Oct. 27 earnings call with financial analysts. “We remain highly confident that our accelerated pace of consumer-driven and category-expanding Birds Eye innovation, effective marketing spending and strong retail execution will continue to drive our leadership in this large and expandable category.”
|Mark Clouse, c.e.o. of Pinnacle Foods|
Strong sales of Pinnacle Foods’ frozen products contributed to revenue growth in the recent quarter. Net earnings in the third quarter ended Sept. 25 were $52,353,000, equal to 45c per share on the common stock, up from $48,098,000, or 41c per share, in the prior-year period. Net sales increased more than 19% to $758,821,000 from $636,287,000, largely reflecting the benefit of the Boulder Brands acquisition.
The company’s North America retail net sales increased 0.8% in the quarter, led by a 4.1% increase in net sales for the Birds Eye Frozen segment, which offset a 3% decline in net sales for the Duncan Hines Grocery segment.
Earnings before interest and taxes (EBIT) for the Birds Eye Frozen segment increased 4.3% to $54.2 million in the third quarter, benefitting from net sales growth, strong productivity and favorable mix, partially offset by input cost inflation, the conversion to new Birds Eye stand-up packaging and items affecting comparability. Net sales for the segment were $308.9 million, driven by the strength of Birds Eye, Gardein and Hungry-Man.
EBIT for the Duncan Hines Grocery segment advanced 8.8% to $48.1 million, driven by strong productivity and items affecting comparability, partially offset by input cost inflations and the impact of unfavorable mix. Net sales fell to $249.5 million, as declines for Vlasic pickles, Log Cabin and Mrs. Butterworth’s syrups and Duncan Hines baking products offset strong growth of Wish-Bone salad dressings and continued solid performance of Armour canned meat.
“Wish-Bone strength was driven by our EVOO and Ristorante Italiano platforms introduced earlier this year, which continue to build retail momentum and consumer trial, while Armour strength reflected solid in-store merchandising execution,” Mr. Clouse said. “On the other hand, the overall baking category remained challenging in the quarter impacting our Duncan Hines business. Our focus on the premium end of the category with Perfect Size while aggressively managing the fundamentals on the low end with our classic offering, enabled us to grow our market share by 40 basis points in the quarter. However, toward the end of the third quarter, we did not repeat some promotional volume, and we shifted our focus and promotional program out of late Q3 and into mid-Q4, closer to the holidays. Taken together, this is likely to result in some near term pressure on share and distribution in early Q4 which we expect to improve as the quarter progresses.”
While the company has made progress in such challenged categories as salad dressings and portions of baking, Pinnacle Foods continues to faces headwinds in pickles and syrups, both of which came under significant competitive activity in the quarter, Mr. Clouse said.
“We remain confident that we can continue to apply our playbook on marketing and in-store execution, to effectively manage this entire portfolio, enabling us to continue to deliver strong consistent results including meaningful gross margin growth, solid top line performance and healthy share expansion, just as we did in Q3,” he said.
EBIT for Boulder Brands was $16.1 million, including acquisition-related fees and integration expenses. The segment contributed net sales of $120.9 million in the quarter, including the unfavorable impact of stock-keeping unit (s.k.u.) rationalization. Retail consumption advanced for the Glutino, Udi’s, Earth Balance and Evol brands, offset by a decline for Smart Balance.
“In terms of synergies we continue to expect to achieve the two-year savings of $30 million that we communicated at the time of the acquisition and continue to build visibility to incremental savings beginning in 2018,” Mr. Clouse said. “In addition, you'll recall that last quarter, we increased our 2015 to 2017 adjusted EBITDA growth target for Boulder from 50% to 65%.”
EBIT for the Specialty Foods segment declined to $6.3 million from $7.8 million, due to net sales decline and a non-cash tradename impairment charge. Net sales fell 3.4% to $79.4 million, reflecting the expected decline for the private label canned meat business.For the balance of the year, the company has increased its guidance for adjusted diluted e.p.s. to a range of $2.13 to $2.15, which represents the high end of its previous $2.10 to $2.15 range and marks year-over-year growth of 11% to 12%.