Pinnacle earnings drop after unconventional quarter
- Pinnacle Foods reported a decrease in its sales, earnings and profits in its most recent earnings report. The manufacturer, which owns brands like Birds Eye, Duncan Hines and Boulder Brands, saw its sales fall 1.7% to $744.6 million compared to a year ago. In the same time period, net earnings dropped 39% to $18.6 million while gross profits are down 26% to $164.4 million. Much of this is due to the abrupt market exit of several Aunt Jemima frozen breakfast products following potential food safety issues.
- The manufacturer saw its retail consumption and market share increase, however. Retail consumption, excluding the discontinued Aunt Jemima products, grew 4.5% compared to a year ago, while market share increased 0.7 points. This marks the 13th consecutive quarter the manufacturer has improved its market share.
- In the earnings report, Pinnacle CEO Mark Clouse addressed the lackluster financial numbers. "This past quarter we made a number of strategic decisions, including exiting a low-margin business and accelerating into 2017 a number of investments in our manufacturing network that are consistent with our long-term strategic plan and that best position us for the future," he said. "While these discrete decisions impacted the quarter and the year, they are largely completed and mostly covered by the strong fundamentals and the benefits of lower taxes and interest expense.
Despite what looks at first glance like a dismal earnings report, Pinnacle did beat analyst expectations by a cent per share. And these numbers don't tell the whole story for Pinnacle. Conagra — which has recently been spinning off and selling brands that don't meet its core focus — approached Pinnacle for takeover talks in May. Analysts had been expecting the move for months, but the deal reportedly fell through because the two sides were unable to agree on price.
Looking back at the quarter, the Aunt Jemima market exit was an unexpected turn along a business path Pinnacle had already decided to take. In May, the company voluntarily recalled 16 frozen products — including waffles, french toast and pancakes — after they were found to have been potentially contaminated with listeria. Days later, Crouse said the company was dropping them from the market together.
Pinnacle had already decided to discontinue those products, the CEO said, but the recall hastened their market exit. Although the move was planned, it doesn't appear it was intended to come so suddenly. According to the earnings report, Aunt Jemima alone impacted gross profit by $16 million. It pulled sales in the company's frozen segment down 4% and negatively impacted earnings throughout the frozen and specialty segments.
Other frozen foods performed well for Pinnacle in the quarter. The company continued to see double-digit growth in sales for Birds Eye brand frozen vegetables, sides and meals. Pinnacle has focused on revamping and recharging its frozen food segment, and those efforts have paid off.
The company has also historically seen success with its 2015 acquisition of Boulder Brands, though sales in this last quarter were about even with a year ago. The report said this is due to a winding down of business in the United Kingdom and SKU rationalization, which brought lower sales for Udi's gluten-free products.
In the grocery segment, net sales were down 1.8%. Some of the diverse brands in Pinnacle's portfolio performed well, while others did not see the same kind of success. Duncan Hines posted a double-digit net sales increase, buoyed by the brand's new microwaveable mug cake mix. However, Vlasic pickles and Wish-Bone salad dressings both saw sharp declines.
Pinnacle has recently been through some uncommon and costly issues. In the report, Crouse indicated that most of the negative impacts were contained to one single quarter and will be tailwinds for the rest of the year. Time will tell if the company can improve going forward — or if this isolated quarter makes Pinnacle more of a takeover target.
- Pinnacle Foods Pinnacle Foods Reports Second Quarter Fiscal 2017 Results
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