Dive Brief:
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Fourth-quarter net sales for Pinnacle Foods jumped 2.9% to $883.5 million, compared to $858.5 million for the same period in 2016, the company announced. Wall Street had expected $909.4 million in revenue for the current period. Net earnings for the quarter came in at $443.9 million, compared to $88.1 million for the year-ago period, and included a one-time non-cash benefit of about $335 million from the corporate tax cut enacted in December.
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For the full year, the manufacturer of Wish Bone, Log Cabin and Mrs. Pauls posted $3.14 billion in net sales and a profit of $532 million. The main growth leaders were Birds Eye, Duncan Hines and the company's Gardein meat-free product line.
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“Our outlook for 2018 reflects another year of double-digit Adjusted diluted EPS growth, with a return to strong gross margin improvement," Mark Clouse, Pinnacle Foods's CEO, said in a statement. "We remain committed to achieving our long-term gross margin objective but, given the short-term headwinds of escalating inflation and the negative mix effect of out-sourcing new product innovations, we now expect to achieve our targeted gross margin growth in 2020, one year later than previously planned.”
Dive Insight:
During the fourth quarter, Pinnacle was still dealing with impacts from discontinuing its 16 Aunt Jemima frozen products following a recall. Retail consumption was up 2.4% for the full year, but that figure would have been 3.5% without including the Aunt Jemima business.
The company's frozen foods segment saw a 2.7% increase in net sales during the fourth quarter, benefiting from an extra week and the category's recovery from the hurricanes that dragged down performance in the previous quarter. Innovations in the category, such as Hungry-Man Handfuls, resonated with consumers, although Birds Eye vegetables and Birds Eye meals stood out with 9.2% and 2.9% increases, respectively.
The brightest spot during the fourth quarter was Pinnacle's Boulder segment, which consists of its Gardein plant-based products, along with Earth Balance and Smart Balance spreads, the Udi's and Glutino gluten-free lines and the EVOL natural frozen meals. Pinnacle acquired these products as part of its $957-million purchase of Boulder Brands in 2016.
With these health and wellness brands being sold in traditional retail channels as well as natural and organic ones, Pinnacle noted it is able to access a younger customer base than average. Net sales for this segment were up 13.4% during the fourth quarter to $110.5 million, the company reported. While the unit accounts for about 12% of Pinnacle's sales, it could be a major growth driver as consumers look to eat healthier.
During the fourth quarter, Stormborn Capital Management bought about $8.3 million in Pinnacle shares, according to a filing with the U.S. Securities and Exchange Commission. Another investor is Daniel Loeb’s Third Point hedge fund, which took a stake in the company in late January. Loeb has publicly — and somewhat successfully — pressed Nestle for changes since investing $3.5 billion in the Swiss food giant last year. Chances are he won't hesitate to speak up if he thinks Pinnacle needs to do things differently, such as sell off some of its underperforming brands, merge with another company or streamline operations — or possibly all of those.
The company's fourth quarter could also revive talk of a takeover, a topic reportedly raised last May by Conagra Foods, whose CEO, Sean Connolly, is said to have had his eye on the company for some time. And now that at least one new activist investor — and potentially more — are on the scene, Pinnacle's management could start to feel more pressure to clean up the company or make a deal.