Dive Brief:
- Pinnacle Foods on Thursday reported a 13.4% increase in first-quarter net sales to $754.3 million, which the company attributed largely to a benefit from its Boulder Brands acquisition. However, that total missed analysts' estimates of $775 million.
- Quarterly diluted earnings fell to $24.8 million, or $0.21 per share, from $41.5 million, or $0.35 per share, in the year-ago period. Pinnacle cited the impact of Boulder Brands acquisition-related fees and integration expenses.
- The company announced yesterday the appointment of Mondelez chief commercial officer Mark A. Clouse as Pinnacle's new CEO. Clouse will replace current CEO, Robert J. "Bob" Gamgort, who will become CEO of Keurig Green Mountain, effective May 2.
Dive Insight:
The Boulder Brands and Gardein acquisitions have jumpstarted Pinnacle's forays into better-for-you foods, and so far, the strategy has paid off as growth for both remained strong in the latest quarter. In early 2016, Pinnacle completed its production expansion for the Gardein brand, as the company feels plant-based proteins are "at the tipping point of becoming mainstream," Gamgort told Food Business News in August.
But in addition to expanding production for Gardein, fast-tracking innovation will also be crucial for Pinnacle to sustain this growth. The plant-based ingredients market is crowded. It won't be enough to just create plant-based foods unless Pinnacle can innovate or disrupt the plant-based foods market.
The strong retail consumption and market share expansion of the Gardein brand contributed to growth in another key sector for Pinnacle: its Birds Eye Frozen segment. Though frozen foods have seen unit sales dip over the past few years, manufacturers in the category have staged a comeback by focusing more on natural and organic ingredients. Pinnacle's Birds Eye Frozen segment posted 3.8% growth in the most recent quarter on the back of Gardein but also innovations in the Birds Eye franchise.
If Pinnacle were to apply these principles to other products in its grocery segment, that business could be better positioned to compete with the likes of General Mills, Kraft Heinz, and Campbell, which have made various commitments to ingredients changes in the past year that align with consumer health trends.
Growth in frozen is crucial for Pinnacle, as it offsets continued losses in the company's Duncan Hines grocery segment. This past quarter, sales declined 6.9%, a steeper decline than the 3.1% dip the company reported for the segment in the previous quarter. Duncan Hines has been threatened by stiff competition in the baking products segment, particularly from startups using simpler ingredients lists. That's in addition to sales declines for the baking mix category as a whole (6.4% in 2015).