Pinnacle Foods Reports 3rd Quarter Fiscal 2016 Results

PARSIPPANY, N.J., Oct. 27, 2016 (GLOBE NEWSWIRE) -- Pinnacle Foods Inc. (NYSE:PF) today reported its financial results for the third quarter ended September 25, 2016 and increased its full-year guidance to the high end of its previous range.  The improved outlook for the year reflects solid base business performance and the continued strength of the Boulder Brands acquisition.

Diluted earnings per share in the third quarter of 2016 increased 7.3% to $0.44, compared to $0.41 in the third quarter of 2015.  Excluding items affecting comparability¹, Adjusted diluted earnings per share advanced 15.2% to $0.53, compared to $0.46 in the year-ago period.

Net sales in the third quarter of 2016 increased 19.3% versus year-ago, largely reflecting the benefit of the Boulder Brands acquisition, which contributed approximately $121 million in the quarter, and continued growth of North America Retail, which is comprised of the Birds Eye Frozen and Duncan Hines Grocery segments.  Market share for North America Retail expanded 60 basis points in the quarter versus year-ago, marking Pinnacle’s tenth consecutive quarter of share growth.    

Commenting on the results, Pinnacle Foods Chief Executive Officer Mark Clouse stated, “The third quarter was another good one for us, particularly given the strong year-ago performance we were lapping.  We maintained our momentum in North America Retail, fueled by the continued strength of our Frozen segment, while Boulder Brands also delivered another strong quarter. Our focus on improving gross margin continued to be evident in our results, with our Q3 adjusted margin again advancing significantly. We believe our fourth quarter plans position us well as we approach year-end and, as a result, we have increased our Adjusted diluted EPS for 2016 to the high end of our previous range.”

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¹ Items affecting comparability are detailed in the financial tables that accompany this press release.

Third Quarter Consolidated Results
Net sales in the third quarter of 2016 increased 19.3% to $758.8 million, compared to net sales of $636.3 million in the year-ago period.  This growth reflected a 19.0% benefit from the Boulder Brands acquisition, as well as higher net price realization of 0.2% and increased volume/mix of 0.1%.

North America Retail net sales increased 0.8% to $558.5 million in the third quarter of 2016, compared to $554.1 million in the third quarter of 2015, reflecting increased volume/mix of 0.5% and higher net price realization of 0.3%.

Gross profit in the third quarter of 2016 increased 29.3% versus year-ago to $228.7 million, or 30.1% of net sales, compared to gross profit of $176.9 million, or 27.8% of net sales, in the prior-year period. This strong performance primarily reflected the benefit of the Boulder Brands acquisition, as well as strong productivity, improved mix and the favorable impact versus year-ago of items affecting comparability, principally hedging gains in 2016.  Partially offsetting these positive drivers were input cost inflation and investment in new Birds Eye stand-up packaging.  Excluding items affecting comparability, Adjusted gross profit advanced 24.2% to $229.1 million and, as a percentage of net sales, Adjusted gross profit margin expanded by approximately 120 basis points to 30.2%.

Earnings before interest and taxes (EBIT) in the third quarter of 2016 increased 20.9% to $118.3 million, compared to EBIT of $97.8 million in the year-ago period. This performance largely reflected the strong growth in gross profit, partially offset by higher selling, general and administrative expenses due to the inclusion of Boulder Brands. Also impacting the comparison was the negative impact of items affecting comparability, most notably an $11.2 million non-cash impairment charge to write down the carrying value of the Celeste, Aunt Jemima and Snyder of Berlin tradenames and acquisition-related integration expenses.  Excluding items affecting comparability, Adjusted EBIT in the third quarter increased 24.6% to $134.6 million, compared to $108.0 million in the year-ago period.

Adjusted EBITDA in the third quarter of 2016 grew 23.3% to $161.6 million, compared to $131.1 million in the prior year.  Adjusted EBITDA is a Non-GAAP measure defined herein under “Non-GAAP Financial Measures,” and is reconciled to net earnings in the tables that accompany this release.

Net interest expense for the quarter increased to $36.4 million, compared to $22.3 million in the year-ago period, largely driven by additional debt issued to finance the Boulder Brands acquisition and, to a lesser extent, the impacts of the previously-communicated 25-basis-point interest rate step-up on pre-Boulder term loans and the one-time cost of $0.6 million associated with the re-pricing during the quarter of the Boulder Brands term loan.

Net earnings in the third quarter increased 8.8% to $52.4 million, compared with $48.1 million in the year-ago period.  Excluding items affecting comparability, Adjusted net earnings increased 15.0% to $62.8 million, compared to $54.6 million in the year-ago period.

Net cash provided by operating activities totaled $75 million in the third quarter of 2016, compared to $86 million in the prior year quarter.  On a fiscal year-to-date basis, net cash provided by operating activities increased $29 million to $240 million, compared to $211 million in the year-ago period.

Third Quarter Segment Results

Birds Eye Frozen
Net sales for the Birds Eye Frozen segment increased 4.1% to $308.9 million in the third quarter of 2016, compared to $296.7 million in the year-ago period, reflecting higher volume/mix of 3.8% and increased net price realization of 0.3%.

Versus the year-ago quarter, during which net sales advanced a very strong 15.3%, the Frozen segment maintained its momentum, driven by strength of the Birds Eye franchise, gardein and Hungry-Man, each of which registered strong retail consumption and market share growth.  Recently-introduced innovation behind the Birds Eye Flavor Full, Birds Eye Protein Blends and Birds Eye Disney-themed platforms, along with new Birds Eye Veggie Made Rice side dishes, just-launched Birds Eye Signature Skillets premium meals and the continued retail expansion of Birds Eye Voila! fueled the performance of the Birds Eye franchise.  The gardein brand recorded another exceptionally strong quarter, including retail consumption and market share growth, while the Hungry-Man brand, behind the success of its new Hungry-Man Selects innovation, continued to expand retail consumption and market share.  Partially offsetting these growth drivers were lower sales of Aunt Jemima breakfast products, Celeste pizza and Lender’s bagels.

EBIT for the Birds Eye Frozen segment increased 4.3% to $54.2 million in the third quarter of 2016, compared to $52.0 million in the third quarter of 2015, reflecting the benefits of the 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, including the aforementioned non-cash tradename impairment charge that totaled $10.3 million for the segment.  Excluding items affecting comparability, Adjusted EBIT advanced 13.5% to $65.0 million, compared to $57.3 million in the year-ago period.

Duncan Hines Grocery
Net sales for the Duncan Hines Grocery segment declined 3.0% to $249.5 million in the third quarter of 2016, compared to $257.4 million in the year-ago period. This performance reflected lower volume/mix of 3.3%, partially offset by higher net price realization of 0.3%. 

Strong growth of Wish-Bone salad dressings, fueled by the recently-launched Wish-Bone E.V.O.O. and Wish-Bone Ristorante Italiano platforms, and continued solid performance of Armour canned meat were more than offset by net sales declines for primarily Vlasic pickles, Log Cabin and Mrs. Butterworth’s syrups and Duncan Hines baking products.

EBIT for the Duncan Hines Grocery segment increased 8.8% to $48.1 million in the third quarter of 2016, compared to $44.2 million in the third quarter of 2015, reflecting strong productivity and items affecting comparability, partially offset by input cost inflation, particularly in corn sweeteners, and the impact of unfavorable mix.  Excluding items affecting comparability, Adjusted EBIT decreased 2.5% to $47.5 million, compared to $48.8 million in the year-ago period.

Boulder Brands
Boulder Brands contributed $120.9 million in net sales in the third quarter of 2016, including the unfavorable impact during the quarter of Boulder’s SKU rationalization program.  Retail consumption, excluding the SKU rationalization impact, continued to advance versus year-ago for the Glutino, Udi’s, Earth Balance and EVOL brands, offset by a decline for Smart Balance.

EBIT for Boulder Brands was $16.1 million in the third quarter of 2016, including acquisition-related fees and integration expenses.  Excluding these items affecting comparability, Adjusted EBIT for Boulder Brands totaled $21.3 million.

Specialty Foods
Net sales for the Specialty Foods segment declined 3.4% to $79.4 million in the third quarter of 2016, compared to $82.2 million in the prior-year quarter, reflecting lower volume/mix of 2.4% and lower net price realization of 1.0%.  This performance reflected the expected decline for the private label canned meat business, which remained under pressure due to a heightened competitive bidding environment for the USDA stew business.

EBIT for the Specialty Foods segment totaled $6.3 million in the third quarter of 2016, compared to $7.8 million in the third quarter of 2015, largely reflecting the impacts of the net sales decline and the non-cash tradename impairment charge that totaled $0.9 million for the segment. Excluding items affecting comparability, Adjusted EBIT was $7.1 million, compared to $8.1 million in the year-ago period.

Outlook for the Balance of the Year
Forecasted Adjusted diluted EPS metrics provided below for Pinnacle and Boulder Brands are non-GAAP measures. The Company does not provide guidance for the most directly comparable GAAP measure, diluted EPS, and we similarly cannot provide a reconciliation between our forecasted Adjusted diluted EPS and diluted EPS metrics without unreasonable effort due to the unavailability of reliable estimates for certain items, such as non-cash gains or losses resulting from mark-to-market adjustments of hedging activities and foreign currency impacts.  These items are not within our control and may vary greatly between periods and could significantly impact future financial results.

The Company increased its guidance for Adjusted diluted EPS for 2016 to a range of $2.13 to $2.15, representing the high end of its previous $2.10 to $2.15 guidance range. This outlook, which represents growth versus year-ago of 11% to 12%, includes the assumptions outlined below.

• The outlook for Boulder Brands net sales remains in the range of $460 - $480 million, including the impact of the SKU rationalization program.
• Boulder Brands is now expected to contribute approximately $0.08 - $0.09 of Adjusted diluted EPS for the year, versus $0.07 - $0.08 previously estimated.
• Input cost inflation continues to be forecasted in the range of 2.0% - 2.5% for the year.  
• Productivity for the year continues to be estimated in the range of 3.5% to 4.0% of cost of products sold, including Boulder Brands organic cost savings but excluding acquisition synergies. 
• Interest expense for the year continues to be estimated at approximately $140 million.   
• The weighted average diluted share count for the year remains estimated to be modestly above 118 million, with the fourth quarter estimated at approximately 119 million.
• Capital expenditures for the full year are now forecasted in the range of $110 - $120 million.

Non-GAAP Financial Measures
Pinnacle uses the following non-GAAP financial measures as defined by the Securities and Exchange Commission in its financial communications. These non-GAAP financial measures should be considered as supplements to the GAAP reported measures, should not be considered replacements for, or superior to, the GAAP measures and may not be comparable to similarly named measures used by other companies.

• Adjusted gross profit
• Adjusted gross profit as a % of sales (Adjusted gross profit margin)
• Adjusted EBITDA
• Adjusted Earnings before Interest and Taxes (Adjusted EBIT)
• Adjusted interest expense, net
• Adjusted net earnings
• Adjusted diluted earnings per share
• Adjusted effective income tax rate

Adjusted Gross Profit
Pinnacle defines Adjusted gross profit as gross profit before accelerated depreciation related to restructuring activities, certain non-cash items, acquisition, merger and other restructuring charges and other adjustments.  The Company believes that the presentation of Adjusted gross profit is useful to investors in the evaluation of the operating performance of companies in similar industries.  The Company believes this measure is useful to investors because it increases transparency and assists investors in understanding the underlying performance of the Company and in the analysis of ongoing operating trends. In addition, Adjusted gross profit is one of the components used to evaluate the performance of Company’s management. Such targets include, but are not limited to, measurement of sales efficiency, productivity measures and recognition of acquisition synergies.

Adjusted EBITDA
Pinnacle defines Adjusted EBITDA as earnings before interest expense, taxes, depreciation and amortization (“EBITDA”), further adjusted to exclude certain non-cash items, non-recurring items and certain other adjustment items permitted in calculating Covenant Compliance EBITDA under the Senior Secured Credit Facility and the indentures governing the Senior Notes. Adjusted EBITDA does not include adjustments for equity-based compensation and certain other adjustments related to acquisitions, both of which are permitted in calculating Covenant Compliance EBITDA.

Management uses Adjusted EBITDA as a key metric in the evaluation of underlying Company performance, in making financial, operating and planning decisions and, in part, in the determination of cash bonuses for its executive officers and employees. The Company believes this measure is useful to investors because it increases transparency and assists investors in understanding the underlying performance of the Company and in the analysis of ongoing operating trends. Additionally, Pinnacle believes the presentation of Adjusted EBITDA provides investors with useful information, as it is an important component in measuring covenant compliance in accordance with the financial covenants and determining our ability to service debt and meet any payment obligations.  In addition, Pinnacle believes that Adjusted EBITDA is frequently used by analysts, investors and other interested parties in their evaluation of companies, many of which present an Adjusted EBITDA measure when reporting their results. The Company has historically reported Adjusted EBITDA to analysts and investors and believes that its continued inclusion provides consistency in financial reporting and enables analysts and investors to perform meaningful comparisons of past, present and future operating results.  Adjusted EBITDA should not be considered as an alternative to operating or net earnings (loss), determined in accordance with GAAP, as an indicator of the Company’s operating performance, as an alternative to cash flows from operating activities, determined in accordance with GAAP, as an indicator of cash flows, or as a measure of liquidity.

EBITDA and Adjusted EBITDA do not represent net earnings or (loss) or cash flow from operations as those terms are defined by Generally Accepted Accounting Principles (“GAAP”) and do not necessarily indicate whether cash flows will be sufficient to fund cash needs. In particular, the definitions of Adjusted EBITDA in the Senior Secured Credit Facility and the indentures allow Pinnacle to add back certain non-cash, extraordinary, unusual or non-recurring charges that are deducted in calculating net earnings or loss. However, these are expenses that may recur, vary greatly and are difficult to predict. While EBITDA and Adjusted EBITDA and similar measures are frequently used as measures of operations and the ability to meet debt service requirements, they are not necessarily comparable to other similarly titled captions of other companies due to the potential inconsistencies in the method of calculation.

Adjusted Earnings before Interest and Taxes (Adjusted EBIT)
Adjusted Earnings before Interest and Taxes is provided because Pinnacle believes it is useful information in understanding our EBIT results by improving the comparability of year-to-year results. Additionally, Adjusted EBIT provides transparent and useful information to management, investors, analysts and other parties in evaluating and assessing the Company and its segments, primary operating results from period to period after removing the impact of unusual, non-operational or restructuring-related activities that affect comparability. Adjusted EBIT is one of the measures management uses for planning and budgeting, monitoring and evaluating financial and operating results and in the analysis of ongoing operating trends.

Adjusted Interest Expense, Net
Adjusted interest expense, net is provided to assist the reader by eliminating charges which result from refinancing activities or unusual transactions. Management believes that the Adjusted interest expense measure is useful information to investors in order to demonstrate a measure of interest expense that is associated with the ordinary course of business operations and that it is more comparable to interest expense in prior periods. Pinnacle uses Adjusted interest expense to conduct and evaluate its business in order to evaluate the effectiveness of the corporation’s financing strategies and to analyze trends in interest expense, absent the effect of unusual transactions.

Adjusted net earnings, Adjusted effective income tax rate and Adjusted diluted earnings per share
Adjusted net earnings, Adjusted effective income tax rate and the related Adjusted diluted earnings per share metrics are provided to present the reader with the after-tax impact of Adjusted EBIT and Adjusted interest expense, net in order to improve the comparability and understanding of the related GAAP measures. Adjusted net earnings, Adjusted effective tax rate and Adjusted diluted earnings per share provide transparent and useful information to management, investors, analysts and other parties in evaluating and assessing our primary operating results from period to period after removing the impact of unusual, non-operational or restructuring-related activities that affect comparability. Adjusted net earnings, Adjusted effective income tax rate and Adjusted diluted earnings per share are measures used by management for planning and budgeting, monitoring and evaluating financial and operating results.

Conference Call Information
The Company will also host a conference call on Thursday, October 27, 2016 at 9:30AM (ET) to discuss the results with members of the investment community. Investors and analysts may access the call by dialing (866) 348-8108 within the United States or Canada and (908) 982-4619 internationally and referencing the conference call name:  Pinnacle Foods Q3 Earnings Call.  A replay of the call will be available, beginning October 27, 2016 at 1:00 PM (ET) until November 10, 2016, by dialing (888) 266-2081 or (703) 925-2533 and referencing access code 1677331. Access to a live audio webcast and replay of the event will be available in the Investor Center section of the Company's corporate website, www.pinnaclefoods.com.

About Pinnacle Foods Inc.

In more than 85% of American households, consumers reach for Pinnacle Foods brands. Pinnacle Foods is ranked on Fortune Magazine's 2015 Top 1000 companies list. We are a leading producer, marketer and distributor of high-quality branded food products, which have been trusted household names for decades. Headquartered in Parsippany, NJ, our business employs an average of 5400 employees. Our Duncan Hines Grocery segment manages brands such as Duncan Hines® baking mixes and frostings, Vlasic® and Vlasic Farmer's Garden® shelf-stable pickles, Wish-Bone® and Western® salad dressings, Mrs. Butterworth's® and Log Cabin® table syrups, Armour® canned meats, Brooks® and Nalley® chili and chili ingredients, Duncan Hines® Comstock® and Wilderness® pie and pastry fruit fillings and Open Pit® barbecue sauces. Our Birds Eye Frozen segment manages brands such as Birds Eye®, gardein™, Birds Eye Steamfresh®, C&W®, McKenzie's®, and Freshlike® frozen vegetables, Birds Eye Voila!® complete bagged frozen meals, Van de Kamp's® and Mrs. Paul's® frozen prepared seafood, Hungry-Man® frozen dinners and entrees, Aunt Jemima® frozen breakfasts, Lender's® frozen and refrigerated bagels, and Celeste® frozen pizza. Our Specialty Foods segment manages Tim's Cascade Snacks®, Hawaiian® kettle style potato chips, Erin's® popcorn, Snyder of Berlin® and Husman's® snacks in addition to our food service and private label businesses.The acquisition of Boulder Brands adds well-known brands such as Glutino®, Udi's Gluten Free®, Earth Balance®, EVOL® foods, and Smart Balance® to the Pinnacle Foods portfolio.  Further information is available at www.pinnaclefoods.com. 

Forward-Looking Statements
This release may contain statements that predict or forecast future events or results, depend on future events for their accuracy or otherwise contain "forward-looking information." The words "estimates," "expects," "contemplates," "anticipates," "projects," "plans," "intends," "believes," "forecasts," "may," "should," and variations of such words or similar expressions are intended to identify forward-looking statements. These statements are made based on management's current expectations and beliefs concerning future events and various assumptions and are not guarantees of future performance. Actual results may differ materially as a result of various factors, some of which are beyond our control, including but not limited to: general economic and business conditions, deterioration of the credit and capital markets, industry trends, our leverage and changes in our leverage, interest rate changes, changes in our ownership structure, competition, the loss of any of our major customers or suppliers, changes in demand for our products, changes in distribution channels or competitive conditions in the markets where we operate, costs of integrating acquisitions, loss of our intellectual property rights, fluctuations in price and supply of raw materials, seasonality, our reliance on co-packers to meet our manufacturing needs, availability of qualified personnel, changes in the cost of compliance with laws and regulations, including environmental laws and regulations, and the other risks and uncertainties detailed in our Form 10-K filed with the Securities and Exchange Commission on February 25, 2016 and subsequent reports filed with the Securities and Exchange Commission. There may be other factors that may cause our actual results to differ materially from the forward-looking statements.  We assume no obligation to update the information contained in this announcement except as required by applicable law.