PARSIPPANY, NJ — To say Pinnacle Foods had an eventful year may be an understatement. For the maker of Duncan Hines and Birds Eye products, 2014 marked a terminated merger agreement with Hillshire Brands, a transition to a public company, the integration of Wish-Bone salad dressings, the acquisition of the Gardein plant-based protein business and the purchase of a Duncan Hines manufacturing site in Illinois.
Amidst all the activity, Pinnacle Foods delivered full-year net earnings of $248,418,000, equal to $2.15 per share, marking a 178 percent year-over-year increase from $89,349,000, or 84 cents per share, for fiscal 2013, driven by a merger termination fee paid out by Tyson Foods upon acquiring Hillshire. Net sales for the year increased 5.2 percent to $2,591,183,000 from $2,463,802,000.
Driving much of the growth during the year was Pinnacle’s Birds Eye brand, benefitting from consumer demand for convenient and healthy products and recent innovation. Looking ahead, the company has robust plans for the brand, which includes new flavors, benefits and formats. Now equipped with Gardein, Pinnacle is prepared to accelerate innovation further.
“We were working on those very same products and realized that by making that acquisition we could really cut out two or three years of internal product development and activate it faster by the acquisition,” said Bob Gamgort, CEO, during a Feb. 24 earnings call with financial analysts.
Since acquiring the Birds Eye business in 2009, Pinnacle has built the brand beyond the traditional block of frozen vegetables. Today, Birds Eye is comprised of three categories: core vegetables, steamed vegetables and side dishes, and multi-serve and skillet meals.
Pinnacle has refreshed the brand by adding value and usage occasions, with steam-in-bag technology, chef-inspired meals and side dishes, on-trend vegetables and convenience benefits.
Last November, Pinnacle agreed to acquire Garden Protein International, the manufacturer of Gardein meat alternatives, from Yves Potvin, founder and president, and TSG Consumer Partners LLC, a San Francisco-based private-equity firm, for C$175 million ($153.8 million).
“Gardein, if you take a look at the plant-based protein segment, its potential to do, for example, what plant-based milks have done in the dairy segment is significant,” Gamgort said. “It is a very small percentage of meat consumption. When you take a look at the plant-based milk area it is about 10 percent of sales. So there is tremendous upside in the category.”
The company plans to expand capacity on the Gardein business to fuel not only organic growth of the brand but also to apply the technology to the Birds Eye business.
“I think both brands can really coexist, and it is something that we have learned,” Gamgort said. “It can appeal to slightly different consumers and the potential to give us some channel coverage that we don’t currently have.
“But we think there is plenty of room for both brands, different benefits, different targets, ultimately different price points as well.”
Pinnacle executives expect to expand distribution of both brands through Gardein’s presence in the natural and organic channels and Birds Eye’s position in traditional channels.
“So I think going forward you will see both brands with product in this format, and we will talk about how we separate price points, channels and benefits,” Gamgort said. “But it is exciting territory, and there is more than enough room than one brand would cover.”
As Pinnacle pursues synergy opportunities with the two brands, the company intends to continue to support Gardein’s growth.
“Our first principle on looking at this Gardein acquisition is to make sure that we support their growth and not get in the way of it because they continue to do incredibly well if you are able to track them on Nielsen or IRI,” Gamgort said.
Net sales for the company’s North America Retail business, which includes Birds Eye Frozen and Duncan Hines Grocery segments, increased 6.9 percent to $2,246,612,000 for the year, benefitting from the acquisition of Wish-Bone salad dressings and higher volume/mix on the base business that was partially offset by lower net price realization and unfavorable foreign currency translation. Contributing to growth were the Birds Eye frozen vegetable and Voila! skillet meal brands, Hungry-Man frozen entrees, Vlasic pickles and Armour canned meat. Aunt Jemima frozen breakfast products and Duncan Hines baking products sales declined.
“We again outpaced the performance of our categories, growing our composite share for the year, something we have done in four of the last five years,” Gamgort said. “We held or grew market share in 9 of our 13 categories in 2014 with six of our seven leadership brands growing or holding share for the year.”
Net sales for the Specialty Food business, which includes the company’s private label, food service and snack businesses, declined 5 percent to $344,571,000 for the year, reflecting expected lower sales of private label canned meat.
For the fourth quarter ended Dec. 28, 2014, Pinnacle’s net earnings were $36,129,000, equal to 31 cents per share on the common stock, down 35 percent from $55,707,000, or 30 cents per share, in the year-ago period. Excluding items affecting comparability, net earnings increased 14 percent to $75,183,000, which compared with adjusted net earnings of $65,863,000 in the prior-year period. Net sales dropped to $705,333,000, down 0.6 percent from $709,322,000 for the comparable quarter.
For the quarter, North America Retail net sales rose 0.9 percent to $622,703,000, reflecting the benefit from the Gardein acquisition and higher net price realization, partly offset by lower volume/mix and unfavorable foreign currency translation.
The Specialty Foods segment posted a 10 percent decrease in net sales to $82,630,000 for the quarter, due to lower volume/mix that was partly offset by higher net price realization.
For 2015, Pinnacle Foods expects adjusted diluted earnings per share to grow 7 percent to 10 percent to $1.88 to $1.91, based on several factors, including input cost inflation, productivity, interest expense and effective tax rate.
