Pinnacle Foods reported its financial results for the second quarter ended June 28, 2015 and raised its guidance for full-year adjusted diluted earnings per share to $1.89 to $1.91, representing the high end of its previous $1.86 to $1.91 guidance range.
Consolidated net sales in the second quarter of 2015 increased 2.3% versus year-ago, largely reflecting the benefit of the Gardein acquisition and base business results that were essentially even with year-ago, including the unfavorable impact of the earlier timing of Easter. Net sales for North America Retail, which is comprised of the Birds Eye Frozen and Duncan Hines Grocery segments, increased 2.0% versus year-ago. The earlier timing of Easter in 2015 shifted sales from the second quarter into the first quarter, reducing the second quarter net sales comparisons by approximately 1%.
GAAP diluted earnings per share totaled $0.37 in the second quarter of 2015, compared to $0.30 in the year-ago period. Excluding items affecting comparability, which are described in the accompanying reconciliation tables, diluted earnings per share advanced 9.1% to $0.36, compared to $0.33 in the year-ago period.
Commenting on the results, Pinnacle Foods Chief Executive Officer Bob Gamgort stated, "The second quarter was another good one for us, reflecting continued composite market share growth, strong results from our recently launched new products and consistent execution across the business. We delivered positive gross margin performance, excluding the timing impact of new product introductory costs, in a quarter in which inflation again outpaced productivity, as anticipated. The increase in our EPS guidance to the high end of our range incorporates our confidence in the balance of the year, while providing flexibility to strengthen investment spending to remain fully competitive."
Second Quarter Consolidated Results
Net sales in the second quarter of 2015 increased 2.3% to $631.7 million, compared to net sales of $617.8 million in the year-ago period. This growth reflected a 2.5% benefit from Gardein and higher net price realization of 1.3%, partially offset by lower volume/mix of 1.2%, driven by Easter timing, and unfavorable foreign currency translation of 0.3%.
North America Retail net sales increased 2.0% to $546.9 million in the second quarter of 2015, compared to $536.2 million in the year-ago period, reflecting a 2.9% benefit from Gardein and higher net price realization of 1.2%, partially offset by lower volume/mix of 1.7%, driven by Easter timing, and unfavorable foreign currency translation of 0.4%.
Gross profit in the second quarter of 2015 increased 4.2% versus year-ago to $169.1 million, or 26.8% of net sales, compared to gross profit of $162.2 million, or 26.3% of net sales, in the year-ago period. Excluding items affecting comparability, gross profit advanced 1.3% to $166.3 million and, as a percentage of net sales, gross profit margin declined by 25 basis points to 26.3%. The decline in gross profit margin reflected the impacts of higher new product introductory costs, which reduced the gross margin comparison for the quarter by approximately 45 basis points, and input cost inflation, which combined offset the benefits of higher net price realization, strong productivity and favorable product mix.
Earnings before interest and taxes (EBIT) in the second quarter of 2015 advanced to $89.8 million, compared to $81.9 million in the second quarter of 2014. Excluding items affecting comparability, EBIT in the second quarter advanced 0.8% to $87.0 million, compared to $86.3 million in 2014, largely reflecting the growth in gross profit and lower consumer marketing due to timing related to new products. Partially offsetting this growth were higher administrative expenses, driven by increased non-cash equity-based compensation, higher depreciation expense and the inclusion of Gardein, as well as increased research and development expenses.
Adjusted EBITDA grew 3.2% to $109.3 million in the second quarter of 2015, compared to $105.9 million in the second quarter of 2014. Adjusted EBITDA is a Non-GAAP measure defined below under "Non-GAAP Financial Measures," and is reconciled to net earnings in the tables that accompany this release.
Net interest expense for the quarter declined 9.5% to $22.2 million, compared to $24.5 million in the year-ago period, reflecting the Company's deleveraging in 2014 and related interest rate step-down on its term loans. Excluding items affecting comparability, the effective tax rate for the quarter was 35.3%, compared to 38.1% in the year-ago period, due to qualifying in 2015 for both the Domestic Production Activities Deduction and foreign tax credit.
Net earnings in the second quarter advanced to $43.7 million, compared with net earnings of $35.6 million in the year-ago period. Excluding items affecting comparability, net earnings for the second quarter increased 9.6% to $41.9 million, or $0.36 per diluted share, compared to net earnings of $38.3 million, or $0.33 per diluted share, in the year-ago period.
Net cash provided by operating activities totaled $53 million in the second quarter of 2015, compared to net cash provided by operating activities of $93 million in the year-ago quarter, largely reflecting higher inventories related to the earlier receipt of agricultural crops and the pipeline build associated with new products, both of which are expected to normalize by year-end.
Second Quarter Segment Results
Birds Eye Frozen
Net sales for the Birds Eye Frozen segment advanced 9.2% to $268.9 million in the second quarter of 2015, compared to $246.2 million in the year-ago period, despite the unfavorable impact of approximately 2% due to the earlier timing of Easter. This performance reflected a 6.4% benefit from the Gardein acquisition, increased volume/mix of 1.6% and higher net price realization of 1.2%.
Net sales growth for the quarter reflected continued strong growth of the Birds Eye franchise, fueled by double-digit growth of Birds Eye Voila! skillet meals, reflecting distribution gains and the expansion of Family Size offerings, and strong growth of Birds Eye vegetables, driven by the launch of the Birds Eye Flavor Full and Birds Eye Protein Blends platforms. Partially offsetting this growth were lower sales of the segment's Foundation Brands, largely reflecting volume elasticity of recent pricing actions.
EBIT for the Birds Eye Frozen segment increased 2.5% to $38.0 million in the second quarter of 2015, compared to $37.1 million in the second quarter of 2014. Excluding items affecting comparability, EBIT declined 1.5% to $36.5 million, as net sales growth and productivity savings were more than offset by an increase in new product introductory costs, higher consumer marketing investment and input cost inflation.
Duncan Hines Grocery
Net sales for the Duncan Hines Grocery segment declined 4.1% to $278.0 million in the second quarter of 2015, compared to $290.0 million in the year-ago period, including the unfavorable impact of approximately 1% from the earlier timing of Easter. This performance reflected higher net price realization of 1.2% which was more than offset by lower volume/mix of 4.6% and unfavorable foreign currency translation of 0.7%.
The net sales decline in the quarter was driven by Duncan Hines baking products, reflecting a highly promotional category environment and, to a lesser extent, Wish-Bone salad dressings. Partially offsetting these declines were increased sales of Log Cabin and Mrs. Butterworth's syrups and Armour and Nalley's canned meat products.
EBIT for the Duncan Hines Grocery segment advanced 10.1% to $51.0 million in the second quarter of 2015, compared to $46.3 million in the year-ago period. Excluding items affecting comparability, EBIT advanced 3.1% to $50.1 million, driven by productivity savings and lower consumer marketing due to timing related to new products, partially offset by input cost inflation and the impact of the lower sales.
Specialty Foods
Net sales for the Specialty Foods segment advanced 4.0% to $84.9 million in the second quarter of 2015, compared to $81.6 million in the second quarter of 2014, due to higher volume/mix of 1.8% and higher net price realization of 2.2%. This performance largely reflected growth of private label canned meat.
EBIT for the Specialty Foods segment increased 19.7% to $7.6 million in the second quarter of 2015, compared to $6.3 million in the second quarter of 2014. Excluding items affecting comparability, EBIT advanced 15.0% to $7.3 million, largely reflecting the growth in net sales and productivity savings, partially offset by input cost inflation.
