Pinnacle Foods Inc. today reported double-digit growth in net earnings for both the fourth quarter and full year of fiscal 2013 ended December 29, 2013, achieving the top of its EPS guidance range. The Company also provided its outlook for fiscal 2014, calling for another year of double-digit growth in net earnings and EPS.
Highlights of 2013 include:
Grew consolidated net sales by approximately 0.6% and North America Retail net sales by 2.1%, excluding the impact of a 53rd week in 2012Gained market share in fiscal 2013, outpacing overall composite category performanceExpanded adjusted gross margin by 190 basis points through continued strong productivity and favorable product mixDelivered double-digit growth in EBIT and grew Adjusted EBITDA to $460 million, excluding items affecting comparabilityGrew pro forma diluted EPS by 39% to $1.57, representing the top of the Company's $1.53 to $1.57 guidance range, excluding items affecting comparabilityDelivered cash flow from operations of $262 million, an improvement of approximately $60 million versus year-ago
In addition, Pinnacle took significant steps during 2013 to position the Company for future growth and value creation, including the highly-accretive acquisition of Wish-Bone in the fourth quarter. Wish-Bone contributed $38 million to net sales and $0.02 to diluted EPS, excluding items affecting comparability, in 2013. The Company also reduced its ongoing annual interest expense significantly, due to debt pay-down associated with its March 2013 IPO and refinancing actions taken in both 2012 and 2013. The Company also initiated a quarterly dividend program during the first half of 2013 and announced a 17% increase in the dividend rate, beginning with the quarterly payment in January 2014.
Commenting on the results, Pinnacle Foods Chief Executive Officer Bob Gamgort stated, "Our solid finish to the fourth quarter capped off an outstanding first year as a public company. Our ability to outpace the performance of our composite categories, combined with strong productivity and product mix, enabled us to deliver financial results that exceeded our long-term growth targets. In addition, our acquisition of the Wish-Bone business in the fourth quarter provides us with an important catalyst for growth in 2014 and beyond."
Items affecting comparability and pro forma adjustments are described and reconciled to GAAP financial metrics in the accompanying reconciliation tables.
Full Year Fiscal 2013 Results Summary
Consolidated net sales for the year declined 0.6% to $2.46 billion versus $2.48 billion in fiscal 2012. The 2012 period included the benefit of a 53rd week, which contributed approximately $28 million in incremental net sales. Excluding the 53rd week, net sales in fiscal 2013 advanced 0.6%, reflecting a 1.6% benefit from the Wish-Bone acquisition, partially offset by lower volume/mix of 0.9% on the base business, largely due to the planned exit of low-margin, unbranded businesses in the Company's Specialty Foods segment. Also impacting the year-over-year comparison was unfavorable foreign currency translation of 0.1%.
Net sales for the Company's North America Retail business, excluding the impact of the 53rd week, advanced 2.1%, reflecting a 1.8% benefit from Wish-Bone and a 0.5% benefit from higher volume/mix on the base business, partially offset by lower net pricing of 0.1% and unfavorable foreign currency translation of 0.1%. The net sales growth was driven by Birds Eye frozen vegetables, Birds Eye Voila! complete bagged meals, Log Cabin and Mrs. Butterworth's syrups and Vlasic pickles, partially offset by lower net sales for Duncan Hines baking products and Aunt Jemima frozen breakfast products.
Pinnacle's retail consumption, as measured by IRI, was essentially flat for the year, outpacing the performance of its composite categories, which declined by 1% versus year-ago. As a result, Pinnacle grew overall market share in 2013 on a composite basis, with market share growth accelerating in the fourth quarter.
Adjusted EBITDA on a pro forma basis advanced approximately 9% to $460.3 million for the year, compared to $423.1 million in the year-ago period. Excluding the impact of the 53rd week, which contributed $5.5 million to Adjusted EBITDA in fiscal 2012, Adjusted EBITDA in fiscal 2013 advanced 10%. This performance primarily reflected continued gross margin expansion from the base business, due to strong productivity in excess of inflation and favorable product mix, as well as the incremental benefit of Wish-Bone in the fourth quarter. For the year, productivity totaled 4% of cost of products sold. Adjusted EBITDA is a Non-GAAP measure defined below under "Non-GAAP Financial Measures," and reconciled to net earnings in the tables that accompany this release.
EBIT on a pro forma basis, excluding items affecting comparability, increased approximately 10% to $382.1 million, compared to $346.8 million in the year-ago period. Adjusting for the impact of the 53rd week, the growth in EBIT was 12%.
GAAP net earnings advanced 70% to $89.3 million in 2013, compared to $52.5 million in 2012. On a pro forma basis, excluding items affecting comparability, net earnings advanced 39% to $183.3 million, or $1.57 per diluted share, compared to net earnings of $132.2 million, or $1.13 per diluted share, in the year-ago period. This performance reflected the growth in EBIT and the significant reduction in interest expense stemming from the Company's IPO and refinancing actions in 2012 and 2013. Adjusting for the impact of the 53rd week, the growth in net earnings and diluted EPS was 41%.
Net cash provided by operating activities increased significantly in 2013 to $262 million, compared to $203 million in 2012, largely reflecting the growth in net earnings.
Fourth Quarter Consolidated Results
Consolidated net sales for the fourth quarter increased 0.6% to $709.3 million versus $705.1 million in fiscal 2012, which included the $28 million benefit of the 53rd week. Excluding the 53rd week, net sales advanced 4.8%, reflecting a 5.6% benefit from Wish-Bone and a 1.2% increase from higher volume/mix on the base business, partially offset by lower net pricing of 1.8%. Also impacting the year-over-year comparison was unfavorable foreign currency translation of 0.2%.
Net sales for the Company's North America Retail business, excluding the impact of the 53rd week, advanced 5.7%, reflecting a 6.3% benefit from Wish-Bone and a 1.7% increase from higher volume/mix on the base business, partially offset by lower net pricing of 2.0% and unfavorable foreign currency translation of 0.2%. The net sales growth in the quarter was largely driven by Birds Eye frozen vegetables, Birds Eye Voila! complete bagged meals, Duncan Hines baking products, Log Cabin and Mrs. Butterworth's syrups and Mrs. Paul's and Van de Kamp's seafood.
Adjusted EBITDA on a pro forma basis advanced 2% to $155.4 million in the fourth quarter of 2013, compared to $152.2 million in the fourth quarter of 2012. Excluding the impact of the 53rd week, which contributed $5.5 million to Adjusted EBITDA in the fourth quarter of 2012, Adjusted EBITDA in the fourth quarter of 2013 advanced 6%. This performance primarily reflected gross margin expansion, largely due to strong productivity in excess of inflation, favorable mix and the higher-margin Wish-Bone business, partially offset by higher selling, general, and administrative expenses, primarily due to the inclusion of Wish-Bone.
EBIT on a pro forma basis, excluding items affecting comparability, increased 2% to $134.8 million in the fourth quarter of 2013, compared to $132.3 million in the year-ago period. Adjusting for the impact of the 53rd week, the growth in EBIT was in excess of 6%.
GAAP net earnings advanced 28% to $55.7 million in the fourth quarter of 2013, compared to $43.7 million in the year-ago period. On a pro forma basis, excluding items affecting comparability, net earnings advanced 11% to $67.6 million, or $0.58 per diluted share, compared with net earnings of $60.8 million, or $0.52 per diluted share, in the year-ago period. Adjusting for the impact of the 53rd week, the growth in pro forma net earnings, excluding items affecting comparability, was 15%.
Net cash provided by operating activities totaled $121 million in the fourth quarter of 2013, compared to $140 million in the year-ago period.
Fourth Quarter Segment Results
Birds Eye Frozen Segment
Net sales for the Birds Eye Frozen segment declined 4.1% to $302.4 million in the fourth quarter of 2013, compared to $315.5 million in the year-ago period, which included the benefit of the 53rd week. Excluding this benefit in 2012, net sales for the Birds Eye Frozen segment declined 0.5%, due to lower net pricing of 1.6%, partially offset by higher volume/mix of 1.1%. The net sales decline was driven primarily by Aunt Jemima breakfast and Celeste pizza, significantly offset by growth across the Leadership Brand portfolio -- particularly Birds Eye vegetables, driven by the new Recipe Ready line, and Birds Eye Voila! complete bagged meals, as well as Mrs. Paul's and Van de Kamp's seafood.
EBIT for the Birds Eye Frozen segment declined approximately 1% to $68.2 million in the fourth quarter of 2013, compared to $68.7 million in the fourth quarter of 2012. Excluding items affecting comparability and the impact of the 53rd week in 2012, EBIT advanced approximately 2% to $70.2 million, driven by favorable mix and productivity in excess of inflation, partially offset by higher trade investment.
Duncan Hines Grocery Segment
Net sales for the Duncan Hines Grocery segment advanced 8.0% to $314.7 million in the fourth quarter
of 2013, compared to $291.4 million in the year-ago period, which included the benefit of the 53rd week. Excluding this benefit in 2012, net sales for the Duncan Hines Grocery segment advanced 12.5%, reflecting a 13.3% benefit from Wish-Bone, and higher volume/mix from the base business of 2.2%, partially offset by lower net pricing of 2.5% and the impact of unfavorable foreign currency translation of 0.5%. Base business net sales growth from the Leadership Brands -- namely, Duncan Hines baking products and Log Cabin and Mrs. Butterworth's syrups -- was offset by declines in pie fillings and chili products.
EBIT for the Duncan Hines Grocery segment advanced approximately 8% to $47.0 million in the fourth quarter of 2013, compared to $43.6 million in the year-ago period. Excluding items affecting comparability and the impact of the 53rd week in 2012, EBIT advanced approximately 18% to $63.2 million, due to the growth in net sales and gross margin expansion, stemming from improved product mix, the benefit of Wish-Bone and productivity in excess of inflation. Partially offsetting these factors was higher marketing investment.
Specialty Foods Segment
Net sales for the Specialty Foods segment declined 6.1% to $92.1 million in the fourth quarter of 2013, compared to $98.2 million in the fourth quarter of 2012, which included the benefit of the 53rd week. Excluding this benefit in 2012, net sales for the Specialty Foods segment declined 0.9%, due to lower volume/mix of 1.4% and reduced net pricing of 0.6%, partially offset by the benefit of 1.2% from the Wish-Bone foodservice business. For the base business, lower net sales of private label canned meat were only partially offset by growth in foodservice and snacks.
EBIT for the Specialty Foods segment declined 18% to $8.9 million in the fourth quarter of 2013, compared to $10.8 million in the fourth quarter of 2012. Excluding items affecting comparability and the impact of the 53rd week in 2012, EBIT declined 14% to $9.1 million, primarily reflecting lower gross margin from snacks, largely due to the impacts of reduced net pricing and comparison against a year-ago period that included the benefit of an insurance settlement.
Outlook For 2014
The Company's outlook for 2014 is consistent with its long-term growth algorithm plus the incremental benefit of Wish-Bone. Diluted EPS for the year, assuming a weighted average share count of 117.2 million, is forecasted in the range of $1.75 to $1.80, excluding the impact of non-cash, stock-based compensation expense.
In February 2014, the Pinnacle Board of Directors approved an annual long-term equity incentive plan that builds on the initial founders equity grants awarded in connection with the Company's IPO. On an after-tax basis, non-cash, stock-based compensation expense for 2014 is estimated to be $5.7 million, or $0.05 per diluted share. In 2013, the Company incurred non-cash, stock-based compensation expense of $5.9 million after-tax, or $0.05 per diluted share, but treated the expense as an item affecting comparability, due to the absence of a similar expense in 2012 before the Company was public. Including this expense in both years, the Company's diluted EPS guidance range for 2014 is $1.70 to $1.75, representing a double-digit increase versus diluted EPS on a comparable basis of $1.52 in 2013.
The Company's outlook for 2014 also includes the following assumptions:
Input cost inflation for the year is estimated at approximately 2%, with first quarter inflation estimated to be the highest of the year due to higher-cost inventory from 2013 being carried into 2014. The inflation rate for the balance of the year is estimated to progressively decrease by quarter.Productivity for the year is estimated in the range of 3-4% of cost of products sold, with savings expected to be greater in the second half of the year versus the first half.Interest expense for the year is estimated at $100 million.The effective tax rate for the year is estimated at 38.9%.The full-year weighted average diluted share count estimate of 117.2 million reflects the anticipated impact of the Company's new long-term equity incentive plan.Capital spending for the year is expected to be in the range of $120 million to $130 million, including the previously-communicated $40-50 million of anticipated capital spending related to the Wish-Bone manufacturing integration.The benefit of Easter in 2014 will shift to the second quarter, versus the first quarter in 2013, due to the later timing of the Holiday this year. Businesses most affected by this timing shift include Duncan Hines, Birds Eye, and the Company's seafood businesses.
