Buyouts Aid Pinnacle Foods' Growth, Specialty Unit A Worry
Zacks Investment Research | Dec 05, 2017 08:31PM ET
Pinnacle Foods Inc (NYSE:PF) has been steadily expanding its portfolio through acquisitions and innovations. Also, the company has been gaining from its operational efficiency initiatives that have been boosting savings. However, underlying weaknesses in the Specialty segment and changing consumer preferences have been denting the company’s top line.
Let’s delve deeper into these factors and see if Pinnacle Foods’ growth drivers can help offset the hurdles.
Portfolio Expansion & Savings Aid Growth
Acquisitions have been an important growth driver for this Zacks Rank #3 (Hold) company. Along with portfolio expansion, acquisitions have been driving Pinnacle Foods’ distribution network, customer base and long-term growth. We note that the Boulder Brands buyout in 2016, provided the company new prospects in refrigerated foods business. The benefits from this acquisition are expected to enhance procurement, manufacturing and logistics operations. Further, the company expects to achieve synergies worth more than $15 million in 2017 and projects incremental synergies of $4-6 million in 2018 from Boulder Brands.
Other acquisitions which have driven Pinnacle Foods’ business in the past include Duncan Hines, Garden Protein and Wish-Bone. Further, the company plans to expand its brands line-up through innovations. In this regard, the company launched Hungry-Man handfuls during the third quarter of 2017, which is a four-line item of hand-held pocket meals. Other noteworthy launches include the introductions of Perfect Size for One, Vlasic purely pickles and Birds Eye product lines.
Moving ahead, Pinnacle Foods remains on track with operational excellence program, aimed at generating productivity savings in supply chain. Owing to such efforts, the company expects gross margin to improve 300-400 basis points by 2019. Pinnacle Foods is also pursuing other initiatives to boost profits including low-margin SKU rationalization and increasing the effectiveness of trade promotional spending.
Courtesy of dedicated business expansions and efficiency boosting initiatives, Pinnacle Foods has been witnessing year-over-year growth in earnings since 2014. This also helped the company’s shares gain 13.4% in the past year, as against the Zacks Investment Research
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