Gluten-free, healthy fats in focus for Pinnacle Foods

by Monica Watrous
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Pinnacle gluten-free brands: Glutino, Udi's
Pinnacle Foods' Udi’s and Glutino brands lost market share in the recent quarter.

PARSIPPANY, N.J. — Pinnacle Foods Inc. plans to reformulate some of its gluten-free products to draw more consumers to the category. The company’s Udi’s and Glutino brands lost market share in the recent quarter, due in part to additional competition, “given the attractive growth characteristics of this consumer space,” said Mark Clouse, chief executive officer.

Pinnacle Foods added the two gluten-free businesses with its acquisition of Boulder Brands in January 2016. Products include bread and baked foods, frozen meals, salty snacks and sweet snacks.

Mark Clouse, Pinnacle Foods
Mark Clouse, c.e.o. of Pinnacle Foods

“We believe the real unlock in key gluten-free categories involves eliminating the compromise on taste and texture to broaden the appeal to a much larger consumer base,” Mr. Clouse said during an April 27 earnings call with financial analysts. “We believe we have the experience and the capabilities to make this a reality.”

The company has identified four areas in the gluten-free segment where it sees “a tremendous road ahead,” he added.

“It’s snacking, it’s bread, it’s pizza, and it’s pasta,” Mr. Clouse said. “Those four areas make up the lion’s share of dollars within gluten-free. And across each one of those, we’ve got some great products that exist today or initiatives in place where we believe we can meaningfully change what the expectation should be for what gluten-free is.

Wish-bone avocado oil dressing, Pinnacle Foods
Pinncale's Wish-Bone brand launched a range of avocado oil salad dressings.

“And I think with that in place, we see a much broader appeal across consumers and also a better position competitively, which is where we’re feeling a lot of the pressure right now.”

Beyond gluten-free, product development at Pinnacle Foods is tapping into the trends of healthy fats, value-added vegetables and single-size portions. A recent introduction from the Wish-Bone brand is a range of avocado oil salad dressings in three varieties, including garden herb vinaigrette, roasted garlic citrus and bacon balsamic vinaigrette. The new line extends the brand’s presence in the premium segment of the category and follows the introductions of Wish-Bone E.V.O.O. dressings, which feature a higher amount of extra virgin olive oil than most mainstream dressings, and Wish-Bone Ristorante Italiano, which are restaurant-inspired dressings.

Pinnacle Foods new Birds Eye vegetable products
Pinnacle Foods is expanding its Birds Eye brand with new products such as Birds Eye Super Food Blends and Birds Eye Voila! featuring Disney licensing.

“I think we continue to feel very good about the healthy oils platform,” Mr. Clouse said. “It’s a place where we think, like we’ve done in a variety of other categories, it’s a chance to bring something that is very relevant to consumers, do it at a better margin and kind of insulate a bit from what is an incredibly competitive segment.”

In the frozen vegetable category, Pinnacle Foods is expanding its Birds Eye brand with the addition of five new product lines, including Birds Eye Vegetable Pasta, a line of side dishes featuring noodles made from zucchini, spinach and lentils; Birds Eye Super Food Blends, a line of side dishes that combine such ingredients as quinoa, chickpeas, edamame, spinach, barley and kale; Birds Eye Mashers, featuring mashed cauliflower and sweet potato; and Birds Eye Organic, a limited offering of organic frozen vegetables. Additionally, the brand has launched a new line of children’s meals, Birds Eye Voila! featuring Disney licensing.

Another significant innovation from the company is a new single-serve product platform for Duncan Hines. Perfect Size for One baking mixes are available in 18 varieties, from caramel cake to corn muffin. The product line began rolling out at the end of February.

Duncan-Hines Perfect Size for 1 mug cakes, Pinnacle Foods
Duncan Hines Perfect Size for One baking mixes are available in 18 varieties.

“This ultraconvenient, single-serve baking solution is made with real simple ingredients that are baked in a mug, in the microwave, in one minute,” Mr. Clouse said. “While still very early in the launch, initial consumer reaction has been exceptionally strong. As this new product taps into consumer needs for convenience, portion control and individuality, it also eliminates the category challenges related to the decline in household size.”

Pinnacle’s quarterly performance

In the first quarter ended March 26, Pinnacle Foods earned $23,149,000, equal to 20c per share on the common stock, which was down 7% from $24,837,000, or 21c per share, in the year-ago period. Adjusted net earnings, which include restructuring costs, foreign exchange gains and employee severance, increased 27% to $60,201,000, compared with $47,378,000 in the same quarter of the prior year.

Net sales were $766,074,000, up 1.6% from $754,255,000. Results benefited from the Boulder Brands acquisition that offset lower volume in the quarter, due to the shift in the timing of Easter.

Pinnacle frozen foods - Hungry Man, Van de Kamp's
Net sales in Pinnacle's frozen segment, which includes the Birds Eye, Hungry-Man and Van de Kamp’s brands, declined 2.9%.

Within the company’s Frozen segment, which includes the Birds Eye, Hungry-Man and Van de Kamp’s brands, earnings before interest and taxes (EBIT) decreased 0.8% to $50,922,000 from $51,339,000 in the year-ago period, reflecting the impacts of input cost inflation and lower net sales, which were partially offset by productivity gains. Net sales in the segment declined 2.9% to $320,942,000 from $330,488,000 the year before.

“Market share performance for the Frozen segment continued to be very strong, advancing 0.6 of a share point for the quarter,” Mr. Clouse said. “This growth was driven by Birds Eye Vegetables, which was up 1.7 share points, and our Birds Eye Voila! and Signature Skillets Meals businesses, which combined were up 1.9 share points.”

Within the Grocery segment, which includes such brands as Duncan Hines, Wish-Bone, Vlasic and Mrs. Butterworth’s, EBIT jumped more than 30% to $51,807,000 from year-ago EBIT of $39,724,000. Net sales were $259,350,000, up 3.4% from $250,913,000. Growth in the segment was fueled by improved merchandising and product innovation for Duncan Hines.

Pinnacle Foods - Mrs. Butterworth's, Vlasic, Duncan-Hines
Within the Grocery segment, which includes such brands as Duncan Hines, Wish-Bone, Vlasic and Mrs. Butterworth’s, EBIT jumped more than 30%.

Weighing on segment results was a decline in Vlasic pickles sales.

“Over the past several months, competitive intensity in the pickle category has increased in the form of pricing and innovation, putting some pressure on Vlasic,” Mr. Clouse said. “Our innovation and in-store support for the brand is rolling out in the second quarter, which we expect to strengthen trends for the business in the second half of the year.”

Within the Boulder segment, EBIT was $6,672,000, which compared with a loss before interest and taxes of $4,524,000 in the prior-year quarter. Results reflected a favorable impact compared to year-ago items affecting comparability, primarily related to the Boulder Brands acquisition, as well as net sales growth and synergies, which were partly offset by input cost inflation. Segment net sales increased more than 21% to $97,292,000 from $80,161,000. Brands within the Boulder business, which Pinnacle Foods acquired in late 2015, include Udi’s, Glutino, Evol and Earth Balance. The segment also includes the Gardein plant-based protein brand.

Pinnacle Gardein
Pinnacle's Boulder segment net sales increased more than 21%.

In the Specialty segment, EBIT increased to $8,888,000, up 27% from $7,001,000, while net sales were $88,490,000, down 4.5% from $92,693,000. The segment includes the company’s snack products (Tim’s Cascade and Snyder of Berlin) and all of its U.S. food service and private label businesses.

“Specialty, as expected, posted a net sales decline for the quarter due to a decline in private label canned meat, stemming from the lower sales of U.S.D.A. stew and the exit of the Gardein private label business,” Mr. Clouse said.
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