Pinnacle Foods Aunt Jemima frozen pancakes, waffles, French toast
Taking Aunt Jemima items out of stores after a recall took a chunk out of Pinnacle Foods’ earnings in the second quarter.
 

PARSIPPANY, N.J. — Taking Aunt Jemima items out of stores and restaurants took a chunk out of Pinnacle Foods, Inc.’s earnings in the second quarter. Plant investments also had a negative impact.

Net earnings for the quarter ended June 25 decreased 59% to $18,618,000, or 16c per share on the common stock, from $45,783,000, or 39c per share on the common stock, in the previous year’s second quarter. Pinnacle Foods now expects its adjusted diluted e.p.s. for 2017 to be at the low end of the range of $2.55 to $2.60. Net sales in the quarter decreased 1.6% to $744,608,000 from $756,381,000.

Pinnacle Foods on May 5 announced it was recalling Aunt Jemima pancakes, frozen waffles and frozen french toast slices distributed nationally in the United States and one product into Mexico because they had the potential to be contaminated with Listeria monocytogenes. Tests indicated the presence of Listeria monocytogenes in the plant environment.

 

Three days later the company said it would exit certain low-margin and non-strategic Aunt Jemima frozen products sold to retail and food service customers. The exit reflected 16 stock-keeping units (s.k.u.s) across frozen waffles, frozen french toast slices and frozen pancakes. In addition, Pinnacle said it would exit select frozen breakfast items sold to food service customers.

Mark A. Clouse, chief executive officer and director for Parsippany-based Pinnacle Foods, in a July 27 earnings call reflected on how those actions affected the company. Discrete costs in the second quarter had about a $21 million impact, or 11c per share, he said.

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

“First, the Aunt Jemima voluntary recall and subsequent business exit were executed quickly and effectively in the quarter,” he said. “In addition, the exit of the low-margin Aunt Jemima grains business was contemplated in our long-term strategic plan as part of our network optimization.”

He said those two actions had an impact of about $16 million, or 8c of e.p.s., on the second quarter. The company also made additional enhancements to its Jackson, Tenn., plant before restarting production.

“We are back up and running and doing so on a stronger platform,” Mr. Clouse said. “Second, as we began to see the benefit of the enhancements in Jackson, we chose to accelerate into 2017 some additional manufacturing investments also consistent with our long-term strategic plans. These investments include improving or replacing some assets while strengthening capabilities, systems and quality in our plants. This resulted in us having to absorb an additional $5 million of expense, or about 3c of the e.p.s, in the quarter.”

Pinnacle Foods Jackson, Tenn. facility
Pinnacle made enhancements to its Jackson, Tenn., plant before restarting production.
 

Pinnacle Foods expects about another $10 million of discrete costs to waterfall through the back half of the year, he said.

“Finally, I want to emphasize that these decisions represent important investments that are consistent with our strategic plan and that we firmly believe strengthened our business going forward,” Mr. Clouse said. “In addition, they have been largely completed, and the discrete expenses we are absorbing this year will serve as gross margin tailwinds in 2018, enabling us to maintain the gross margin target we established for 2019.”

The second-quarter sales decline largely was due to a 2.6% unfavorable impact associated with business exits, including the recall of the Aunt Jemima products, the wind-down of the Boulder business in the United Kingdom and a s.k.u. rationalization that was implemented in the second half of 2016.

Birds Eye vegetable innovation, Pinnacle Foods
Both Birds Eye vegetables and Birds Eye meals had double-digit sales growth behind the second-quarter launch of new platforms.
 

The Frozen segment of Pinnacle registered a 2.5% sales increase to $295,893,000 in the second quarter, which came despite a negative impact of 4% from the Aunt Jemima exit. Both Birds Eye vegetables and Birds Eye meals had double-digit sales growth behind the second-quarter launch of five new platforms: Birds Eye Veggie Made pasta, Birds Eye Veggie Made mashed, Birds Eye Superfood blends, Birds Eye Organic and Birds Eye Voila!

Losses before interest and taxes were $12,260,000 in the Frozen segment, which compared to earnings before interest and taxes (EBIT) of $45,753,000 in the previous year’s second quarter. Discrete costs of about $10 million were associated with the Aunt Jemima exit. Manufacturing investments totaled about $3 million.

In the Grocery department, net sales in the quarter dipped 1.8% to $276,057,000. Net price realization came in 2.1% lower in the quarter. The launch of Perfect Size for One, a single-serve baking mix, carried Duncan Hines to a double-digit net sales increase, but Vlasic pickles and Wish-Bone dressings both had sales declines.

Duncan Hines Perfect Size, Pinnacle Foods
The launch of Perfect Size for One carried Duncan Hines to a double-digit net sales increase.
 

The Grocery segment’s EBIT increased 15% to $61,870,000, reflecting productivity savings, synergies from the Boulder Brands acquisition and the positive impact versus year-ago of items affecting comparability.

In the Boulder segment, sales of $94,654,000 were down slightly from $94,694,000 in the previous year’s second quarter. Volume/mix growth of 4.9% and favorable net price realization of 2.8% were offset by a 3.4% decline from the Boulder wind-down in the United Kingdom and a 4.3% impact from the s.k.u. rationalization. Gardein, Earth Balance and Evol all had double-digit sales increases despite the s.k.u. rationalization.

EBIT for the Boulder segment more than doubled to $12,249,000 from $5,809,000, reflecting the benefits of acquisition synergies and productivity as well as the impact versus year-ago of items affecting comparability.

Pinnacle Foods Boulder Brands - Gardein, Earth Balance, Evol
Gardein, Earth Balance and Evol all had double-digit sales increases.
 

In the Specialty segment, net sales declined 15% in the second quarter to $78,004,000 because of the Aunt Jemima exit and lower volume/mix. Losses before interest and taxes were $10,648,000, which compared to EBIT of $7,045,000 in the previous year’s second quarter.

In the six-month period ended June 25, Pinnacle Foods had net earnings of $41,767,000, or 35c per share on the common stock, which was down 41% from $70,620,000, or 61c per share on the common stock, in the same time period of the previous year. Six-month net sales of $1,510,682,000 were up slightly from $1,510,636,000.