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Pinnacle Foods IPO Meets Healthy Investor Appetite

Pinnacle Foods, known for producing some of the oldest consumer staples brands in your pantry and freezer, is now the third largest U.S. IPO by value this year. Shares of Pinnacle (PF) were met with strong investor appetite, opening higher by 11% in its debut on the New York Stock Exchange this morning.

The Parsippany, New Jersey-based company priced 29 million shares at $20 each; the high end of the expected $18 - $20 range. At that price, Pinnacle has an implied market value of $2.26 billion. They own brands including Duncan Hines, Vlasic, Mrs. Butterworth’s, Hungry-Man, and Celeste Pizza.

Investor demand is particularly interesting due to the company’s hefty $2.6 billion long-term debt load. But a targeted $0.18 dividend yielding 3.8% will likely make this an appealing consumer staple stock.

“What’s most important is that dividend is an indication of the incredible free cash flow of this company,” says Robert Gamgort, CEO of Pinnacle Foods, from the floor of the NYSE. “That’s something that we have some latitude on as we go forward in how we deploy that free cash flow.”

Blackstone (BX) bought the company in 2007 for $2.2 billion. The private equity firm isn’t selling shares in this offering, which raised $580 million. Gamgort explains that 100% of those proceeds will go towards paying down debt.

“We plan on growing our dividend on a normalized basis with our net income growth,” he says. “And what we’re looking at is, our dividend is a 50% payout of net income. So we’ll keep that 50% payout as locked in and let it grow with our income growth.”

Gamgort refutes reports that surfaced last year claiming Pinnacle pulled their IPO due to weak consumer sentiment. He says the company never filed to go public as they’ve been working on it for quite some time, growing the company while remaining in private status.

As for the strength of the consumer, he’s cautiously optimistic.

“My view is that the consumer is more stable, certainly not out of the woods right now, but stable, and that’s part of the decision process,” he explains. “Let’s hope that continues. But that’s not in our base case. We assume a continued challenge from the consumer environment, but we built a business that can still deliver great value in a challenging environment.”