Shares of Pinnacle Foods and Conagra Up: What's Cooking?
Shares of packaged foods maker Pinnacle Foods, Inc. PF have gained 9.1% since May 31, after media reports claimed that Conagra Brands Inc. CAG is interested in acquiring it. Conagra has rallied 3.7% since the news.
Pinnacle Foods, Inc. Price, Consensus and EPS Surprise
Pinnacle Foods, Inc. Price, Consensus and EPS Surprise | Pinnacle Foods, Inc. Quote
Even though there is no certainty of the deal, analysts believe that the acquisition will benefit Conagra as the company is planning to expand its frozen foods business, where Pinnacle Foods has a solid presence. Per media, the acquisition will not invite anti-trust issues as Pinnacle’s board had already agreed to sell the company three years ago to Chicago-based Hillshire Brands for about $6.6 billion, including debt. However, the deal was called off when Tyson Foods Inc. TSN bought Hillshire in 2014 after outbidding Pilgrim’s Pride Corp.
Over the last few quarters, Conagra – a premium processed & packaged goods company – has been selling its loss-making business arms and trying to buy brands offering high margin growth, as part of its portfolio reshaping strategy. Recently, Conagra planned to spin off its Wesson brand to The J. M. Smucker Company, Inc. SJM for an estimated amount of $285 million. Earlier, Conagra divested its Lamb Weston business to Treehouse Foods, Inc. in Nov 2016 to attain high commercial flexibility. Furthermore, the strategic buyouts (Apr 2017) of the fast-growing meat snack brand, Duke’s (owned by Thanasi Foods LLC) and premium seed snacks making brand, BIGS (owned by BIGS LLC), are likely to bolster the company’s revenues in the quarters ahead.
Parsippany, NJ-based Pinnacle, whose brands include Duncan Hines’ baking products and Birds Eye’s frozen vegetables, has moved toward healthier offerings with the acquisition of Boulder Brands Inc, owner of Udi's Gluten Free Bread, last year. In the past too, Pinnacle acquired many businesses to enrich its portfolio. The company acquired the Duncan Hines’ manufacturing business in Mar 2014.
In Nov 2014, the company acquired Garden Protein, which is growing across both the traditional and natural organic channels. In 2013, Conagra acquired the Wish-Bone salad dressings business from Unilever PLC.
The company has a strong brand portfolio and intends to continue investing in innovation products to further differentiate its brands in the marketplace. Moreover, Pinnacle Foods has an operational excellence program to generate annual productivity savings across the supply chain. These productivity savings, along with higher pricing, have been mitigating the impact of input cost inflation to drive gross margins.
In the recently reported first-quarter 2017 results, earnings beat the Zacks Consensus Estimate while revenues lagged the same. Earnings grew 25% from the year-ago quarter on the back of higher sales growth, improved gross profit and favorable productivity mix, whereas sales increased 1.6% year over year driven by the Boulder Brands acquisition, higher pricing and favorable currency, partially offset by lower volume/mix. Further, the company reaffirmed its earnings guidance for 2017.
Looking into the share price movement, we observed that the stock notably outperformed the Zacks categorized Food – Miscellaneous/Diversified industry over the past one year. While the stock yielded 53.5%, the industry declined 1.7% in the said time frame. On the other hand, the broader Consumer Staple sector, which they are part of, grew 5.4% in the same time frame.
Zacks Rank and Other Stocks to Consider
Pinnacle Foods currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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