Seeking Alpha
Research analyst, growth, value, IPOs
Profile| Send Message| ()  

At the end of March, investors will have a chance to buy shares of Pinnacle Foods (PF). The company is currently owned by Blackstone (BX) and one of several companies being taken public by the private equity group in 2013. Here is an early look at information on the company that is expected to go public in two weeks.

The latest reports have Pinnacle selling 29 million shares at a price offering between $18 and $20. The total offering will be above $600 million. The market capitalization will also put the company above the $2 billion value mark if shares price at range. Blackstone will retain ownership of 68% if the underwriters purchase their allotted additional shares. The private equity giant purchased the food company five years ago for $2.2 billion.

Pinnacle Foods was founded in 1998 as Vlasic Foods International. The company has grown through a series of acquisitions, including the company's largest in 2009 (Bird's Eye Foods). Here is a look at the company's current brands:

· Duncan Hines, Hungry Man, Bird's Eye, Snyder of Berlin, Mrs. Pauls, Open Pit, Log Cabin, Comstock, Husmans, Aunt Jemima Frozen, Hawaiian Snacks, Armour, Bernsteins, Brooks, Mrs. Butterworths, Lenders, Celeste, El Restaurante, Nalley, Van de Kamps, Vlasic, Tim's Cascade Snacks, Erin's, Bird's Eye Voila

According to the company's website, over 85% of American households have Pinnacle products in their home. The company maintains a #1 or #2 market share in 10 of 12 categories it operates in. Here is a look at the company's market share in several food categories (Through 2011).

Market Position

Market Share

Frozen Vegetables

#1

25.6%

Shelf-Stable Pickles

#1

29.0%

Baking Mixes/Frostings

#2

17.0%

Frozen Fish/Seafood

#2

9.7%

Frozen Complete Bagged Meals

#2

23.4%

Table Syrups

#2

16.9%

Frozen/Refrigerated Bagels

#1

43.8%

Pie Filling

#2

21.5%

Canned Meat

#3

8.1%

Frozen Pizza for One

#3

11.4%

Single Serve Frozen Dinners

#4

9.0%

Frozen Breakfast

#4

7.4%

As you can see, Pinnacle has quality brands that hold commanding shares in several sectors. In fact, in 2011 Pinnacle was a top five company in the entire frozen foods sector. The company had $1.26 billion in sales for frozen foods, representing a market share of 3.9%. This placed the company behind Nestle (OTCPK:NSRGY) (16.3%), ConAgra (CAG) (5.8%), Unilever (UL) (4.9%), and Heinz (HNZ) (4.3%). Pinnacle did rank ahead of General Mills (GIS) (3.8%) and Schwans (2.7%).

In the fourth quarter (12/31/12 end) Pinnacle reported net sales of $705 million. This was a 3% increase from the prior year. The company posted net earnings of $44 million during the respective quarter. For the full year, Pinnacle posted revenue of $2.48 billion and net earnings of $53 million. Net sales for the year were relatively flat from the prior year.

The majority of the company's revenue comes from the North American business operations. In fiscal 2012, $2.08 billion of the $2.48 billion in sales came from North America. The company could easily expand its operations internationally with some strategic acquisitions. At the end of the fourth quarter, the company had a cash balance of $203 million.

The company continues to focus on product innovation across its leadership brands segment. This segment includes well known brands like Vlasic, Voila, Bird's Eye, and Van de Kamps. Pinnacle also focuses on growing its foundation brands. These less known brands are usually acquired by Pinnacle to unlock value.

Pinnacle will be a takeover target that will gain some buzz once it hits the market. Consolidation in the food sector has picked up and the recent purchase of Heinz has created higher valuations across the board. To me, Pinnacle is similar to a company like B&G Foods (BGS). B&G trades with a market capitalization of $1.6 billion, despite $700 million in sales expected next year.

At the beginning of 2013, I picked Blackstone as one of my top ten stock picks for 2013. In this annual list, I selected Blackstone with the top reason being the plans to take three companies public. Pinnacle will be the first to the market, with craft chain Michael's, and theme park operator SeaWorld following close behind. A successful IPO could also put Blackstone shares in the spotlight.

Pinnacle is expected to have strong buzz, which should create demand for the stock. I expect shares to price at the top range ($20) or above. Investors should consider getting in on this IPO after studying the soon to be released S-1.

Source: Pinnacle Foods IPO Needs To Be On Investor's Radar