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Summary

  • For the quarter, Pinnacle Foods reported revenue and earnings that missed forecasts. Despite this, shares of the food provider inched up for the day.
  • Although the company's sales growth was an impressive 9% year-over-year, essentially all of this was through an acquisition, not via organic growth.
  • Given Mr. Market's reaction to this news and the fact that the business was recently a (now failed) takeover target of Hillshire Brands, investors might want to consider a stake.

Aug. 13 was an interesting day for shareholders of Pinnacle Foods (NYSE:PF). After reporting revenue and earnings that surpassed last year's metrics but which fell short of expectations, the company's stock inched up about 1.5% to close at $31.40, right around the midpoint of its 52-week range. Moving forward, what does this phenomenon mean and is there any way an investor might profit?

Pinnacle did well but not well enough

For the quarter, Pinnacle reported revenue of $617.80 million. This represents an almost 9% jump over the $569.04 million reported in last year's quarter but, unfortunately, fell short of the $629.92 million analysts anticipated. According to the company's press release, this jump in sales was driven almost entirely by its Duncan Hines Grocery segment, which reported a 21% rise in revenue from $238.82 million to $289.96 million as a result of the company's Wish-Bone acquisition.

Earnings Overview
 Last Year'sForecastedActual
Revenue (millions)$569.04$629.92$617.80
Earnings per Share-$0.28$0.33$0.30

Just as in the case of revenue, Pinnacle's bottom line did well but ultimately fell short of expectations. For the quarter, the company reported earnings per share of $0.30. This represents a substantial gain over the $0.28 loss seen in last year's quarter ($0.27 gain after subtracting certain one-time expenses such as a redemption fees on senior notes paid to Blackstone (NYSE:BK) and refinancing costs). While this is, inevitably, good for the business, it couldn't achieve the $0.33 analysts hoped to see.

Takeaway

Right now, Mr. Market seems to be alright with Pinnacle's results but not necessarily thrilled. As time progresses, it will be interesting to see if the company has what it takes to keep growing but what investors really need to see is organic, not acquistion-based, growth. If the company can see this kind of sales growth and/or attractive earnings growth moving forward, it will provide investors with the chance of some nice upside. Given the fact that it was nearly acquired by Hillshire Brands (NYSE:HSH) in a deal valuing it at over $36 per share, there is likely a great deal of potential locked up in the company.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Earnings Review: Pinnacle Foods Missed Forecasts

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