Is Pinnacle Foods Worth Investing In?

Branded food manufacturer Pinnacle Foods (NYSE: PF  ) seems to be faring well after its IPO in March this year. Strong demand for its branded products enabled the food distributor to post a great third quarter, beating Street estimates.

Into the quarter
Driven by an increase in North American retail sales, Pinnacle's revenue grew 1% to $572.5 million over last year. Higher volumes in its Birds Eye Frozen segment and the Duncan Hines Grocery segment led to an increase in sales. The increase was offset by lower sales of canned meat, however. In addition, adjusted earnings for the quarter stood at $0.36 per share, way above last year's earnings of $0.26 per share.

Challenges ahead
The company has a number of challenges to overcome in order to be successful in the long run. For example, it faces stiff competition from other players such as TreeHouse Foods (NYSE: THS  ) . TreeHouse posted a 17% increase in its adjusted earnings per share in its recently-reported quarter. Its revenue also jumped 5.4% to $567 million, driven by acquisitions to strengthen its product portfolio and increases in its product prices . The food distributor acquired Associated Brands, which will expand TreeHouse's presence in the dry grocery business and will also add to its top and bottom lines.

Competition from food giants such as General Mills (NYSE: GIS  ) is even more difficult to overcome. General Mills is a big company with a presence in more than 100 countries. The company keeps adding new products to its portfolio in order to attract more and more consumers.

Some of General Mills' recent successful products are Greek yogurts, which are made of natural ingredients for health-conscious consumers. Its products like Yoplait Greek 100 and Yoplait Light are dairy options that are low in calories. It strives to make its products healthy by reducing fats and trans fats while increasing proteins and minerals. General Mills recently launched Fiber One protein bars in many varieties, which are additions to its healthy snacks category .

Pinnacle Foods is new to such strategies and has made no similar efforts on the healthy food front. Nonetheless, it has been trying to overcome the competition it faces from such prominent players in the industry.

Overcoming the challenges
The Birds Eye Frozen product manufacturer completed the acquisition of the Wish-Bone salad dressing business last month. This acquisition will enhance the product portfolio for Pinnacle's Duncan Hines Grocery segment. The acquisition will also create cost synergies, leading to greater margins and higher earnings in future .

The food manufacturer has done a remarkable job of managing its costs--its margins expanded by 220 basis points despite an increase in input costs. The company should be able to further increase revenue through its new acquisition, as well as boost its earnings and margins.

Final words
Pinnacle Foods has been performing well since its IPO, with its stock price appreciating by 23% since then. Its great results and strategies to boost its revenue should help the company to grow further. The company also gave a bright outlook for the fiscal year, making investors hopeful about its future. Investing in this food manufacturer should give good returns.

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