Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.

Can Pinnacle Continue Its Growth?

On March 4, ahead of its March 6 earnings announcement, I wrote a piece outlining the current condition of Pinnacle Foods (NYSE: PF  )  after it became a public company again in 2013. Now that the company has released its earnings and there has been time to digest and analyze the release, I wanted to look back and see if the earlier points I made remain valid.

The previous article stated, in short, that Pinnacle had an extremely large debt load and low margins. However, EBITDA had been growing and estimates called for the company to earn $1.53-$1.57 per share in 2013, excluding certain items.

The numbers
Pinnacle performed well in 2013 with earnings of $1.57 per share, which came in at the high end of the estimate. It is important to note that this is an adjusted, non-GAAP measure, as the company has stripped out many charges related to the restructuring that will not affect business moving forward. However, taking everything into account, GAAP reported earnings for the year stood at $89.3 million or $0.82 per share, which still shows a healthy rise from Pinnacle's 2012 earnings of $52.5 million or $0.61 per share .

Adjusted EBITDA, another non-GAAP financial measure, continued to grow in 2013 with a rise to $460 million from $426 million in 2012. EBITDA helps us measure a company's operating efficiency, as it factors out non-operating expenses such as taxes, interest, depreciation, and amortization.

EBITDA serves as a good measure when we analyze companies, but we still cannot ignore those non-operating expenses. The previous article included plenty of concern over Pinnacle's long-term debt and interest expenses. Taking a look through the 2013 income statement we find that interest expense fell by over 30% from 2012 and interest no longer made up the largest line-item expense on the income statement. The lower interest expense, which resulted from the capital restructuring that occurred at the IPO, has helped widen Pinnacle's profit margin.

Pinnacle's profit margin has also been a problem in recent years. In 2013 Pinnacle's operating margin rose to 3.6%, a very promising figure in comparison with its 2012 profit margin of 2.1%.

In the previous article, we compared Pinnacle to J.M. Smucker (NYSE: SJM  ) and B&G Foods (NYSE: BGS  ) . Smucker and B&G Foods have profit margins of around 8% and 5%, respectively . Pinnacle remains far shy of these numbers; however the company made a large leap toward its competitors by cutting its interest expense. As the company pays down debt and normalizes its operations, I believe Pinnacle will report a profit margin more comparable to those of its competitors.

In the report, Pinnacle's management also gave EPS guidance for fiscal-year 2014 of $1.75-$1.80, which equates to a forward price-to-earnings ratio of around 16 to 16.5. By this measure the market has priced Pinnacle fairly in respect to its EPS growth expectations, as Smucker and B&G Foods trade at 15.3 and 16.3 times forward earnings, respectively 

Forward looking
I still believe that Pinnacle remains on the right track to become a strong company in its industry. Pinnacle has been working to increase its efficiency, pay down its debt, and grow its business. Along with that, the current market pricing looks fair for a piece of this company.

Pinnacle increased its profit margin significantly in 2013, which offers a good sign for this company moving forward. The company also decreased its long-term debt; long-term debt now stands at $2.4 billion or 1.55 as a ratio of long-term debt to equity. In the fourth quarter of 2013 Pinnacle also acquired the Wish-Bone salad dressing brand and the acquisition had an immediate positive impact on EPS, with a contribution of $0.02 in 2013.

Given these factors and the company's continual efforts to improve, I think Pinnacle will be a successful company for many years to come. As said, Pinnacle does have plenty of debt to worry about but as long as its earnings continue to grow the company should not have issues with servicing this debt each year.

Looking for growth for your portfolio? Try these 6 stocks
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2884045, ~/Articles/ArticleHandler.aspx, 3/31/2015 5:03:51 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!