Pinnacle Foods (NYSE: PF) holds No. 1 or No. 2 market positions in 10 of the 12 categories in which it operates. Its products are found in 85% of American households. Its brand portfolio includes Aunt Jemima, Hungry-Man, Celeste, Log Cabin, Vlasic, Duncan Hines, Lender's, Open Pit, Bird's Eye, Mrs. Butterworth's, and Voila! Pinnacle Foods also recently made a strategic acquisition that will complement the above list well, and be accretive to the companies full-year earnings-per-share expectation of $1.53-$1.57.
Innovation and value
Since the Pinnacle IPO earlier this year, the stock has appreciated 28.97%. Looking ahead, Pinnacle Foods' goal is to reinvigorate iconic brands by bringing convenience, taste, nutrition, and joy to consumers.
More specifically, Pinnacle Foods aims to grow its leadership brands through innovation while reinvigorating Iconic brands to add value. In regards to the former, this innovation includes Bird's Eye Steamfresh Technology (more convenient cooking process) and Duncan Hines Frosting Creations Frosting Flavor System (customizable taste options).
Pinnacle Foods also has the potential to step out of the box with its marketing. For example, Bird's Eye partnered with Nickelodeon in 2012 to offer "iCarly iCook with Bird's Eye". These interactive contests allowed kids to create vegetable recipes, which was an effort by Pinnacle Foods to make vegetables fun.
In regards to reinvigorating iconic brands, Pinnacle Foods is now offering:
- Lender's Healthy Grain Bagels High In Dietary Fiber and Protein
- Aunt Jemima Frozen Pancakes/Waffles with No Preservatives, No High Fructose Corn Syrup, and No Artificial Flavors
- New Open Pit Barbeque Sauce Flavors -- Brown Sugar & Bourbon, Apple Whisky, and Sweet Spiced Rum
Recent acquisition
Pinnacle Foods recently bought Wish-Bone from Unilever for $580 million. Pinnacle Foods made this move because it fits its mission of reinvigorating iconic brands.
Wish-Bone's Italian dressing is the No. 1 Italian dressing in the United States. Wish-Bone also offers other dressings such as Ranch and Balsamic Vinaigrette. It recently added Buffalo Blue Cheese, Chipotle Ranch, Bacon Ranch, and Dry Mix Ranch, which should help drive the brand's growth.
Pinnacle Foods is also looking to drive growth by offering limited edition and season Duncan Hines products, such as Pumpkin Spice Cupcakes and Holiday Velvet Cupcakes.
It's evident that Pinnacle Foods is on the ball. This should come as no surprise considering CEO Bob Gamgort, with experience as North American President for Mars Incorporated, President of Major League Baseball Properties, and as a key marketer and strategist for General Foods, which later merged with Kraft Foods (KRFT +0.00%).
Fundamental comparisons
Kraft recently received some negative press due to string-cheese recalls. Apparently, several consumers complained that the company's string cheese products were spoiling early, prior to the expiration date. Kraft is offering exchanges and refunds, and it's investigating the incident.
Before you go bashing Kraft for its "fake cheese," keep in mind that Kraft also owns Maxwell House, Oscar Meyer, Philadelphia, Planters, Velveeta, Capri-Sun, JELL-O, and Lunchables. That's some serious diversification. It's why Kraft is the largest consumer packaged food and beverage company in North America. Additionally, it's why Kraft is so impressive on a fundamental basis. If the string cheese recall moves the stock price lower, it could present a good investing opportunity.
Prior to visiting some key metric comparisons, let's also throw in ConAgra Foods (CAG 0.19%). If you're going to invest in food, then ConAgra should at least be considered. The Ralcorp acquisition was costly at $6.8 billion but it should pay dividends down the road.
In the meantime, ConAgra is looking to cut costs any way it can. One of its most recent moves was to use BMC Remedy ITSM in order to drive down IT costs. Early indications are a lack of complaints from customers -- a positive sign. The basic goal here is for ConAgra IT to leave upgrades, maintenance, and reliability to a service provider which allows ConAgra to focus on its own business. This, ultimately, will lead to reduced operating costs since employees will be able to work on process improvements.
Key metric comparisons:
|
Forward P/E |
Net Margin |
ROE |
Dividend Yield |
Debt-to-Equity Ratio | |
|---|---|---|---|---|---|
|
Pinnacle Foods |
16 |
1.89% |
3.93% |
2.70% |
1.32 |
|
Kraft Foods |
17 |
10.02% |
24.13% |
3.90% |
2.32 |
|
ConAgra Foods |
12 |
4.08% |
13.37% |
3.20% |
1.77 |
Kraft Foods might be the most leveraged of the three, but it's the best at turning revenue and investor dollars into profit, and it offers the highest yield. Pinnacle Foods is slightly leveraged, but its debt-to-equity ratio is the closest to the industry average of 1.10, and it yields 2.70%. ConAgra Foods offers the most appealing valuation with a generous 3.20% yield.
The bottom line
Pinnacle Foods might not impress in a big way fundamentally, but it's well-managed with a proven leader at the helm, and its initiatives and acquisitions offer top and bottom-line growth potential going forward. Even if the company struggles in the short term, you can collect decent dividend payments while you wait.
