Pinnacle Foods Inc.: Initial Public Offering
MACKK Consulting Group
April 1st, 2013
Pinnacle Foods Group is a food packaging company specializing in shelf stable and frozen food categories. The company was formed in 1998 as Vlasic Foods International, acquiring several food-manufacturing brands such as Swanson TV dinners and Open Pit from the Campbell Soup Company. Pinnacle’s portfolio of iconic brands dates back in existence to the 1800s. The earliest brand owned by Pinnacle Foods, Armour Star, has existed since 1867 when Philip Armour founded it as Armour and Company. Armour was the first company to produce canned meat and was once Chicago’s most important business, helping to make the city and its stockyards the center of the American meatpacking industry. Throughout the late 1800s and 1900s, iconic brands such as Duncan Hines, Log Cabin, Aunt Jemima and Hungry Man were introduced and now are a part of the Pinnacle Foods name.
Pinnacle Foods acquired Aurora Foods in 2003 when the company’s health was in jeopardy due to lawsuits in 2001. Ian Wilson, a former executive with Coco-Cola, founded Aurora Foods in 1995 using the company to purchase Van de Kamp Seafood from Pillsbury along with several other brands. As a result of major lawsuits in 2001, Wilson and other Aurora executives plead guilty to securities fraud for misrepresentation of the company’s financial statements. Jim Smith replaced Wilson as CEO of Aurora Foods until 2002, at which time motions were set in place that lead to Pinnacle’s acquisition of Aurora. Pinnacle closed Aurora’s Missouri offices and moved them to Cherry Hill, New Jersey where the currently remain. In 2007 The Blackstone Group, a New York City private equity firm, bought Pinnacle Foods for $2.16 billion (G.S., 2007). Since then, Pinnacle Foods has acquired Birds Eye Foods, Inc., adding a mix of frozen and specialty brands to its already iconic portfolio.
Today Fortune Magazine ranks Pinnacle in the Top 1,000 Companies with over 4,000 employees. Pinnacle’s products can be found in more than 85% of American households and are leaders in their respective categories, holding the first or second market share position in 10 of the 12 of the categories in which they compete.
Pinnacle currently focuses on growing their “leadership brands” while reinvigorating their “foundation brands”. Their leadership brands are those with the most potential for growth and innovation. These include brands such as Vlasic, Duncan Hines, and Ms. Butter-Worth’s. Pinnacle prides themselves on debuting category breakthroughs with these brands. These leading brands are used prominently in marketing campaigns that celebrate their robust vitality.
Pinnacle’s foundation brands are those that have a strong and recognizable reputation in most households. Families already know and love these brands such as Aunt Jemima Frozen Breakfast, Open Pit, and Hungry-Man. Pinnacle strives to raise the bar with these familiar foods through new flavours and health benefits. Pinnacle must be innovative with these familiar brands to ensure they remain as popular as they currently are.
Financially, Pinnacle has experienced minimal growth over the last year. Net sales increased marginally from $2.47 billion in 2011 to $2.48 billion in 2012 and in North America specifically, net sales grew a meager 1% from $2.07 to $2.08 billion.
EBIT was $284 million in 2012, after giving effect to $66 million in pre-tax charges related to restructuring and refinancing. This restructuring also impacted net earnings, as Pinnacle had to pay $51 million in after-tax charges and was left with $53 million in net earnings. Despite these charges, this net income shows a strong recovery from 2011 when the company suffered a net loss of $47 million. Total capital expenditures were $78 million in 2012, down from $117 million in 2011....