US food group Pinnacle Foods has said it has the capacity to continue pursuing M&A despite just agreeing a deal to acquire Unilever’s Wish-Bone salad dressings business.
Pinnacle this week struck a US$580m deal to buy Wish-Bone and a second dressings brand, Western, from Unilever. The deal is set to close early in the fourth quarter and is expected to be accretive to earnings in the last three months of 2013.
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Speaking on the firm’s second-quarter earnings call today (14 August), CEO Bob Gamgort suggested the integration period for the Wish-Bone business would not deter the company from looking at other potential acquisitions.
“When we acquired Birds Eye, it was 60% of the size of the Pinnacle business at that point in time and we fully integrated it, from the supply chain to the invoicing system etc, within six months. We always are very prepared to make sure we can handle any element of integration but this one [Wish-Bone] is easier from that standpoint.”
He added: “From a financial standpoint, we have the capacity to keep pursuing M&A. From an integration standpoint we certainly do. The reality of it is, anything we are pursuing right now, there is a lag as to when that actually happens. By the time it would actually happen, we’d be largely integrated with the Wish-Bone business to be ready to jump.”
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Of the type of acquisitions Pinnacle might look to pursue, the chief executive suggested the company would look at brands and businesses with similar characteristics to Wish-Bone and through which it could extract synergies with its own operations. After closing the Wish-Bone deal, Pinnacle plans to expand capacity at an existing plant, a move it expects to boost margins.
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By GlobalData“It’s tempting from a growth standpoint to look at something outside the core business but the reality of it is, the temptation is to do exactly like what we’re doing with Wishbone … to create synergies, use innovation capacity and integrate those into a supply chain we have … that’s why the centre of the bullseye serves us very well. You’ll see the benefit of that strategy when we look at the success of Wish-Bone,” he said.
Janney Montgomery Scott analyst Jonathan Feeney believes Wish-Bone fits “nicely” with what he saw is Pinnacle’s strategy of “restoring neglected brands”.
“Specifically, high retailer and consumer awareness make brands like Wish-Bone a fertile ground for innovation and increased awareness after years of relative underinvestment.”
The acquisition led Pinnacle to up its full-year earnings guidance this morning. The company now expects EPS of $1.53 to $1.57, compared to previous guidance of $1.49 to $1.55.
Despite Pinnacle’s losses widening in the first half and second quarter and sales falling, Gamgort offered an optimistic outlook for the remainder of the year. Pinnacle had provided figures excluding charges and on a pro-forma basis, which assumed the IPO happened on the first day of fiscal 2012 and the debt refinancing on the first day of the 2013 financial year. On that basis, quarterly earnings were higher.
“We delivered another strong quarter of earnings growth. We are able to offset some of the headwinds of soft category growth with strong productivity. Our ability to reinvest in the back half of the year will enable us to remain competitive,” Gamgort said.
For comment from Pinnacle’s management earlier this week on the Wish-Bone acquisition, click here.
