Aunt Jemima recall stresses Pinnacle’s earnings

01-Aug-2017 - Last updated on 02-Aug-2017 at 10:19 GMT

Aunt Jemima pancakes were one of the products effected by Listeria monocytogenes that caused Pinnacle Foods to voluntarily recall the products from shelves, which ultimately impacted the company's earnings. Pic: Pinnacle Foods

Pinnacle Foods’ has posted a steep drop in Q2 earnings after recalling Aunt Jemima pancakes, frozen waffles and frozen French toast from US and Mexico shelves in May following potential monocytogenes contamination.

Tests indicated the presence of Listeria monocytogenes in the company’s factory in Jackson, Tennessee.

Pinnacle voluntarily recalled 16 frozen products – including waffles, French toast and pancakes – then suddenly dropped them from the market altogether. At the time, the company said it had already decided to discontinue those products, but the recall hastened their market exit.

According to Mark Clouse, CEO of Pinnacle Foods, other factors played a part in the declining profits too.

These included the subsequent business exit of the low-margin Aunt Jemima grains business (with associated costs of about $10m); a $3m investment in its Jackson plant before restarting production after the recall; and the wind-down of its Boulder brands business in the UK and SKU rationalization program implemented in the second half of 2017.

2017 Q2 results

Net earnings for the quarter ended June 25 decreased 59% to $18,6m from $45,7m.

Net sales also decreased by 1.6% to $744.6m from $75.46m.

Gross profit declined to $164.4m, or 22.1% of net sales, compared to $221.2m, or 29.2% of net sales, in the prior-year period.

Earnings before interest and taxes (EBIT) decreased to $44m, compared $107.8m.

Versus YA

The Parsnippany-based manufacturer, which owns brands like Birds Eye, Duncan Hines and Boulder Brands, saw its sales fall 1.7% to $744.6 million compared to a year ago. In the same time period, net earnings dropped 39% to $18.6m while gross profits are down 26% to $164.4m.

However, Clouse maintained the company is back up and running.

“We chose to accelerate into 2017 a number of investments in our manufacturing network that are consistent with our long-term strategic plans,” he said, noting “the discrete expenses we are absorbing this year will serve as gross margin tailwinds in 2018 … and enable us to maintain the gross margin target we established for 2019.”

Division breakdown

Pinnacle’s Frozen segment registered a 2.5% sales increase to $295m in Q2, despite the negative impact of 4% from the Aunt Jemima exit.

Grocery’s sales dipped 1.8% to $276m but the launch of 18-item line of Perfect Size for One, a single-serve baking mix in a mug that can be made in the microwave in one minute, carried Duncan Hines to a double-digit net sales increase.

Perfect size

“Perfect Size for One has tapped into consumer needs in a number of key areas, including convenience, individuality and portion control, while also eliminating the category challenges related to the decline in household size,” said Clouse.

Sales in the Boulder segment took a slight dip from $94,69m in the previous year’s second quarter to $94,65m. This performance reflected volume/mix growth of 4.9% and favorable net price realization of 2.8%, offset by a 3.4% decline from the wind-down of the Boulder UK operations and a 4.3% impact from the SKU rationalization program.

The Specialty division saw sales decline by 15% to $78m because of the Aunt Jemima exit.

Pinnacle Foods ended the quarter with cash and cash equivalents of $130.9m, long-term debt of $2.9bn, and total equity of $1.9bn.