The curious case of Hungry-Man
Nov. 13, 2014
by Monica Watrous
|Frozen dinner line bucks consumer trends but continues to thrive in a challenged category.
PARSIPPANY, NJ — Perhaps no one is more surprised by the success of Hungry-Man frozen dinners than the brand’s manufacturer, Parsippany, NJ-based Pinnacle Foods Group. Countering consumer trends of simple ingredients, health and wellness and organic foods, the male-focused meal line generated hearty growth during the company’s third quarter.
“We agree when we take a look at the macro consumer trend where we want to invest our money going forward, but in terms of marketing spend, innovation and acquisitions it’s more in the faster-growing health and wellness areas,” said Bob Gamgort, CEO, during a Nov. 12 earnings call with financial analysts. “And that’s why we are really bullish on Birds Eye, which is now a billion-dollar brand. If we want to align our portfolio against the faster growth streams within the industry, part of our overall mission of reinvigorating iconic brands is to do the best with whatever brand that we have. And what’s fascinating about Hungry-Man is it’s got a very unique position in the marketplace. It is a comfort food, in ample quantities, which is lacking tremendously in the freezer case.
“We made a strategic choice a couple years ago I think that runs counter to what has happened in the industry across the board, which is instead of cheapening the product, we decided to create two price tiers and actually enhance the product quality and price for it,” he added.
In addition to lowering prices on the brand’s flagship products, Pinnacle introduced Hungry-Man Selects, a higher-end selection of frozen dinners at a higher cost. Products include classic fried chicken served with mashed potatoes, sweet corn and a chocolate brownie. There is also a spicy classic fried chicken variety, with mashed potatoes, mixed vegetables and an apple dessert; and a slow-cooked, seasoned pulled pork entrée with mashed potatoes, sweet corn and apple crumble.
“And our consumers pay for it,” Gamgort said. “And the growth we’re getting now as we decided to expand the Selects line with on-trend flavors — pulled pork would be a great example — and you can’t do that at an incredibly low price point.”
Pinnacle also has introduced limited-edition varieties of Hungry-Man meals, including chipotle barbecue boneless chicken wings with mashed potatoes, sweet corn and an apple crumble dessert. A Hungry-Man Pub Favorites range features beer-battered chicken, grilled bourbon steak strips, grilled beef patty, honey bourbon chicken strips, and popcorn chicken with spiced rum barbecue sauce — each served with mashed potatoes and vegetables.
“(It’s a) combination of knowing who you are, having a really unique position in the marketplace and staying true to that position by not cheapening or reducing the quantity, which would kill the brand,” Gamgort said. “That has allowed us to do really well and buck the trends in the category. And people are really going for protein right now, as you know. One of the things that we are able to do is deliver a lot of protein, and that’s something we are going to take more credit for going forward.”
Hungry-Man wasn’t Pinnacle’s only high performer during the quarter. Improved mix and productivity gains drove strong growth, even as the company encountered higher-than-expected input costs and a competitive pricing environment.
Net earnings for the third quarter ended Sept. 28 soared to $135,957,000, equal to $1.17 per share on the common stock, which compared with $40,685,000, or 35 cents per share, for the prior-year period. The results reflect strong cash flow generated from operations as well as the benefit of a $163 million fee associated with the termination of a merger agreement with the Hillshire Brands Co. Excluding items affecting comparability, earnings increased approximately 17 percent to $47.6 million.
Net sales advanced to $624,011,000, up 9 percent from $572,455,000 for the third quarter of the year before, reflecting the benefit of the Wish-Bone acquisition and growth in the base business.
Net sales for the North American Retail segment, which includes the Birds Eye Frozen and Duncan Hines Grocery divisions, rose about 10 percent from a year ago on the strength of the Wish-Bone brand. Birds Eye Frozen revenue was even with a year ago as volume/mix growth of approximately 2 percent was offset by lower net pricing.
“Birds Eye vegetables continued to grow consumption and gain share at a healthy pace in the quarter, although net sales were down slightly in the quarter due to shipment timing,” Gamgort said.
The Specialty Foods segment, which includes Pinnacle’s private-label foodservice and snack businesses, posted a 5.7 percent increase in net sales due to higher volume/mix and the benefit from the Wish-Bone food service business that partially offset lower net pricing. Net sales growth during the quarter also was driven by private label canned meat.
Looking ahead, the company continues to expect double-digit growth in adjusted earnings per share, assuming input cost inflation remains consistent with expectations and cash flow performance remains strong for the balance of the year.