CFO Studio Magazine with Craig Steeneck, CFO, Pinnacle Foods

COVER STORY P innacle Foods is a company created from acquisitions, the first being the 2001 purchase of assets, including Vlasic Pickles and Hungry- Man, from The Vlasic Company, which was a spin- off of Campbell Soup. Toward the end of 2004, the company bought Aurora Foods, with such brands as Duncan Hines, Mrs. Butterworth’s and Log Cabin syrups, and Van de Kamp’s and Mrs. Paul’s frozen seafood. When Craig Steeneck came aboard as executive vice president of finance in June 2005 (he is now CFO), “those businesses hadn’t been fully integrated,” he says, and “the overall cost structure needed repair.” That said, the company was doing something interesting: pursuing long- established, iconic food brands and giving them new life. Pinnacle Foods has a long history of private equity ownership since its founding back in 2001, starting with J.P. Morgan Partners and J.W. Childs Associates, along with C. Dean Metropoulos, who then sold the company to The Blackstone Group in 2007. After a successful 2013 IPO led by CEO Bob Gamgort, Steeneck, and his finance team, the stock has continued to rise in value. By the end of June 2015, the stock price had more than doubled to $45.54. In February 2015, a Forbes article noted that Pinnacle’s market capitalization, at $4.24 billion, exceeded that of companies on the low end of the S&P 500. Not bad for a business cobbled together from other companies’ non- strategic brands. Growth And Integration Street Journal , the Star-Ledger , and CNBC, not to mention online news sources, kept the story alive throughout the six-week period. Steeneck says that it wasn’t until July 1, 2014, when the Hillshire board voted in favor of taking the Tyson offer, and jettisoned plans to pursue acquiring Pinnacle, that the over 4,000 employees could raise a cheer for their independence and return to business as usual. Also, Pinnacle could then collect the $163 million break-up fee. Why Pinnacle Was a Target Pinnacle Foods manufactures products at 13 plants that it owns. Its brands hold the No. 1 or No. 2 market position in 10 of the 14 major categories where they compete. And, Pinnacle generates significant cash flow. “Our cash-to-earnings ratio is enormously high,” says Steeneck: 90 percent at year-end 2014. “That’s one of the characteristics of the Pinnacle portfolio that differentiates us from our peers. We’re able to convert earnings into cash at a very high percentage,” he says. The Pinnacle business was created from a number of acquisitions (see Sidebar, this page). And the company continued to grow by buying brands that the nation’s large food companies deemed to be non-strategic. As a mid-cap company, with lower overhead, Pinnacle was able to put more attention into the brands it acquired, says Steeneck. Importantly, the brands were charged lower overhead than they’d been saddled with under prior owners. In order to make those acquisitions and get solid returns from them, Pinnacle relied on tight financial controls and Steeneck’s oversight. In 2007, Pinnacle was acquired by The Blackstone Group and the focus shifted to building a company that could someday go public. Toward that end, in 2009 Pinnacle recruited Bob Gamgort as CEO and made its most significant acquisition, purchasing Birds Eye Foods. “That transaction was transformative for Pinnacle, as it virtually doubled our size,” says Steeneck. When Pinnacle Foods created the prospectus, the S-1, that was filed with the SEC in connection with its March 2013 IPO, it was Steeneck’s finance team that took the lead, coordinating the efforts of in-house counsel and outside banking and legal advisors, to navigate the organization through this process.This grueling effort included compiling “a 250-page document containing extensive financial data, along with strategic and operational information that needed to be cleared by the SEC,” says Steeneck. Once cleared and with a compelling investor presentation in hand, he, Gamgort and Maria Sceppaguercio, who was brought in at that time to head up a new Investor Relations function, then articulated the story for investors during a 10-day investor road show. Creating value by “Reinvigorating Iconic Brands” became the company’s mission, with a focus on prioritizing investment spending across the portfolio, expanding margins through productivity, maintaining a lean and efficient organization structure, and driving strong cash flow to create significant shareholder returns. Pinnacle emphasized during the IPO that acquisitions represented upside to the value creation the base business would generate. “We operate in an industry and categories that are low-growth, but we’re able to create value by investing differentially in the highest- return brands in our portfolio, continuing to reduce our supply chain costs, and maintaining very lean SG&A overhead that minimizes the tax on our brands,” says Steeneck. Investors responded well. The company priced the IPO at $20 per share. On March 28, 2013, the first day of trading, the stock (NYSE: PF) opened above that price and ended the day up more than 11 percent. Blackstone didn’t sell any of its shares at the IPO, instead choosing to hold for the significant value- creation potential it believed the company would — and ultimately did — realize. A CFO With Good Chops Until Blackstone became Pinnacle’s owner in 2007, Steeneck had spent considerable time fixing non-performing areas of the company 10 WWW.CFOSTUDIO.COM 3rd QUARTER 2015