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Food manufacturer TreeHouse Foods Inc.’s earnings per share of 84 cents in the second quarter fiscal 2014 surpassed the Zacks Consensus Estimate by a penny. Results also went up 29.2% from the year-ago level backed by higher sales and margins during the quarter.

 

Net sales went up 19.3% to $628.0 million backed by strong sales in all the segments. Sales benefited from the company’s private label strategy and varied portfolio of products and services. Sales, however, missed the Zacks Consensus Estimate by 2.4%.

Although cost of sales went up 18.1% gross profit increased 23.8% year over year to $135.7 million due to higher sales, improved sales mix and operational efficiencies. Despite a 33% increase in operating expense, operating income went up 8.8% to $44.6 million.

Segment Results

In the North American Retail Grocery segment, net sales went up 18.2% to $444.2 million backed by benefits from acquisitions and higher volume/mix, partly offset by unfavorable foreign exchange. Strong sales growth in pickles, salad dressings and beverages along with triple-digit year-over-year growth in the company’s single serve coffee business drove sales in the retail grocery segment. Operating income margin inflated 20 basis points (bps) on the back of higher volume of higher-margin products, specifically single-serve hot beverages and cost savings from operating efficiencies.

In the Food Away From Home segment, net sales increased 13.6% to $97.3 million backed by higher volume. Operating margin decreased 160 bps to 12.4% due to lower margin sales from the Cains Foods and Associated Brands acquisitions and unfavorable foreign exchange movements.

In the Industrial Export segment, net sales increased 33.1% to $86.4 million backed by favorable volume/mix and benefits from recent acquisitions. Reported Operating margin decreased 520 bps to 15.6% due to acquisition and integration costs that increased cost of sales.

Looking Ahead

TreeHouse Foods raised its fiscal 2014 guidance to a range of $3.60 to $3.75 from $3.50 to $3.60. The increased guidance reflects benefits from the recently acquired Flagstone Foods and Protenergy Natural Foods.

The company acquired Protenergy Natural Foods for approximately $150 million (CAD $170 million), which was completed on May 30. Protenergy Natural Foods is an industry leading developer and manufacturer of premium quality food and beverage products. The acquisition added items such as soups, broths and gravies to TreeHouse's portfolio.

Again, in July, TreeHouse acquired Flagstone Foods — a Minneapolis-based distributor of dried fruits and nuts — from Gryphon Investors and other shareholders for $860 million in cash.

TreeHouse carries a Zacks Rank #1 (Strong Buy). Other stocks that are also performing well in the sector include Pinnacle Foods Inc. , J&J Snack Foods Corporation and Senomyx Inc. . All the stocks carry a Zacks Rank #2 (Buy).

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