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Treehouse Foods a No-No Stock: What's Dragging it Down?
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Shares of food company Treehouse Foods, Inc. (THS - Free Report) had been outperforming the Zacks categorized Food – Miscellaneous/Diversified industry for the last six months. The stock moved up 9.8% against the industry’s decline of 3.4%. However, the company posted a disappointing first-quarter 2017 results on May 4. Following this the stock declined and underperformed both the Zacks categorized industry and the broader Consumer Staples sector as can be seen in the past three months’ performance. The stock declined 4.0% in the said time frame, whereas the industry declined 2% and the broader sector grew 2.8%.
So what exactly is been pulling the stock down? Let’s take a look.
Weak First-Quarter Results and Soft Second-Quarter Outlook
Treehouse Foods reported lower-than-expected first-quarter 2017 results wherein both the company’s top and bottom lines lagged the Zacks Consensus Estimate. Though management reiterated its earnings guidance for 2017, it issued a soft guidance for the second quarter, which was below expectations.
Notably, the second quarter will be the lowest quarter in 2017 in respect to earnings. Moreover, management expects a soft retail landscape to persist in the same period.
We note that the company is in a transitional phase and is looking to offload low-margin and ineffective businesses in order to streamline its operations, meet the needs of its customers and eliminate excess manufacturing capacity.
The company exited some low margin but relatively high-volume business in the first quarter that had led to a year-over-year decline in volumes, including the partial closure of Battle Creek and ceased production at its Ayer and Azusa manufacturing facilities.
These impacted sales and led to a decrease of over 16 million pounds in the first quarter compared to the year-ago period. Though near-term declines have impacted results, the company is positive on the long-term benefits.
Further, overall weakness in the food industry has been hurting the numbers since the beginning of the year. Volumes across the entire space remained soft, particularly in January and February. The company also incurred higher spending in regard to its business structure realignment. Unfavorable pricing, inflationary pressure, higher operating expenses also added to the concerns.
EPS History and Estimates Revision
Treehouse Foods reported negative earnings surprise in two of the trailing four quarters, with an average negative surprise of 2.42%. Also, sales missed the Zacks Consensus Estimate in seven of the past 10 quarters.
The company’s estimates for second quarter and full-year 2017 have moved south in the past 60 days, reflecting the negative outlook of analysts. While estimates for the second quarter plummeted 31.9% to 49 cents per share, for 2017, the same fell 3.3% to $3.50 per share.
Moving ahead, Treehouse Foods remains focused to boost sales, optimize operations and drive margins. The progress of the Private Brands’ integration (acquired from Conagra Brands, Inc.) remains encouraging and is expected to stabilize margins in 2017 and 2018. However, the turnaround might take a little more time, amid a tough retail environment and changing customer buying patterns. Till then, investors should adopt a wait-and-watch stance for this stock.
Stocks to Consider
Investors interested in food stocks in the industry can consider SunOpta, Inc. (STKL - Free Report) , Aramark (ARMK - Free Report) and B&G Foods, Inc. (BGS - Free Report) as valuable picks.
SunOpta has long-term earnings growth rate of 15.0%. Aramark and B&G have growth rates of 12.0% and 10.0%, respectively.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buys"" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 ""Strong Sells."" Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>
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Treehouse Foods a No-No Stock: What's Dragging it Down?
Shares of food company Treehouse Foods, Inc. (THS - Free Report) had been outperforming the Zacks categorized Food – Miscellaneous/Diversified industry for the last six months. The stock moved up 9.8% against the industry’s decline of 3.4%. However, the company posted a disappointing first-quarter 2017 results on May 4. Following this the stock declined and underperformed both the Zacks categorized industry and the broader Consumer Staples sector as can be seen in the past three months’ performance. The stock declined 4.0% in the said time frame, whereas the industry declined 2% and the broader sector grew 2.8%.
So what exactly is been pulling the stock down? Let’s take a look.
Weak First-Quarter Results and Soft Second-Quarter Outlook
Treehouse Foods reported lower-than-expected first-quarter 2017 results wherein both the company’s top and bottom lines lagged the Zacks Consensus Estimate. Though management reiterated its earnings guidance for 2017, it issued a soft guidance for the second quarter, which was below expectations.
Notably, the second quarter will be the lowest quarter in 2017 in respect to earnings. Moreover, management expects a soft retail landscape to persist in the same period.
We note that the company is in a transitional phase and is looking to offload low-margin and ineffective businesses in order to streamline its operations, meet the needs of its customers and eliminate excess manufacturing capacity.
The company exited some low margin but relatively high-volume business in the first quarter that had led to a year-over-year decline in volumes, including the partial closure of Battle Creek and ceased production at its Ayer and Azusa manufacturing facilities.
These impacted sales and led to a decrease of over 16 million pounds in the first quarter compared to the year-ago period. Though near-term declines have impacted results, the company is positive on the long-term benefits.
Further, overall weakness in the food industry has been hurting the numbers since the beginning of the year. Volumes across the entire space remained soft, particularly in January and February. The company also incurred higher spending in regard to its business structure realignment. Unfavorable pricing, inflationary pressure, higher operating expenses also added to the concerns.
EPS History and Estimates Revision
Treehouse Foods reported negative earnings surprise in two of the trailing four quarters, with an average negative surprise of 2.42%. Also, sales missed the Zacks Consensus Estimate in seven of the past 10 quarters.
The company’s estimates for second quarter and full-year 2017 have moved south in the past 60 days, reflecting the negative outlook of analysts. While estimates for the second quarter plummeted 31.9% to 49 cents per share, for 2017, the same fell 3.3% to $3.50 per share.
Moving ahead, Treehouse Foods remains focused to boost sales, optimize operations and drive margins. The progress of the Private Brands’ integration (acquired from Conagra Brands, Inc.) remains encouraging and is expected to stabilize margins in 2017 and 2018. However, the turnaround might take a little more time, amid a tough retail environment and changing customer buying patterns. Till then, investors should adopt a wait-and-watch stance for this stock.
Stocks to Consider
Investors interested in food stocks in the industry can consider SunOpta, Inc. (STKL - Free Report) , Aramark (ARMK - Free Report) and B&G Foods, Inc. (BGS - Free Report) as valuable picks.
SunOpta has long-term earnings growth rate of 15.0%. Aramark and B&G have growth rates of 12.0% and 10.0%, respectively.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buys"" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 ""Strong Sells."" Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>