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Can Savings Efforts Aid TreeHouse Foods (THS) Battle Hurdles?
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Amid rising costs and soft volumes plaguing the food industry, TreeHouse Foods, Inc. (THS - Free Report) has been afloat on the back of robust restructuring and savings efforts, accretive buyouts as well as a diverse consumer base. Let’s take a closer look at the factors aiding this packaged foods and beverages manufacturer’s performance.
Yielding Restructuring Plans
TreeHouse Foods’ savings and efficiency-building programs have been quite rewarding. The impacts of such strategies were reflected in second-quarter 2018 results, wherein operating expenses, as a percentage of sales, improved 380 basis points (bps) to 15.9%. Speaking of restructuring initiatives, the company has been progressing well with the TreeHouse 2020 strategic plan. This plan has been designed to restructure and realign the business as a whole. Along with cost savings, the initiative is expected to manage the company’s portfolio and optimize production as well as supply chain. The plan aims to improve the company’s operating margin by 300 bps by the end of 2020. TreeHouse Foods expects to invest the proceeds from the savings in market-differentiated capacities to cater to consumers’ ever-changing demands. In this regard, the company made certain achievements in the first phase of the program. Also, the company is on track to simplify structure, undertake plant consolidation and complete the rollout of the TreeHouse Management Operating System in 2018.
Apart from the 2020 plan, TreeHouse Foods’ Structure to Win program is another notable effort in managing expenses efficiently. The program is focused on aligning the company’s SG&A expenses with its division structures. Markedly, management is optimistic about prospects from this program and expects savings from the same to be ahead of the original schedule of nearly $30 million in 2018. The company expects overall run rate savings from this program to be nearly $55 million.
Acquisitions Bode Well
Undertaking buyouts has been a prudent way for TreeHouse Foods to strengthen footing in the food space. Noteworthy acquisitions include the Private Brands Business, Flagstone Foods, Cains Foods, L.P., Associated Brands and Naturally Fresh, Inc. The company expects to utilize its scale, management depth, integration expertise and access to capital to pursue small and large acquisitions in the future.
Inclination Toward Organic Offerings
With rising health consciousness, consumers have been shifting to foods described as “better for you,” which include fresh or freshly-prepared foods as well as natural, organic or specialty products. Moreover, the company has witnessed positive comparable store sales growth trends in food away from home outlets, which mainly focuses on clean ingredients and labels. This results in higher demand for natural or organic type products. Notably, premium, better for you, natural and organic offerings now form more than 21% of the company’s sales. In fact, we note that restaurants and retailers are increasing the use of cage-free eggs, as they are healthy. The company expects sustained growth in these areas and continues to focus on consumer’s needs by developing new formulations, packaging, and sizes.
Will Efforts Offset Hurdles?
The divestiture of SIF (Canned Soup and Infant Feeding) business as well as efforts to simplify and rationalize low margin SKUs have been denting the company’s top-line performance. Going ahead, the company anticipates the SKU rationalization efforts and soft volumes across most of its divisions to be a headwind. Apart from this, TreeHouse Foods has been reporting lower DOI margin for the past four quarters, due to higher commodity and freight costs. Unfortunately, freight and commodity cost headwinds are expected to linger in 2018, which is a persistent threat to margins. Apart from TreeHouse Foods, other food companies such as United Natural Foods (UNFI - Free Report) , Tyson Foods (TSN - Free Report) and McCormick & Company (MKC - Free Report) have also been grappling with rising freight expenses.
Amid such hurdles, the company’s focus on restructuring operations to boost savings and efficiency is rational and is expected to aid growth in the forthcoming periods. Further, the company’s efforts to widen consumer base through expanding organic offerings is expected to boost revenues.
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Can Savings Efforts Aid TreeHouse Foods (THS) Battle Hurdles?
Amid rising costs and soft volumes plaguing the food industry, TreeHouse Foods, Inc. (THS - Free Report) has been afloat on the back of robust restructuring and savings efforts, accretive buyouts as well as a diverse consumer base. Let’s take a closer look at the factors aiding this packaged foods and beverages manufacturer’s performance.
Yielding Restructuring Plans
TreeHouse Foods’ savings and efficiency-building programs have been quite rewarding. The impacts of such strategies were reflected in second-quarter 2018 results, wherein operating expenses, as a percentage of sales, improved 380 basis points (bps) to 15.9%. Speaking of restructuring initiatives, the company has been progressing well with the TreeHouse 2020 strategic plan. This plan has been designed to restructure and realign the business as a whole. Along with cost savings, the initiative is expected to manage the company’s portfolio and optimize production as well as supply chain. The plan aims to improve the company’s operating margin by 300 bps by the end of 2020. TreeHouse Foods expects to invest the proceeds from the savings in market-differentiated capacities to cater to consumers’ ever-changing demands. In this regard, the company made certain achievements in the first phase of the program. Also, the company is on track to simplify structure, undertake plant consolidation and complete the rollout of the TreeHouse Management Operating System in 2018.
Apart from the 2020 plan, TreeHouse Foods’ Structure to Win program is another notable effort in managing expenses efficiently. The program is focused on aligning the company’s SG&A expenses with its division structures. Markedly, management is optimistic about prospects from this program and expects savings from the same to be ahead of the original schedule of nearly $30 million in 2018. The company expects overall run rate savings from this program to be nearly $55 million.
Acquisitions Bode Well
Undertaking buyouts has been a prudent way for TreeHouse Foods to strengthen footing in the food space. Noteworthy acquisitions include the Private Brands Business, Flagstone Foods, Cains Foods, L.P., Associated Brands and Naturally Fresh, Inc. The company expects to utilize its scale, management depth, integration expertise and access to capital to pursue small and large acquisitions in the future.
Inclination Toward Organic Offerings
With rising health consciousness, consumers have been shifting to foods described as “better for you,” which include fresh or freshly-prepared foods as well as natural, organic or specialty products. Moreover, the company has witnessed positive comparable store sales growth trends in food away from home outlets, which mainly focuses on clean ingredients and labels. This results in higher demand for natural or organic type products. Notably, premium, better for you, natural and organic offerings now form more than 21% of the company’s sales. In fact, we note that restaurants and retailers are increasing the use of cage-free eggs, as they are healthy. The company expects sustained growth in these areas and continues to focus on consumer’s needs by developing new formulations, packaging, and sizes.
Will Efforts Offset Hurdles?
The divestiture of SIF (Canned Soup and Infant Feeding) business as well as efforts to simplify and rationalize low margin SKUs have been denting the company’s top-line performance. Going ahead, the company anticipates the SKU rationalization efforts and soft volumes across most of its divisions to be a headwind. Apart from this, TreeHouse Foods has been reporting lower DOI margin for the past four quarters, due to higher commodity and freight costs. Unfortunately, freight and commodity cost headwinds are expected to linger in 2018, which is a persistent threat to margins. Apart from TreeHouse Foods, other food companies such as United Natural Foods (UNFI - Free Report) , Tyson Foods (TSN - Free Report) and McCormick & Company (MKC - Free Report) have also been grappling with rising freight expenses.
Amid such hurdles, the company’s focus on restructuring operations to boost savings and efficiency is rational and is expected to aid growth in the forthcoming periods. Further, the company’s efforts to widen consumer base through expanding organic offerings is expected to boost revenues.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>