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TreeHouse Foods (THS) Gains on Demand Rise, Portfolio Strength

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Despite soft outdoor dining trends amid the pandemic, several food companies such as TreeHouse Foods, Inc. (THS - Free Report) appear well positioned, courtesy of rise in at-home cooking and food consumption practices. This well-known packaged food, snacks and beverages player has been gaining from growth in retail demand.  Additionally, its well-chalked measures to boost portfolio strength have been yielding. Shares of the company have increased 28.8% in the past three months compared with the industry’s growth of 9.1%. That said, let’s take a closer look at some of the aspects aiding the performance of this Zacks Rank #3 (Hold) company.

Favorable Demand Conditions Boost Sales

TreeHouse Foods’ top line has been gaining from strong retail demand. During fourth-quarter 2020, the company’s net sales increased 3.3% year over year, while the retail channel witnessed sales growth of 8%. Moreover, the company’s segments witnessed strong retail demand. Also, organic sales rose 4% owing to higher volume/mix, backed by elevated retail demand. The meal preparation unit saw organic growth of 1.3%, while the snacks and beverages unit delivered organic growth of 8.1%.

Continuation of at-home dining trends due to the pandemic is likely to keep fueling demand and support the company’s revenues. In fact, the company provided an encouraging view for 2021. Net sales are anticipated to be $4.40-$4.60 billion, indicating a rise from sales of $4.35 billion in 2020.

Focus on Strengthening Portfolio Bodes Well

TreeHouse Foods has been keen on expanding its product offerings through acquisitions. In December 2020, the company concluded the buyout of the majority of Riviana Foods’ U.S.-branded pasta portfolio. The buyout added regional brands, including Skinner, No Yolks, San Giorgio and P&R Procino-Rossi among others to TreeHouse Foods’ existing portfolio. The company is on track with realizing synergies from this acquisition. Markedly, the acquisition contributed nearly $12 billion to organic revenues during the fourth quarter. The buyout also drove revenues in the meal preparation unit. Management expects that this acquisition is likely to contribute 20-30 cents in the first full year.

Prior to this, TreeHouse Foods acquired Private Brands business — a leading manufacturer of private label refrigerated and shelf stable products in the bars, bakery, cereal, condiments, pasta and snacks categories. The acquisition generated significant revenues through the inclusion of a range of brands. The company’s other notable acquisitions include PFF Capital Group, Inc. (“Protenergy”), Cains Foods, L.P., Associated Brands and Naturally Fresh, Inc among others.

In addition to these, TreeHouse Foods is focused on boosting organic food offerings, as consumers are more interested in foods described as being “better for you,” which include fresh or freshly-prepared foods as well as natural, organic or specialty foods. The company expects sustained growth in these areas and continues to focus on consumer’s needs by developing new formulations, packaging and sizes.

Final Thoughts

We note that TreeHouse Foods is reeling under softness in the food-away-from home channel due to increased social distancing and at-home consumption amid the pandemic. This channel is likely to remain weak for a major portion this year, given the continuation of stay-at-home trends. Moreover, incremental costs associated with the pandemic are a headwind.

Nevertheless, we expect TreeHouse Foods to tide through these challenges and maintain strong footing in the food space on the back of strength in its retail business as well as prudent strategies to boost portfolio. Moreover, its focus on exiting underperforming businesses and shifting focus toward areas with high growth potential is yielding.

Looking for Food Stocks? Check These

Sanderson Farms, Inc. (SAFM - Free Report) , flaunting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 43.5%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The J. M. Smucker Company (SJM - Free Report) has a long-term earnings growth rate of 1.6% and a Zacks Rank #2 (Buy).

United Natural Foods, Inc. (UNFI - Free Report) , also with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 13.6%, on average.

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