TreeHouse Foods, Inc. ( THS Quick Quote THS - Free Report) posted first-quarter 2021 results, wherein both top and bottom lines declined year over year and the former missed the Zacks Consensus Estimate. Results were affected by lower retail demand due to tough comparisons with the year-ago period’s stock-hoarding trends, along with cost inflation. Quarter in Detail
Adjusted earnings from continuing operations amounted to 36 cents per share that surpassed the Zacks Consensus Estimate of 31 cents. However, the bottom line declined 2.7% year over year.
Net sales of $1,057.3 million missed the consensus mark of $1,087 million and fell 2.5% year over year. Organic sales fell 5% due to lower volume/mix and adverse pricing impacts. Volume/mix fell 4.7% due to soft retail demand, which resulted from tough comparisons with the year-ago period’s burgeoning pandemic-led demand, stemming from consumers’ pantry-loading trends. Unfavorable impacts stemming from the divesture of the two In-Store Bakery facilities also weighed on volume/mix.
These were partly made up by distribution gains that outperformed distribution losses. Also, positive currency impacts and gains from the inclusion of the business from the pasta acquisition offered some respite. On Dec 11, 2020, TreeHouse concluded the buyout of the majority of Riviana Foods’ U.S.-branded pasta portfolio. Gross margin came in at 17.1%, contracting 0.9 percentage points from the year-ago quarter’s figure. The decline was caused by lower volumes due to soft pandemic-related demand, additional costs associated with the pandemic (which included higher production shifts, increased sanitization measures, supplemental payments and protective equipment), and inflated commodity costs. This was partially compensated by improved channel mix and volume gains from the inclusion of the business from the pasta acquisition. Total operating expenses, as a percentage of sales, rose 0.8 percentage points to 16% as a result of elevated freight costs, professional service fees and integration costs related to the pasta business buyout. These were somewhat countered by reduced employee compensation expenses. Adjusted EBITDA from continuing operations declined 0.4% to $106.2 million due to higher freight costs and soft retail demand, largely compensated by volume gains from the pasts business inclusion, improved channel mix, reduced employee compensation expenses and mark-to-market benefits on investments. Segment Details Meal Preparation: During the quarter, sales in the segment increased 0.7% year over year to $678.5 million. The upside was mainly triggered by the inclusion of the business from the pasta acquisition as well as distribution gains that surpassed distribution losses. However, this was partly countered by lower retail demand resulting from difficult year-over-year comparisons. Organic sales in the segment fell 5.7% year over year. Direct operating income (DOI) margin in the segment declined 0.9 percentage points. Snacking & Beverages: Net sales declined 7.9% to $378.8 million due to lower retail demand and reduced volume/mix stemming from divestitures. This was somewhat compensated by distribution gains that surpassed distribution losses as well as innovation. Segment organic sales fell 3.9% year over year. DOI margin dipped 0.7 percentage points. Other Financial Updates & Guidance
The company concluded the quarter with cash and cash equivalents of $48.8 million, long-term debt (excluding operating lease liabilities) of $1,929.8 million and total shareholders’ equity of $1,864.5 million. During the first quarter, cash used in operating activities of continuing operations amounted to $5.5 million.
The company’s efforts to strengthen the business and enhance operating performance are likely to keep it going amid an inflationary landscape as well as coronavirus-related uncertainties. Management expects inflation to increase across several agricultural commodities, especially edible oils. Also, it expects escalated transportation costs. Further, the company expects a temporary drag on earnings and margins in the second quarter as a result of the timing lag as to when pricing efforts are realized. Management has begun undertaking increased pricing actions to battle the inflationary pressure. These efforts are expected to reap benefits in the second half of 2021. All said, management reiterated its guidance for 2021. For the year, net sales are anticipated to be $4.40-$4.60 billion compared with $4.35 billion delivered in 2020. Adjusted earnings from continuing operations are expected to be $2.80-$3.20 per share, which suggests growth from earnings of $2.73 reported in 2020. The Zacks Consensus Estimate for sales and earnings in 2021 is currently pegged at $4.53 billion and $2.95 per share, respectively. For the second quarter of 2021, management expects net sales of $1.02-$1.07 billion and adjusted earnings per share from continuing operations of 20-30 cents. We note that the Zacks Rank #3 (Hold) stock has rallied 15% in the past three months compared with the industry’s 8.5% rise. Looking for Solid Food Stocks? Check These Medifast ( MED Quick Quote MED - Free Report) , which currently carries a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 12.7%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here. United Natural ( UNFI Quick Quote UNFI - Free Report) has a Zacks Rank #2 (Buy) and its bottom line outpaced the Zacks Consensus Estimate by 13.6% in the trailing four quarters, on average. B&G Foods ( BGS Quick Quote BGS - Free Report) has a Zacks Rank #2 and a trailing four-quarter earnings surprise of 4.2%, on average. +1,500% Growth: One of 2021’s Most Exciting Investment Opportunities
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