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TreeHouse Foods (THS) Looks Troubled: High Costs a Key Concern
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TreeHouse Foods, Inc. (THS - Free Report) appears to be in trouble. The company has been struggling with elevated cost headwinds, which are likely to persist. Although management is undertaking prudent pricing actions to combat the cost headwinds, on its third-quarter earnings call, it slashed adjusted earnings expectations for 2021. Also, the Zacks Rank #5 (Strong Sell) company lowered the upper limit of its sales view.
The Zacks Consensus Estimate for 2021 earnings per share (EPS) has declined from $2.11 to $1.17 over the past 60 days. Shares of this manufacturer and distributor of private label packaged foods and beverages have declined 12.1% in the past six months compared with the industry’s fall of 4.1%.
Let’s take a closer look.
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Elevated Costs – a Major Concern
During the third quarter of 2021, TreeHouse Foods’ gross margin came in at 16.3%, contracting 170 basis points from the year-ago quarter’s figure. The downside was caused by commodity inflation. Gross margin was also adversely impacted by supply-chain disruptions leading to higher labor costs, supply shortages and an unfavorable channel mix. Adjusted EBITDA from continuing operations decreased 20.5% to $108.6 million due to commodity and freight cost inflation. It was also affected by supply chain disruptions leading to higher labor costs, supply shortages and an unfavorable channel mix.
Management, on its third-quarter earnings call, stated that it expects a further increase in input costs. The company predicts additional cost inflation of $125 million in 2021. Although THS is undertaking pricing actions to battle elevated input costs, it might not be sufficient to fully offset the rise in input costs.
Unimpressive 2021 View
For 2021, net sales are anticipated in the range of $4.20-$4.325 billion compared with $4.20-$4.45 billion expected earlier. Management, on its last earnings call, stated that it expects the current operating constraints to limit TreeHouse Food’s ability to meet high demand conditions. Adjusted earnings from continuing operations are expected in the band of $1.08-$1.28 per share, down from the previous guidance of $2.00-$2.50. The bottom line is likely to be affected by the escalating inflationary trends as well as higher costs related to labor and supply-chain disruptions.
TreeHouse Foods also provided guidance for the fourth quarter. Fourth-quarter net sales are expected in the range of $1.04-$1.16 billion. This suggests a decline from $1.18 million reported in the year-ago quarter.
While THS is on track with solid pricing actions, one cannot ignore the above-mentioned headwinds in the near term.
MGP Ingredients, the producer and supplier of distilled spirits, and specialty wheat proteins and starch food ingredients, currently sports a Zacks Rank #1 (Strong Buy). Shares of the company have rallied 33.3% in the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and EPS suggests growth of 55.5% and 61.4%, respectively, from the year-ago period’s figures. MGPI has a trailing four-quarter earnings surprise of 117.6%, on average.
Inter Parfums develops, manufactures and distributes prestige perfumes and cosmetics. It currently sports a Zacks Rank #1. Inter Parfums has a trailing four-quarter earnings surprise of 29.7%, on average.
The Zacks Consensus Estimate for IPAR’s current financial-year sales and EPS suggests growth of 55.9% and 100%, respectively, from the year-ago period’s figures. Shares of the company have moved up 32% in the past six months.
The Hain Celestial, which provides various natural and organic foods as well as personal care products in North America and Europe, carries a Zacks Rank #2 (Buy) at present. It has a trailing four-quarter earnings surprise of 9.7%, on average. Shares of The Hain Celestial have moved up 2.5% in the past six months.
The Zacks Consensus Estimate for HAlN’s current financial-year EPS suggests growth of 14.5% from the year-ago period’s reported number.
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TreeHouse Foods (THS) Looks Troubled: High Costs a Key Concern
TreeHouse Foods, Inc. (THS - Free Report) appears to be in trouble. The company has been struggling with elevated cost headwinds, which are likely to persist. Although management is undertaking prudent pricing actions to combat the cost headwinds, on its third-quarter earnings call, it slashed adjusted earnings expectations for 2021. Also, the Zacks Rank #5 (Strong Sell) company lowered the upper limit of its sales view.
The Zacks Consensus Estimate for 2021 earnings per share (EPS) has declined from $2.11 to $1.17 over the past 60 days. Shares of this manufacturer and distributor of private label packaged foods and beverages have declined 12.1% in the past six months compared with the industry’s fall of 4.1%.
Let’s take a closer look.
Elevated Costs – a Major Concern
During the third quarter of 2021, TreeHouse Foods’ gross margin came in at 16.3%, contracting 170 basis points from the year-ago quarter’s figure. The downside was caused by commodity inflation. Gross margin was also adversely impacted by supply-chain disruptions leading to higher labor costs, supply shortages and an unfavorable channel mix. Adjusted EBITDA from continuing operations decreased 20.5% to $108.6 million due to commodity and freight cost inflation. It was also affected by supply chain disruptions leading to higher labor costs, supply shortages and an unfavorable channel mix.
Management, on its third-quarter earnings call, stated that it expects a further increase in input costs. The company predicts additional cost inflation of $125 million in 2021. Although THS is undertaking pricing actions to battle elevated input costs, it might not be sufficient to fully offset the rise in input costs.
Unimpressive 2021 View
For 2021, net sales are anticipated in the range of $4.20-$4.325 billion compared with $4.20-$4.45 billion expected earlier. Management, on its last earnings call, stated that it expects the current operating constraints to limit TreeHouse Food’s ability to meet high demand conditions. Adjusted earnings from continuing operations are expected in the band of $1.08-$1.28 per share, down from the previous guidance of $2.00-$2.50. The bottom line is likely to be affected by the escalating inflationary trends as well as higher costs related to labor and supply-chain disruptions.
TreeHouse Foods also provided guidance for the fourth quarter. Fourth-quarter net sales are expected in the range of $1.04-$1.16 billion. This suggests a decline from $1.18 million reported in the year-ago quarter.
While THS is on track with solid pricing actions, one cannot ignore the above-mentioned headwinds in the near term.
3 Consumer Staple Picks
Some top-ranked stocks from the Consumer Staples sector are MGP Ingredients (MGPI - Free Report) , The Hain Celestial Group (HAIN - Free Report) and Inter Parfums, Inc. (IPAR - Free Report) .
MGP Ingredients, the producer and supplier of distilled spirits, and specialty wheat proteins and starch food ingredients, currently sports a Zacks Rank #1 (Strong Buy). Shares of the company have rallied 33.3% in the past six months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and EPS suggests growth of 55.5% and 61.4%, respectively, from the year-ago period’s figures. MGPI has a trailing four-quarter earnings surprise of 117.6%, on average.
Inter Parfums develops, manufactures and distributes prestige perfumes and cosmetics. It currently sports a Zacks Rank #1. Inter Parfums has a trailing four-quarter earnings surprise of 29.7%, on average.
The Zacks Consensus Estimate for IPAR’s current financial-year sales and EPS suggests growth of 55.9% and 100%, respectively, from the year-ago period’s figures. Shares of the company have moved up 32% in the past six months.
The Hain Celestial, which provides various natural and organic foods as well as personal care products in North America and Europe, carries a Zacks Rank #2 (Buy) at present. It has a trailing four-quarter earnings surprise of 9.7%, on average. Shares of The Hain Celestial have moved up 2.5% in the past six months.
The Zacks Consensus Estimate for HAlN’s current financial-year EPS suggests growth of 14.5% from the year-ago period’s reported number.