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TreeHouse Foods (THS) Q1 Loss Narrower Than Expected, Stock Up

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Shares of TreeHouse Foods, Inc. (THS - Free Report) rallied 14.5% on May 9 as the company posted first-quarter 2022 results, wherein the top and bottom lines surpassed the Zacks Consensus Estimate and the former increased year over year. Results continued to gain from increased private label consumption and unit share gains across measured channels. The company also benefited from its strong pricing actions to recover commodity and freight inflation. Additionally, management is undertaking labor and supply-chain initiatives, though they are delivering a sluggish improvement.

Quarter in Detail

TreeHouse Foods reported an adjusted loss from continuing operations of 15 cents per share, better than the Zacks Consensus Estimate of a loss of 55 cents. The bottom line declined significantly from the earnings of 36 cents reported in the year-ago quarter.

TreeHouse Foods, Inc. Price, Consensus and EPS Surprise

TreeHouse Foods, Inc. Price, Consensus and EPS Surprise

TreeHouse Foods, Inc. price-consensus-eps-surprise-chart | TreeHouse Foods, Inc. Quote

Net sales of $1,141 million surpassed the consensus mark of $1,085 million. The top line also advanced 7.9% year over year. The volume/mix declined by 3.7%, whereas pricing increased 11.7%. Organic sales grew 8%. THS witnessed currency headwinds to the tune of 0.1%. Better pricing was the main driver, which helped the company counter commodity and freight cost inflation. However, this was partly negated by labor and supply-chain bottlenecks, which limited the company’s ability to serve the rising private label demand.

The gross margin of 13.6% contracted by 350 basis points from the year-ago quarter’s figure, mainly due to commodity inflation that was partly compensated by pricing actions. Apart from this, additional costs associated with labor and supply-chain woes, soft volumes leading to adverse fixed cost overhead absorption and freight cost inflation were headwinds. Lower costs related to the pandemic offered some respite.

Total operating expenses, as a percentage of sales, increased 1.1 percentage points to 17.1% due to higher freight costs. This was somewhat mitigated by reduced marketing expenditure. Adjusted EBITDA from continuing operations slumped 43.5% to $57.5 million due to the same factors affecting the gross margin.

Segment Details

Meal Preparation: Sales in the segment rose 7.3% year over year to $728.1 million. The increase was driven by favorable pricing to recover commodity and freight cost inflation. This was partly offset by soft volumes stemming from labor and supply-chain limitations. The volume/mix declined by 39.6%, while pricing improved by 90% in the quarter. The direct operating income (DOI) margin for the segment contracted by 3.7 percentage points year over year.

Snacking & Beverages: Net sales grew 9% to $678.5 million, backed by pricing actions to recover commodity and freight inflation. Also, higher private label demand led to robust category performances, especially in the Pretzels and In-Store Bakery businesses. That said, volumes were hurt by labor and supply-chain limitations. The volume/mix increased 0.8% and pricing rose 33.3%. The DOI margin fell 3.7 percentage points.

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Image Source: Zacks Investment Research

Other Financial Updates & Guidance

TreeHouse Foods concluded the quarter with cash and cash equivalents of $192.8 million, long-term debt (excluding operating lease liabilities) of $1,886.6 million and total shareholders’ equity of $1,847.8 million. In the first quarter, cash used in operating activities from continuing operations amounted to $70.4 million.

Management reiterated its 2022 guidance. For 2022, net sales are anticipated to increase a minimum of 11% year over year. Net sales for 2022 are expected to mainly benefit from pricing actions, offset by volume constraints stemming from labor shortages and supply-chain disruptions. Adjusted EBITDA is estimated in the range of $385-$415 million for 2022, indicating growth of 5% at the midpoint. The company expects the majority of earnings growth to come in the second half of 2022, as labor shortages and supply-chain disruptions are likely to impact profitability and volumes mostly in the first half.

For the second quarter of 2022, the company anticipates a flat to little sequential fall in the adjusted EBITDA margin. The company remains on track with its pricing actions to recover further inflation, which is likely to be implemented in the early third quarter. Also, the company expects to benefit from further actions to mitigate the impacts of labor and supply-chain disruptions, which will aid margin enhancement as 2022 progresses.

Shares of this Zacks Rank #3 (Hold) company have declined 0.9% in the past three months against the industry’s rise of 2.2%.

Looking for Consumer Staple Stocks? Check These

Some better-ranked stocks are Sysco Corporation (SYY - Free Report) , McCormick & Company (MKC - Free Report) and Inter Parfums (IPAR - Free Report) .

Sysco, which engages in the marketing and distribution of various food and related products, carries a Zacks Rank #2 (Buy) at present. Shares of Sysco have dipped 1.2% in the past three months. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Sysco’s current financial-year sales and earnings per share (EPS) suggests growth of 30.4% and 120.1%, respectively, from the year-ago reported number. SYY has a trailing four-quarter earnings surprise of 3.7%, on average.

McCormick, the manufacturer, marketer and distributor of spices, seasoning mixes and condiments, currently carries a Zacks Rank #2. Shares of McCormick have dipped 1.9% in the past three months.

The Zacks Consensus Estimate for McCormick’s current financial-year sales and EPS suggests growth of nearly 5% and 3.9%, respectively, from the year-ago reported figure. MKC has a trailing four-quarter earnings surprise of around 1.3%, on average.

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