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TreeHouse Foods (THS) Gains on Pricing Actions, Hurt by Costs
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TreeHouse Foods, Inc. (THS - Free Report) has been battling elevated costs related to commodity inflation. This weighed on the company’s bottom line in the first quarter of 2022 and is likely to be a hindrance, at least through the first half of the year. That said, the company’s pricing actions have been in place, which are expected to boost net sales in 2022.
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. However, TreeHouse Foods is undertaking actions to mitigate the impacts of labor and supply-chain disruptions, which will aid margin enhancement as the year progresses. Adjusted EBITDA is estimated in the band 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.
Factors Aiding TreeHouse Foods
The company has been gaining from its efficient pricing efforts. In the first quarter of 2022, THS’ top line increased year over year, with pricing being the main driver. Net sales of $1,141 million surpassed the consensus mark of $1,085 million and advanced 7.9% year over year. Pricing increased 11.7%. Organic sales grew 8%. Better pricing was the main driver that helped the company counter commodity and freight cost inflation. Pricing actions also partly aided the company’s gross margin in the reported quarter. The company intends to continue undertaking pricing actions, which are expected to boost net sales in 2022.
The company is benefiting from the sturdy demand for its private label products, which keeps it well-placed for growth. In the first quarter, TreeHouse Foods outpaced the broader private label market in eight out of its 10 biggest categories. Apart from this, the company is also focused on cost control and continuous improvement efforts to drive savings.
Moving on, TreeHouse Foods has always been focused on expanding its product offerings through acquisitions. In December 2020, THS concluded the buyout of the majority of Riviana Foods’ U.S.-branded pasta portfolio. In February 2016, TreeHouse Foods acquired the Private Brands business for $2.7 billion. The Private Brands business is a leading manufacturer of private label refrigerated and shelf stable products in the bars, bakery, cereal, condiments, pasta and snack categories.
Image Source: Zacks Investment Research
Key Hurdles
In the first quarter of 2022, TreeHouse Foods’ gross margin of 13.6% contracted by 350 basis points (bps) from the year-ago quarter’s figure, mainly due to commodity inflation, 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. Adjusted EBITDA from continuing operations slumped 43.5% to $57.5 million due to the same factors affecting the gross margin. The adjusted EBITDA margin contracted 460 bps to 5%.
Management expects limitations on its ability to cater to demand to persist, at least in the first half of 2022. It also expects labor shortages and supply-chain woes to hurt revenues and profits in the same period. Commodity costs continue to be escalated and labor markets remain tough and are likely to take time to become normal. Further, the supply chain remains troubled.
However, TreeHouse Foods is undertaking pricing and other actions to battle these headwinds. Shares of this Zacks Rank #3 (Hold) company have rallied 18.1% in the past three months against the industry’s decline of 4.8%.
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, sports a Zacks Rank #1 (Strong Buy). Pilgrim’s Pride has a trailing four-quarter earnings surprise of 31.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PPC’s current financial-year earnings per share (EPS) suggests growth of almost 43% from the year-ago reported number.
Sysco, which engages in marketing and distributing various food and related products, carries a Zacks Rank #2 (Buy). Sysco has a trailing four-quarter earnings surprise of 9.1%, on average.
The Zacks Consensus Estimate for SYY’s current financial-year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago reported number.
Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank #2. Campbell Soup has a trailing four-quarter earnings surprise of 10.8%, on average.
The Zacks Consensus Estimate for CPB’s current financial-year sales suggests growth of 0.5% from the year-ago reported figure.
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TreeHouse Foods (THS) Gains on Pricing Actions, Hurt by Costs
TreeHouse Foods, Inc. (THS - Free Report) has been battling elevated costs related to commodity inflation. This weighed on the company’s bottom line in the first quarter of 2022 and is likely to be a hindrance, at least through the first half of the year. That said, the company’s pricing actions have been in place, which are expected to boost net sales in 2022.
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. However, TreeHouse Foods is undertaking actions to mitigate the impacts of labor and supply-chain disruptions, which will aid margin enhancement as the year progresses. Adjusted EBITDA is estimated in the band 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.
Factors Aiding TreeHouse Foods
The company has been gaining from its efficient pricing efforts. In the first quarter of 2022, THS’ top line increased year over year, with pricing being the main driver. Net sales of $1,141 million surpassed the consensus mark of $1,085 million and advanced 7.9% year over year. Pricing increased 11.7%. Organic sales grew 8%. Better pricing was the main driver that helped the company counter commodity and freight cost inflation. Pricing actions also partly aided the company’s gross margin in the reported quarter. The company intends to continue undertaking pricing actions, which are expected to boost net sales in 2022.
The company is benefiting from the sturdy demand for its private label products, which keeps it well-placed for growth. In the first quarter, TreeHouse Foods outpaced the broader private label market in eight out of its 10 biggest categories. Apart from this, the company is also focused on cost control and continuous improvement efforts to drive savings.
Moving on, TreeHouse Foods has always been focused on expanding its product offerings through acquisitions. In December 2020, THS concluded the buyout of the majority of Riviana Foods’ U.S.-branded pasta portfolio. In February 2016, TreeHouse Foods acquired the Private Brands business for $2.7 billion. The Private Brands business is a leading manufacturer of private label refrigerated and shelf stable products in the bars, bakery, cereal, condiments, pasta and snack categories.
Image Source: Zacks Investment Research
Key Hurdles
In the first quarter of 2022, TreeHouse Foods’ gross margin of 13.6% contracted by 350 basis points (bps) from the year-ago quarter’s figure, mainly due to commodity inflation, 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. Adjusted EBITDA from continuing operations slumped 43.5% to $57.5 million due to the same factors affecting the gross margin. The adjusted EBITDA margin contracted 460 bps to 5%.
Management expects limitations on its ability to cater to demand to persist, at least in the first half of 2022. It also expects labor shortages and supply-chain woes to hurt revenues and profits in the same period. Commodity costs continue to be escalated and labor markets remain tough and are likely to take time to become normal. Further, the supply chain remains troubled.
However, TreeHouse Foods is undertaking pricing and other actions to battle these headwinds. Shares of this Zacks Rank #3 (Hold) company have rallied 18.1% in the past three months against the industry’s decline of 4.8%.
3 Solid Staple Stocks
Some better-ranked stocks are Pilgrim’s Pride (PPC - Free Report) , Sysco Corporation (SYY - Free Report) and Campbell Soup (CPB - Free Report) .
Pilgrim’s Pride, which produces, processes, markets and distributes fresh, frozen and value-added chicken and pork products, sports a Zacks Rank #1 (Strong Buy). Pilgrim’s Pride has a trailing four-quarter earnings surprise of 31.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for PPC’s current financial-year earnings per share (EPS) suggests growth of almost 43% from the year-ago reported number.
Sysco, which engages in marketing and distributing various food and related products, carries a Zacks Rank #2 (Buy). Sysco has a trailing four-quarter earnings surprise of 9.1%, on average.
The Zacks Consensus Estimate for SYY’s current financial-year sales and EPS suggests growth of 32.6% and 124.3%, respectively, from the year-ago reported number.
Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank #2. Campbell Soup has a trailing four-quarter earnings surprise of 10.8%, on average.
The Zacks Consensus Estimate for CPB’s current financial-year sales suggests growth of 0.5% from the year-ago reported figure.