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TreeHouse Foods' (THS) Focus on Snacking & Beverage Bodes Well

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TreeHouse Foods, Inc. (THS - Free Report) remains focused on enhancing the business by increasing its focus on areas with greater growth potential. Moving on these lines, the company unveiled that it has inked a deal to divest a considerable portion of its Meal Preparation business (or the Divested Business) to Investindustrial for $950 million. The transaction is expected to conclude in the fourth quarter of 2022.

Sale proceeds will be used to mainly lower debt and enhance the balance sheet. This move will also help the company simplify operations and accelerate growth by increasing its focus on the higher-margin Snacking and Beverages business. This will enable the company to make the most of the rising private label demand.

Delving Deeper

The deal value of $950 million represents nearly 13.6X times the expected adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the Divested Business for 2022. It includes cash of about $530 million (at closing) and senior secured debt of roughly $420 million (to be given by TreeHouse Foods).

Management anticipates the Divested Business to generate net sales and adjusted EBITDA of about $1.6 billion and $70 million, respectively, in 2022. The categories, which will be divested, include pasta, pourable and spoonable dressing, syrup, dry blends and baking, preserves, pita chips, red sauces, dry dinners, pie filling and other sauces.

Operating results for to-be-divested categories will form part of the company’s discontinued operations from the third-quarter 2022 beginning.

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What Else to Know?

TreeHouse Foods recently reported second-quarter 2022 results, wherein the adjusted loss from continuing operations of 4 cents per share came in narrower than the Zacks Consensus Estimate of a loss of 17 cents. The bottom line declined significantly from the earnings of 26 cents reported in the year-ago quarter.

Net sales of $1,197.6 million surpassed the consensus mark of $1,104 million. The top line also advanced 19.4% year over year. The volume/mix grew 2.1%, whereas pricing increased 17.7%. Organic sales grew 19.8%. Better pricing was the main driver, which helped the company counter commodity and freight cost inflation. Moreover, the increased volume in the Snacking & Beverages unit, led by higher demand in private label, contributed to the upside.

Hence, the abovementioned step of concentrating on the Snacking & Beverages unit is likely to present solid growth opportunities for THS.

Shares of this Zacks Rank #3 (Hold) company have rallied 24.4% in the past six months compared with the industry’s rise of 1%.

Solid Consumer Staple Stocks

Some better-ranked consumer staple stocks are The Chef's Warehouse (CHEF - Free Report) , Flowers Foods (FLO - Free Report) and General Mills (GIS - Free Report) .

The Chef's Warehouse, which engages in the distribution of specialty food products, sports a Zacks Rank #1 (Strong Buy). The Chef's Warehouse has a trailing four-quarter earnings surprise of 372.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for CHEF’s current financial-year earnings per share suggests significant growth from the year-ago reported number.

Flowers Foods, which produces and markets packaged bakery products, carries a Zacks Rank #2 (Buy). Flowers Foods has a trailing four-quarter earnings surprise of 10.3%, on average.

The Zacks Consensus Estimate for FLO’s current financial-year sales suggests growth of 10.8% from the year-ago reported number.

General Mills, which manufactures and markets branded consumer foods, currently carries a Zacks Rank #2. General Mills has a trailing four-quarter earnings surprise of 6.5%, on average.

The Zacks Consensus Estimate for GIS’ current financial-year sales suggests growth of 1.7% from the year-ago reported figure.