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TreeHouse Foods' (THS) Pricing Initiatives Aid Amid High Costs
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TreeHouse Foods, Inc. (THS - Free Report) appears well-positioned thanks to its strategic growth efforts and solid pricing initiatives amid elevated supply-chain costs. The company has been focused on refining its portfolio to stay focused on areas with higher growth potential.
These upsides backed the company’s first-quarter 2023 results, wherein the top and bottom lines increased year over year and cruised ahead of the Zacks Consensus Estimate. The company continued to gain from robust pricing actions to counter inflation. Despite a dynamic macro landscape, TreeHouse Foods witnessed supply-chain improvements, which helped it enhance services and cater to high customer demand. Notably, quarterly revenues and profits exceeded expectations, as the company benefited from better execution and a more focused portfolio.
Encouraging View
TreeHouse Foods remains well-placed for 2023 due to its focus on greater-margin private-label snacking and beverage categories. For fiscal 2023, TreeHouse Foods expects net sales growth of 6-8% year over year to the $3.66-$3.73 billion band. Adjusted EBITDA is likely to be in the range of $355-$370 million, up nearly 26% year over year at the midpoint.
In the first half of fiscal 2023, TreeHouse Foods anticipates revenues in the range of $1.705-$1.735 billion, suggesting 7.7-9.6% growth from the year-ago period. For the second quarter of 2023, revenues are projected to be in the range of $810-$840 million, indicating flat to 4% growth from the second quarter of 2022. The company expects adjusted EBITDA in the band of $65-$80 million for the second quarter. The adjusted EBITDA margin is likely to be 7.9-9.4% in the second quarter, reflecting a 130-280 basis points improvement.
Image Source: Zacks Investment Research
Main Upsides
The company has been gaining from its efficient pricing efforts. In the first quarter of 2023, growth in net sales was mainly driven by favorable pricing actions undertaken to recover commodity inflation, along with improved services in most categories that enabled the company to cater to the high demand. Pricing increased 16.7%, aiding organic sales growth of 16.1%. Pricing actions are likely to aid sales in the second quarter of fiscal 2023.
TreeHouse Foods has always been focused on expanding its product offerings through acquisitions. On Jun 7, 2023, TreeHouse Foods inked a deal with Farmer Brothers Company to take over its Northlake, TX, coffee facility and its non-Direct Store Delivery coffee business (known as Direct Ship). This buyout will help TreeHouse Foods enhance its coffee business capacity. In April 2023, the company added seasoned pretzel capabilities to its portfolio.
On the flip side, TreeHouse Foods concluded the sale of a significant portion of its Meal Preparation business, which included pasta, pourable and spoonable dressing, preserves, red sauces, syrup, dry blends and baking, dry dinners, pie filling, pita chips and other sauces, in October 2022. The divestiture placed TreeHouse Foods well to capitalize on solid demand trends and fuel growth across its higher-margin private-label snacking and beverage categories.
Cost Challenges to be Countered
TreeHouse Foods has been battling with escalated costs for a while now. In the first quarter of 2023, although the gross margin expanded year over year, it continued to bear the brunt of additional costs associated with investments to improve the supply chain and warehouse capacity. Although the supply-chain scenario has been improving, there are still a few categories with scope for enhancement. Management expects these categories to return to the target levels after a few quarters.
Nonetheless, the abovementioned upsides are likely to work well for TreeHouse Foods. At its 2023 Investor Day, the company highlighted its annual growth targets for 2024 through 2027. In this regard, the company expects net sales growth between 3% and 5%, adjusted EBITDA growth of 8-10% and free cash flow of more than $200 million.
Management intends to achieve these targets by undertaking strategies like fueling category leadership in high-appeal categories, extending strategic customer ties by offering private brand priorities, creating a robust supply chain, operating as a more focused organization and becoming a talent leader and undertaking strict capital allocation.
Shares of the Zacks Rank #3 (Hold) company have rallied 12.7% in the past six months compared with the industry’s growth of 0.5%.
Solid Staple Stocks
Some better-ranked consumer staple stocks are The Kraft Heinz Company (KHC - Free Report) , McCormick & Company, Incorporated (MKC - Free Report) and Conagra Brands (CAG - Free Report) .
The Zacks Consensus Estimate for The Kraft Heinz Company’s current fiscal-year sales and earnings suggests growth of 2.8% and 3.6%, respectively, from the year-ago reported figures.
McCormick, which operates as a manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors, currently carries a Zacks Rank #2. MKC has a trailing four-quarter negative earnings surprise of 3.7%, on average.
The Zacks Consensus Estimate for McCormick’s current fiscal-year sales and earnings suggests growth of 6.4% and 3.6%, respectively, from the year-ago reported numbers.
Conagra Brands, which operates as a consumer-packaged goods food company, currently carries a Zacks Rank #2. CAG has a trailing four-quarter earnings surprise of 13.2%, on average.
The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests growth of 7.1% and 16.5%, respectively, from the year-ago reported numbers.
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TreeHouse Foods' (THS) Pricing Initiatives Aid Amid High Costs
TreeHouse Foods, Inc. (THS - Free Report) appears well-positioned thanks to its strategic growth efforts and solid pricing initiatives amid elevated supply-chain costs. The company has been focused on refining its portfolio to stay focused on areas with higher growth potential.
These upsides backed the company’s first-quarter 2023 results, wherein the top and bottom lines increased year over year and cruised ahead of the Zacks Consensus Estimate. The company continued to gain from robust pricing actions to counter inflation. Despite a dynamic macro landscape, TreeHouse Foods witnessed supply-chain improvements, which helped it enhance services and cater to high customer demand. Notably, quarterly revenues and profits exceeded expectations, as the company benefited from better execution and a more focused portfolio.
Encouraging View
TreeHouse Foods remains well-placed for 2023 due to its focus on greater-margin private-label snacking and beverage categories. For fiscal 2023, TreeHouse Foods expects net sales growth of 6-8% year over year to the $3.66-$3.73 billion band. Adjusted EBITDA is likely to be in the range of $355-$370 million, up nearly 26% year over year at the midpoint.
In the first half of fiscal 2023, TreeHouse Foods anticipates revenues in the range of $1.705-$1.735 billion, suggesting 7.7-9.6% growth from the year-ago period. For the second quarter of 2023, revenues are projected to be in the range of $810-$840 million, indicating flat to 4% growth from the second quarter of 2022. The company expects adjusted EBITDA in the band of $65-$80 million for the second quarter. The adjusted EBITDA margin is likely to be 7.9-9.4% in the second quarter, reflecting a 130-280 basis points improvement.
Image Source: Zacks Investment Research
Main Upsides
The company has been gaining from its efficient pricing efforts. In the first quarter of 2023, growth in net sales was mainly driven by favorable pricing actions undertaken to recover commodity inflation, along with improved services in most categories that enabled the company to cater to the high demand. Pricing increased 16.7%, aiding organic sales growth of 16.1%. Pricing actions are likely to aid sales in the second quarter of fiscal 2023.
TreeHouse Foods has always been focused on expanding its product offerings through acquisitions. On Jun 7, 2023, TreeHouse Foods inked a deal with Farmer Brothers Company to take over its Northlake, TX, coffee facility and its non-Direct Store Delivery coffee business (known as Direct Ship). This buyout will help TreeHouse Foods enhance its coffee business capacity. In April 2023, the company added seasoned pretzel capabilities to its portfolio.
On the flip side, TreeHouse Foods concluded the sale of a significant portion of its Meal Preparation business, which included pasta, pourable and spoonable dressing, preserves, red sauces, syrup, dry blends and baking, dry dinners, pie filling, pita chips and other sauces, in October 2022. The divestiture placed TreeHouse Foods well to capitalize on solid demand trends and fuel growth across its higher-margin private-label snacking and beverage categories.
Cost Challenges to be Countered
TreeHouse Foods has been battling with escalated costs for a while now. In the first quarter of 2023, although the gross margin expanded year over year, it continued to bear the brunt of additional costs associated with investments to improve the supply chain and warehouse capacity. Although the supply-chain scenario has been improving, there are still a few categories with scope for enhancement. Management expects these categories to return to the target levels after a few quarters.
Nonetheless, the abovementioned upsides are likely to work well for TreeHouse Foods. At its 2023 Investor Day, the company highlighted its annual growth targets for 2024 through 2027. In this regard, the company expects net sales growth between 3% and 5%, adjusted EBITDA growth of 8-10% and free cash flow of more than $200 million.
Management intends to achieve these targets by undertaking strategies like fueling category leadership in high-appeal categories, extending strategic customer ties by offering private brand priorities, creating a robust supply chain, operating as a more focused organization and becoming a talent leader and undertaking strict capital allocation.
Shares of the Zacks Rank #3 (Hold) company have rallied 12.7% in the past six months compared with the industry’s growth of 0.5%.
Solid Staple Stocks
Some better-ranked consumer staple stocks are The Kraft Heinz Company (KHC - Free Report) , McCormick & Company, Incorporated (MKC - Free Report) and Conagra Brands (CAG - Free Report) .
The Kraft Heinz Company, a food and beverage product company, currently has a Zacks Rank #2 (Buy). KHC has a trailing four-quarter earnings surprise of 10.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for The Kraft Heinz Company’s current fiscal-year sales and earnings suggests growth of 2.8% and 3.6%, respectively, from the year-ago reported figures.
McCormick, which operates as a manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors, currently carries a Zacks Rank #2. MKC has a trailing four-quarter negative earnings surprise of 3.7%, on average.
The Zacks Consensus Estimate for McCormick’s current fiscal-year sales and earnings suggests growth of 6.4% and 3.6%, respectively, from the year-ago reported numbers.
Conagra Brands, which operates as a consumer-packaged goods food company, currently carries a Zacks Rank #2. CAG has a trailing four-quarter earnings surprise of 13.2%, on average.
The Zacks Consensus Estimate for Conagra Brands’ current fiscal-year sales and earnings suggests growth of 7.1% and 16.5%, respectively, from the year-ago reported numbers.