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TreeHouse Foods (THS) Hurt by Supply-Chain Woes, Soft Volumes
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Things appear to be not so rosy for TreeHouse Foods, Inc. (THS - Free Report) at the current juncture. The company has been dealing with supply-chain headwinds and elevated operating costs. Macroeconomic challenges like inflation have been impacting overall food and beverage consumption, which is likely to remain soft in 2024.
The Zacks Rank #4 (Sell) stock has tumbled 10.1% in the past six months against the industry’s growth of 8.7%. The Zacks Consensus Estimate for the current quarter’s bottom line has deteriorated from 13 cents per share to a loss of 2 cents over the past 30 days.
Supply-Chain Bottlenecks & High Costs
On taking a closer look, we note that in the fourth quarter of 2023, TreeHouse Foods’ sales declined 4.8% to $910.8 million due to the adverse volume/mix in the company’s retail business. This stemmed from supply-chain hurdles at one of THS’ broth facilities, and in its pretzels and cookies categories. Planned distribution exits, mainly in the in-store bakery and coffee categories, also led to the sales decline. Organic sales decreased 8% due to a decline in the volume/mix, partly made up by a 0.1% rise in pricing.
Supply-chain hurdles also affected the gross margin. The gross margin of 16.7% contracted 1.6 percentage points from the year-ago quarter’s figure, mainly due to supply-chain hurdles, adverse fixed cost absorption due to soft volumes and elevated costs related to the maintenance of labor and manufacturing plants.
Image Source: Zacks Investment Research
Additionally, TreeHouse Foods’ total operating expenses were $109.7 million in the fourth quarter of 2023, up from the $105.5 million reported in the year-ago quarter due to greater severance expenses and lower TSA income. These were partially offset by reduced professional fees related to strategic growth efforts, lower freight costs, reduced brokerage commissions and a decline in retention bonus expenses. Due to the factors leading to a lower gross margin and higher operating expenses, the company’s adjusted EBITDA from continuing operations came in at $108.4 million, down from $118.5 million in the year-ago period.
Broader Concerns & Unimpressive Q1 Picture
The prevailing macro environment continues to face challenges due to inflationary pressures and general economic concerns among consumers. These factors have led to a decrease in overall category volumes. From a macro standpoint, management stated that it witnessed a decline in overall food and beverage consumption volumes over the past year. THS does not expect any significant changes in the consumption landscape in the near future. Consequently, management does not anticipate a return to historical consumption patterns in 2024. These dynamics are likely to impact sales.
In its fourth-quarter 2023 earnings release, management stated that it expects its first-half results to be hurt by its broth business. The company also stated that it usually encounters lower sales during the first half of the year, with the second quarter marking its lowest volume period due to seasonal factors. Conversely, it typically observes higher sales in the second half of the year, particularly during the seasonally robust fourth-quarter period. Additionally, considering the limitations in the first half due to the broth facility, TreeHouse Foods anticipates sales and adjusted EBITDA performance for 2024 to be more heavily weighted toward the second half compared to its historical pattern.
For the first quarter of 2024, net sales are projected in the range of $780-$810 million, which indicates a decline of nearly 7% at the midpoint. Management expects organic volume and mix to be down in the mid-single-digits in the quarter, mainly due to capacity constraints at one of its broth facilities, along with deflationary pricing. That said, recent buyouts are likely to have a low-single-digit positive impact. The company expects first-quarter adjusted EBITDA from continuing operations in the band of $45-$55 million, down from the $90.6 million recorded in the first quarter of 2023.
Wrapping Up
The continued strength of the private brand space reflects robust prospects for TreeHouse Foods’ products. The company sees numerous opportunities for organic sales growth across sectors like coffee, pretzels and pickles. A focus on TMOS and other supply-chain initiatives is likely to improve margins. That said, the abovementioned challenges cannot be ignored in the near term.
The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal-year sales and earnings suggests growth of 8.7% and 4.7%, respectively, from the year-ago reported numbers.
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2. VITL has a trailing four-quarter average earnings surprise of 155.4%.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 18.6% and 35.6%, respectively, from the year-ago reported numbers.
Utz Brands Inc. (UTZ - Free Report) manufactures a diverse portfolio of salty snacks and currently carries a Zacks Rank #2. UTZ has a trailing four-quarter earnings surprise of 2.6%, on average.
The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 15.8% from the year-ago reported numbers.
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TreeHouse Foods (THS) Hurt by Supply-Chain Woes, Soft Volumes
Things appear to be not so rosy for TreeHouse Foods, Inc. (THS - Free Report) at the current juncture. The company has been dealing with supply-chain headwinds and elevated operating costs. Macroeconomic challenges like inflation have been impacting overall food and beverage consumption, which is likely to remain soft in 2024.
The Zacks Rank #4 (Sell) stock has tumbled 10.1% in the past six months against the industry’s growth of 8.7%. The Zacks Consensus Estimate for the current quarter’s bottom line has deteriorated from 13 cents per share to a loss of 2 cents over the past 30 days.
Supply-Chain Bottlenecks & High Costs
On taking a closer look, we note that in the fourth quarter of 2023, TreeHouse Foods’ sales declined 4.8% to $910.8 million due to the adverse volume/mix in the company’s retail business. This stemmed from supply-chain hurdles at one of THS’ broth facilities, and in its pretzels and cookies categories. Planned distribution exits, mainly in the in-store bakery and coffee categories, also led to the sales decline. Organic sales decreased 8% due to a decline in the volume/mix, partly made up by a 0.1% rise in pricing.
Supply-chain hurdles also affected the gross margin. The gross margin of 16.7% contracted 1.6 percentage points from the year-ago quarter’s figure, mainly due to supply-chain hurdles, adverse fixed cost absorption due to soft volumes and elevated costs related to the maintenance of labor and manufacturing plants.
Image Source: Zacks Investment Research
Additionally, TreeHouse Foods’ total operating expenses were $109.7 million in the fourth quarter of 2023, up from the $105.5 million reported in the year-ago quarter due to greater severance expenses and lower TSA income. These were partially offset by reduced professional fees related to strategic growth efforts, lower freight costs, reduced brokerage commissions and a decline in retention bonus expenses. Due to the factors leading to a lower gross margin and higher operating expenses, the company’s adjusted EBITDA from continuing operations came in at $108.4 million, down from $118.5 million in the year-ago period.
Broader Concerns & Unimpressive Q1 Picture
The prevailing macro environment continues to face challenges due to inflationary pressures and general economic concerns among consumers. These factors have led to a decrease in overall category volumes. From a macro standpoint, management stated that it witnessed a decline in overall food and beverage consumption volumes over the past year. THS does not expect any significant changes in the consumption landscape in the near future. Consequently, management does not anticipate a return to historical consumption patterns in 2024. These dynamics are likely to impact sales.
In its fourth-quarter 2023 earnings release, management stated that it expects its first-half results to be hurt by its broth business. The company also stated that it usually encounters lower sales during the first half of the year, with the second quarter marking its lowest volume period due to seasonal factors. Conversely, it typically observes higher sales in the second half of the year, particularly during the seasonally robust fourth-quarter period. Additionally, considering the limitations in the first half due to the broth facility, TreeHouse Foods anticipates sales and adjusted EBITDA performance for 2024 to be more heavily weighted toward the second half compared to its historical pattern.
For the first quarter of 2024, net sales are projected in the range of $780-$810 million, which indicates a decline of nearly 7% at the midpoint. Management expects organic volume and mix to be down in the mid-single-digits in the quarter, mainly due to capacity constraints at one of its broth facilities, along with deflationary pricing. That said, recent buyouts are likely to have a low-single-digit positive impact. The company expects first-quarter adjusted EBITDA from continuing operations in the band of $45-$55 million, down from the $90.6 million recorded in the first quarter of 2023.
Wrapping Up
The continued strength of the private brand space reflects robust prospects for TreeHouse Foods’ products. The company sees numerous opportunities for organic sales growth across sectors like coffee, pretzels and pickles. A focus on TMOS and other supply-chain initiatives is likely to improve margins. That said, the abovementioned challenges cannot be ignored in the near term.
Appetizing Food Bets
The Chef’s Warehouse (CHEF - Free Report) , which engages in the distribution of specialty food products, currently carries a Zacks Rank #2 (Buy). CHEF has a trailing four-quarter earnings surprise of 3.2%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal-year sales and earnings suggests growth of 8.7% and 4.7%, respectively, from the year-ago reported numbers.
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2. VITL has a trailing four-quarter average earnings surprise of 155.4%.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales and earnings suggests growth of 18.6% and 35.6%, respectively, from the year-ago reported numbers.
Utz Brands Inc. (UTZ - Free Report) manufactures a diverse portfolio of salty snacks and currently carries a Zacks Rank #2. UTZ has a trailing four-quarter earnings surprise of 2.6%, on average.
The Zacks Consensus Estimate for Utz Brands’ current financial-year earnings suggests growth of 15.8% from the year-ago reported numbers.