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TreeHouse Foods (THS) Q1 Loss Wider Than Expected, Sales Dip Y/Y
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TreeHouse Foods, Inc. (THS - Free Report) posted soft first-quarter 2024 results, as the top and bottom lines declined year over year, and the bottom line fell short of the Zacks Consensus Estimate.
However, the company is actively transforming its business to emphasize private brands, snacking and beverages, aligning with consumer trends, favoring these categories.
The company is also improving operational efficiencies through initiatives like the TreeHouse Management Operating System, which are expected to contribute significantly to cost savings and enhance service levels. With a strong focus on strategic growth and operational enhancements, TreeHouse is positioned to leverage favorable market trends and deliver increased value to shareholders.
Shares of the company have declined 19.8% in the past three months against the industry’s growth of 0.3%.
TreeHouse Foods, Inc. Price, Consensus and EPS Surprise
The Zacks Rank #4 (Sell) company reported an adjusted loss of 3 cents per share, which was wider than the Zacks Consensus Estimate of an adjusted loss of 2 cents. Also, the bottom line declined from adjusted earnings per share of 70 cents in the year-ago period.
Net sales of $820.7 million declined 3.9% year over year. However, the top line beat the Zacks Consensus Estimate of $797 million.
The decrease in net sales resulted from the adverse volume/mix largely due to deliberate exits from certain distribution channels, especially in the coffee and in-store bakery segments. The restart of a broth facility also accounted for about half of the volume decrease. Pricing was slightly unfavorable due to specific pricing adjustments, driven by commodity costs. However, these negative impacts were partly mitigated by the volume/mix benefits of acquiring Coffee Roasting Capability.
Organic sales decreased 7.7% year over year. The volume/mix, excluding business acquisitions, contributed to a decrease of 2.8% in the reported period. The pricing and volume/mix impacts of the restart of the broth facility further led to declines of 2.6% and 2.3%, respectively.
The gross margin of 13.6% contracted 4.4 percentage points from the year-ago quarter mainly due to the restart of a broth facility, poor absorption of fixed costs resulting from reduced volume, higher labor costs and an unfavorable category mix.
Total operating expenses were $117.2 million, up from the $112.7 million reported in the year-ago quarter due to a $12.9-million decrease in TSA income after exiting certain TSA services. However, this was partially balanced by reductions in professional fees for strategic growth initiatives, TSA-related expense cuts and decreased freight costs.
Adjusted EBITDA from continuing operations totaled $46 million in the first quarter of 2024, a significant drop from $91.3 million in the first quarter of 2023, reflecting a decrease of $45.3 million. This reduction was primarily attributed to the restart of a broth facility, poor absorption of fixed costs due to reduced volume, higher labor costs, and an unfavorable category mix. However, this decline was partially mitigated by lower freight costs.
Image Source: Zacks Investment Research
Other Updates
TreeHouse Foods concluded the quarter with cash and cash equivalents of $191.8 million, long-term debt of $1,396.5 million, and total shareholders’ equity of $1,608.1 million. In the first three months ended Mar 31, 2024, the company’s net cash used in operating activities from operating activities was $52.4 million.
In the first quarter, THS bought back 1.2 million shares for $43.9 million (excluding excise tax). At the end of the first quarter, TreeHouse Foods had shares worth $122.8 million available under its buyback authorization.
Guidance
For 2024, TreeHouse Foods expects net sales of $3.43-$3.5 billion, which indicates growth of nearly flat to 2% from the 2023 reported level. Management expects the organic volume and mix to be slightly positive in the year, offset by modest pricing deflation. However, gains from the recent acquisitions are likely to positively impact the volume and mix.
Adjusted EBITDA from continuing operations is likely to be $360-$390 million in 2024, whereas it reported $365.9 million in 2023.
For 2024, management expects a capital expenditure of $145 million and a free cash flow of at least $130 million.
For the second quarter of 2024, net sales are projected to be $770-$800 million, indicating a decline of 2% at the mid-point. THS expects organic volume and mix to be down in the low-single digits in the quarter. Similarly, pricing is expected to drop in the low-single digits. However, the company foresees a low-single-digit positive impact on volume and mix, resulting from the recently completed acquisitions.
The company expects second-quarter adjusted EBITDA from continuing operations of $55-$65 million. In the third quarter, management expects a sequential improvement in the adjusted EBITDA compared with the mid-point of the second quarter’s estimated range. This is likely to be driven by net sales improvement, cost-saving efforts, revert to enhanced service levels in the Broth business and additional pricing actions.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely PepsiCo, Inc. (PEP - Free Report) , Colgate-Palmolive (CL - Free Report) and McCormick & Company, Inc. (MKC - Free Report) .
The Zacks Consensus Estimate for PepsiCo’s current financial year’s sales and earnings suggests growth of 3.4% and 7.1%, respectively, from the year-ago reported numbers.
Colgate, a leading consumer goods company, currently carries a Zacks Rank of 2. CL has a trailing four-quarter earnings surprise of 4.4%, on average.
The Zacks Consensus Estimate for CL’s current financial-year sales and earnings suggests growth of 3.3% and 9%, respectively, from the year-ago reported figures.
McCormick & Company is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors. It currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year sales and earnings indicates advancements of 0.3% and 5.6%, respectively, from the year-ago reported figures. It has a trailing four-quarter earnings surprise of 5.4%, on average.
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TreeHouse Foods (THS) Q1 Loss Wider Than Expected, Sales Dip Y/Y
TreeHouse Foods, Inc. (THS - Free Report) posted soft first-quarter 2024 results, as the top and bottom lines declined year over year, and the bottom line fell short of the Zacks Consensus Estimate.
However, the company is actively transforming its business to emphasize private brands, snacking and beverages, aligning with consumer trends, favoring these categories.
The company is also improving operational efficiencies through initiatives like the TreeHouse Management Operating System, which are expected to contribute significantly to cost savings and enhance service levels. With a strong focus on strategic growth and operational enhancements, TreeHouse is positioned to leverage favorable market trends and deliver increased value to shareholders.
Shares of the company have declined 19.8% in the past three months against the industry’s growth of 0.3%.
TreeHouse Foods, Inc. Price, Consensus and EPS Surprise
TreeHouse Foods, Inc. price-consensus-eps-surprise-chart | TreeHouse Foods, Inc. Quote
Quarter in Detail
The Zacks Rank #4 (Sell) company reported an adjusted loss of 3 cents per share, which was wider than the Zacks Consensus Estimate of an adjusted loss of 2 cents. Also, the bottom line declined from adjusted earnings per share of 70 cents in the year-ago period.
Net sales of $820.7 million declined 3.9% year over year. However, the top line beat the Zacks Consensus Estimate of $797 million.
The decrease in net sales resulted from the adverse volume/mix largely due to deliberate exits from certain distribution channels, especially in the coffee and in-store bakery segments. The restart of a broth facility also accounted for about half of the volume decrease. Pricing was slightly unfavorable due to specific pricing adjustments, driven by commodity costs. However, these negative impacts were partly mitigated by the volume/mix benefits of acquiring Coffee Roasting Capability.
Organic sales decreased 7.7% year over year. The volume/mix, excluding business acquisitions, contributed to a decrease of 2.8% in the reported period. The pricing and volume/mix impacts of the restart of the broth facility further led to declines of 2.6% and 2.3%, respectively.
The gross margin of 13.6% contracted 4.4 percentage points from the year-ago quarter mainly due to the restart of a broth facility, poor absorption of fixed costs resulting from reduced volume, higher labor costs and an unfavorable category mix.
Total operating expenses were $117.2 million, up from the $112.7 million reported in the year-ago quarter due to a $12.9-million decrease in TSA income after exiting certain TSA services. However, this was partially balanced by reductions in professional fees for strategic growth initiatives, TSA-related expense cuts and decreased freight costs.
Adjusted EBITDA from continuing operations totaled $46 million in the first quarter of 2024, a significant drop from $91.3 million in the first quarter of 2023, reflecting a decrease of $45.3 million. This reduction was primarily attributed to the restart of a broth facility, poor absorption of fixed costs due to reduced volume, higher labor costs, and an unfavorable category mix. However, this decline was partially mitigated by lower freight costs.
Image Source: Zacks Investment Research
Other Updates
TreeHouse Foods concluded the quarter with cash and cash equivalents of $191.8 million, long-term debt of $1,396.5 million, and total shareholders’ equity of $1,608.1 million. In the first three months ended Mar 31, 2024, the company’s net cash used in operating activities from operating activities was $52.4 million.
In the first quarter, THS bought back 1.2 million shares for $43.9 million (excluding excise tax). At the end of the first quarter, TreeHouse Foods had shares worth $122.8 million available under its buyback authorization.
Guidance
For 2024, TreeHouse Foods expects net sales of $3.43-$3.5 billion, which indicates growth of nearly flat to 2% from the 2023 reported level. Management expects the organic volume and mix to be slightly positive in the year, offset by modest pricing deflation. However, gains from the recent acquisitions are likely to positively impact the volume and mix.
Adjusted EBITDA from continuing operations is likely to be $360-$390 million in 2024, whereas it reported $365.9 million in 2023.
For 2024, management expects a capital expenditure of $145 million and a free cash flow of at least $130 million.
For the second quarter of 2024, net sales are projected to be $770-$800 million, indicating a decline of 2% at the mid-point. THS expects organic volume and mix to be down in the low-single digits in the quarter. Similarly, pricing is expected to drop in the low-single digits. However, the company foresees a low-single-digit positive impact on volume and mix, resulting from the recently completed acquisitions.
The company expects second-quarter adjusted EBITDA from continuing operations of $55-$65 million. In the third quarter, management expects a sequential improvement in the adjusted EBITDA compared with the mid-point of the second quarter’s estimated range. This is likely to be driven by net sales improvement, cost-saving efforts, revert to enhanced service levels in the Broth business and additional pricing actions.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely PepsiCo, Inc. (PEP - Free Report) , Colgate-Palmolive (CL - Free Report) and McCormick & Company, Inc. (MKC - Free Report) .
PepsiCo is one of the leading global food and beverage companies. It currently carries a Zacks Rank #2 (Buy). PEP has a trailing four-quarter earnings surprise of 5.1%, on average. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
The Zacks Consensus Estimate for PepsiCo’s current financial year’s sales and earnings suggests growth of 3.4% and 7.1%, respectively, from the year-ago reported numbers.
Colgate, a leading consumer goods company, currently carries a Zacks Rank of 2. CL has a trailing four-quarter earnings surprise of 4.4%, on average.
The Zacks Consensus Estimate for CL’s current financial-year sales and earnings suggests growth of 3.3% and 9%, respectively, from the year-ago reported figures.
McCormick & Company is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors. It currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for McCormick & Company’s current fiscal-year sales and earnings indicates advancements of 0.3% and 5.6%, respectively, from the year-ago reported figures. It has a trailing four-quarter earnings surprise of 5.4%, on average.