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TreeHouse (THS) Posts in Line Q2 Earnings, Misses Sales

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Illinois-based food company TreeHouse Foods, Inc. (THS - Free Report) reported second-quarter 2016 earnings per share of 54 cents, in line with the Zacks Consensus Estimate. The quarterly earnings were also within the company-guided range of 50–55 cents per share. However, earnings declined 18.2% from the year-ago level due to lower gross margin and currency headwinds.

Net sales of $1.541 billion missed the Zacks Consensus Estimate of $1.581 billion by 2.5% due to the lower margin structure of the acquired business of private brands. Nonetheless, sales surged 103.3% year over year due to the buyout of the private brands operations of ConAgra Foods, Inc. (CAG - Free Report) and favorable volume/mix, primarily in the North American Retail Grocery segment.

All segments posted strong growth on a year-over-year basis. North American Retail Grocery segment sales soared 120.2%, while sales from the Food Away From Home segment grew 27.5%. Sales from the Industrial and Export segment increased 84.3%.

Gross margin was 17.2% in the second quarter, down 270 basis points from 19.9% last year. The decline was attributable to lower margin business from the Private Brands acquisition and currency headwinds.

Adjusted EBITDA increased 70.9% to $154.9 million driven by the inclusion of operating income from the acquisition of the private brands operations of Con Agra , operating efficiencies, and favorable commodity costs. However, the upside was partially limited by currency headwinds and lower legacy volumes.

TREEHOUSE FOODS Price, Consensus and EPS Surprise

TREEHOUSE FOODS Price, Consensus and EPS Surprise | TREEHOUSE FOODS Quote

Third and Fourth-Quarter Outlook

The addition of the Private Brands business is expected to be more accretive to fourth-quarter seasonal sales. This will result in an increased percentage of both sales and profits in the quarter.

For the third quarter, TreeHouse expects GAAP earnings per share to be in the range of 75–80 cents per share. Fourth-quarter earnings are expected to be in the range of $1.23–$1.28 per share.

Full-Year Outlook

For 2016, the company anticipates the overall food industry to display weakness and expects revenues for the industry to remain flat. TreeHouse plans to focus on integrating its recently closed acquisition of the Private Brands business.

TreeHouse maintained earnings guidance to a range of $3.00–$3.10 for fiscal 2016.

Zacks Rank and Other Stocks to Consider

TreeHouse has a Zacks Rank #2 (Buy).

Other food companies stocks worth considering include Omega Protein Corporation , Pinnacle Foods Inc. and the J.M Smucker Company (SJM). All these companies sport a Zacks Rank #1 (Strong Buy).

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