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TreeHouse Foods Down to Sell Due to Near-Term Headwinds
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On Jan 20, TreeHouse Foods, Inc. (THS - Free Report) was downgraded to a Zacks Rank #4 (Sell), probably due to industry-wide headwinds and gross margin pressure. Going by the Zacks model, companies holding a Zacks Rank #4 generally underperform the broader market in the near term. In fact, we caution against stocks with Zacks Ranks #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Why the Downgrade?
Shares of TreeHouse declined 0.9% since the past one year, significantly underperforming the Zacks categorized Food-Miscellaneous/Diversified industry’s growth of 13.3%. Notably, the industry is part of the bottom 40% of the Zacks Classified industries (159 out of the 265). The broader Consumer Staples sector is placed at the bottom most of the Zacks Classified sectors (16 out of 16).
Notably, this Illinois-based food company has reported weaker-than-expected third-quarter 2016 results on Nov 4. Further, management slashed its earnings view for 2016 due to the lower margin structure of the Private Brands business acquired from ConAgra Foods, Inc. (CAG - Free Report) (acquisition closed in Feb 2016).
While sales surged year over year, driven by the Private Brands acquisition and favorable volume/mix, earnings declined from the year-ago level due to lower gross margin related to the acquisition of the Private Brands business. We note that lower margins of Private Brands also led to plant closures, a lowered annual profit outlook and reshuffling of TreeHouse’s executive ranks.
Many law firms have sued the company after TreeHouse Foods reported weaker-than-expected third-quarter 2016 results and slashed its earnings view for the year. These firms are of the opinion that the company has possibly violated federal securities laws. They also believe that TreeHouse has been making misleading statements about its business operations. T
hese firms also believe that the company’s private label business and its acquisition strategies have been underperforming and that it had overstated its full-year 2016 guidance. This has adversely impacted the share price of the company.
It is encouraging that the company is in the process of cutting costs and improving efficiency. It exhibits a long-term earnings growth rate of 13.4% and a low beta of 0.41 which instills confidence about its growth. However, lower gross margins are hurting profits. Further, this company anticipates the overall food industry to face weakness and the full year revenue for the industry is likely to remain flat. Foreign exchange headwinds will also continue to challenge margins.
TreeHouse Foods Inc. Price, Consensus and EPS Surprise
Ingredion has an expected earnings growth rate of 11.0%. Further, it has delivered positive earnings surprises in three out of the trailing four quarters, leading to an average earnings surprise of 10.47%.
Pinnacle Foods has an expected earnings growth rate of 6.5%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>
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TreeHouse Foods Down to Sell Due to Near-Term Headwinds
On Jan 20, TreeHouse Foods, Inc. (THS - Free Report) was downgraded to a Zacks Rank #4 (Sell), probably due to industry-wide headwinds and gross margin pressure. Going by the Zacks model, companies holding a Zacks Rank #4 generally underperform the broader market in the near term. In fact, we caution against stocks with Zacks Ranks #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.
Why the Downgrade?
Shares of TreeHouse declined 0.9% since the past one year, significantly underperforming the Zacks categorized Food-Miscellaneous/Diversified industry’s growth of 13.3%. Notably, the industry is part of the bottom 40% of the Zacks Classified industries (159 out of the 265). The broader Consumer Staples sector is placed at the bottom most of the Zacks Classified sectors (16 out of 16).
Notably, this Illinois-based food company has reported weaker-than-expected third-quarter 2016 results on Nov 4. Further, management slashed its earnings view for 2016 due to the lower margin structure of the Private Brands business acquired from ConAgra Foods, Inc. (CAG - Free Report) (acquisition closed in Feb 2016).
While sales surged year over year, driven by the Private Brands acquisition and favorable volume/mix, earnings declined from the year-ago level due to lower gross margin related to the acquisition of the Private Brands business. We note that lower margins of Private Brands also led to plant closures, a lowered annual profit outlook and reshuffling of TreeHouse’s executive ranks.
Many law firms have sued the company after TreeHouse Foods reported weaker-than-expected third-quarter 2016 results and slashed its earnings view for the year. These firms are of the opinion that the company has possibly violated federal securities laws. They also believe that TreeHouse has been making misleading statements about its business operations. T
hese firms also believe that the company’s private label business and its acquisition strategies have been underperforming and that it had overstated its full-year 2016 guidance. This has adversely impacted the share price of the company.
It is encouraging that the company is in the process of cutting costs and improving efficiency. It exhibits a long-term earnings growth rate of 13.4% and a low beta of 0.41 which instills confidence about its growth. However, lower gross margins are hurting profits. Further, this company anticipates the overall food industry to face weakness and the full year revenue for the industry is likely to remain flat. Foreign exchange headwinds will also continue to challenge margins.
TreeHouse Foods Inc. Price, Consensus and EPS Surprise
TreeHouse Foods Inc. Price, Consensus and EPS Surprise | TreeHouse Foods Inc. Quote
Key Picks
Better-ranked stocks in the broader consumer staples sector include Ingredion, Inc. (INGR - Free Report) and Pinnacle Foods, Inc. . Both of them carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Ingredion has an expected earnings growth rate of 11.0%. Further, it has delivered positive earnings surprises in three out of the trailing four quarters, leading to an average earnings surprise of 10.47%.
Pinnacle Foods has an expected earnings growth rate of 6.5%.
The Best Place to Start Your Stock Search
Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>