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TreeHouse Foods (THS) Down on Lower Sales & Rising Expenses

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TreeHouse Foods, Inc. THS is denting investors’ optimism due to drab sales trend. Also, elevated costs are exerting pressure on the company’s margins. These trends were witnessed in the company’s third-quarter results, wherein management lowered earnings guidance for 2019. Also, sales are likely to remain weak in 2019.

Clearly, the dismal performance and outlook has made analysts less constructive of the stock’s performance. This is evident from a 5.2% decline in the Zacks Consensus Estimate for 2019 earnings, which has moved to $2.38 in the past 30 days. Moreover, TreeHouse Foods’ shares have declined 11.2% since earnings release. In fact, the persistent lackluster performance has been weighing on the investors’ sentiment for long. Consequently, the stock has declined 13.5% in the past six months against the industry’s growth of 4.4%.

Let’s discuss if the company’s efforts can offer any respite.

Hurdles for TreeHouse Foods

TreeHouse Foods’ has been witnessing weak top-line trends for a long time. During the third quarter of 2019, sales missed the Zacks Consensus Estimate and declined year over year for the 10th consecutive time. The downside was caused by adverse impacts from SKU rationalization and currency fluctuations. Further, the company has been struggling with volume declines in Baked Goods and Meal Solutions units.

Sales in the Baked Goods segment fell 6.7% year over year in the third quarter and net sales in the Meals Solutions unit declined 6.6%. Sales in the segments were hurt by SKU rationalization efforts, adverse volume/mix and currency rates. Segmental sales have been declining for the last few quarters. Moreover, volume declines in Baked Goods and Meals Solutions units are expected to dent fourth-quarter sales.

Also, the company’s gross margin contracted 150 basis points in the third quarter due to lower volumes and higher expenses related to change in regulatory requirements. Moreover, adjusted EBITDA from continuing operations declined 2.6% due to fixed cost impacts stemming from lower volumes. Consequently, this led the bottom line to decline 3.5% year over year to 55 cents per share.  Management now expects 2019 adjusted earnings from continuing operations in the range of $2.30-$2.50 per share compared with the prior view of $2.33-$2.63.

Will Woes Persist?

The company is on track with its Structure to Win program, which is aimed at cutting costs. Notably, the company generated cost savings of $75 million in 2018 and expects to maintain its solid cost control in 2019 as well. Notably, the company expects to invest these savings to enhance its capabilities as well as optimize production process and supply chain management to cater to consumer’s ever-changing demands.

TreeHouse Foods is refining its portfolio, as part of which, it sold the Snacks unit and is on track to divest its ready-to-eat cereal business.

While the company is undertaking several initiatives, we are yet to see if these can completely offset the aforementioned hurdles. Until then, investors can count on promising picks.

Looking for Better Food Stocks? Check These

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McCormick & Company, Incorporated (MKC - Free Report) , with a Zacks Rank #2 (Buy), has a long-term EPS growth rate of 8%.

Kellogg Company K, also with a Zacks Rank #3, has a long-term EPS growth rate of 4.5%.

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