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TreeHouse Foods Down on Dismal Sales: Any Scope for Revival?

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TreeHouse Foods, Inc. (THS - Free Report) is losing sheen thanks to sluggish sales in Baked Goods and Meal Solutions units. Moreover, higher costs are exerting pressure on the company’s margins. Also, TreeHouse Foods is exposed to unfavorable foreign currency translations due to international presence.

The aforementioned hurdles also dented TreeHouse Foods’ third-quarter 2019 results. Persistent lackluster performance and drab outlook have been hurting investors’ optimism. Markedly, this Zacks Rank #4 (Sell) stock has declined 11.8% in the past year against the industry’s growth of 15.7%.

Let’s delve deeper and see if the company can overcome these hurdles.

What’s Hurting Performance?

TreeHouse Foods third-quarter 2019 results marked its tenth consecutive quarter of year-over-year sales decline. The company has been battling weak trends in the Baked Goods and Meal Solutions units for the last few quarters. Sales in the Baked Goods segment fell 6.7% year over year in the third quarter, whereas net sales in the Meals Solutions unit declined 6.6%. Sales in both segments were hurt by SKU rationalization efforts, adverse volume/mix and currency rates. In fact, volume declines in Baked Goods and Meals Solutions units are expected to dent the company’s fourth-quarter sales.

This apart, TreeHouse Foods’ gross margin contracted 150 basis points in the last reported quarter due to lower volumes and increased 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.

Moreover, TreeHouse Foods has significant international presence courtesy of its manufacturing facilities in the United States, Canada and Italy. The company’s overseas subsidiaries buy several raw materials from abroad, which renders it exposed to the risk of adverse currency movements.

Any Scope for Revival?

TreeHouse Foods 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 the long term. TreeHouse Foods expects to invest these savings to enhance its capabilities as well as optimize production process and supply chain management to cater to consumer’s changing demands.

Further, the company is committed toward its TreeHouse 2020 strategic plan that was announced in second-quarter 2017. The plan has been designed to restructure and realign the business as a whole. The plan aims to improve the company’s operating margin by 300 bps by the end of 2020, by undertaking complete business integration and expense reduction.

Additionally, TreeHouse Foods’ efforts to augment organic and natural offerings in the wake of rising health consciousness bode well. Further, the company is refining its portfolio to focus on core areas.

While management is undertaking several initiatives to improve the business, we are yet to see if these can completely pare the company’s woes in the future. Until then, investors can count on promising picks.

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