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TreeHouse Foods (THS) Calls Off Contract With Post Holdings

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TreeHouse Foods, Inc. (THS - Free Report) and Post Holdings (POST - Free Report) mutually decided to pull the plug on their deal, as part of which the former would sell its ready-to-eat (RTE) cereal business to the latter. Also, in a separate press release, TreeHouse Foods inked a deal to offload two of its in-store bakery facilities to Rich Products Corporation, which is likely to help the former focus on core growth areas. Notably, the transaction with Rich Products is expected to conclude by Apr 10, 2020.

Shares of TreeHouse Foods gained 2.3% in yesterday’s trading session.

More on the Developments

TreeHouse Foods and Post Holdings dismissed their deal for the RTE cereal business as a result of the Federal Trade Commission’s (FTC) complaint (filed on Dec 19) opposing the transaction. The contract was originally penned in May 2019. The RTE cereal business is a component of TreeHouse Foods’ Baked Goods unit. 

Nevertheless, alongside announcing the termination of this deal, TreeHouse Foods revealed intentions to restart the marketing process for the sale of the RTE cereal business. Moreover, the company is on track to divest two of its in-store bakery facilities (housed in Minnesota and California) to a family-owned firm – Rich Products. These facilities produce breads, rolls and cakes for in-store retail bakeries as well as foodservice customers.

Can Portfolio Refinement Aid Stock?

TreeHouse Foods has long been struggling with its Baked Goods segment.  Sales in the segment fell 6.7% year over year in the third quarter of 2019 due to SKU rationalization efforts, adverse volume/mix and fluctuating currency rates. In fact, the company has a weak top-line trend. We note that the third-quarter 2019 results marked its tenth consecutive quarter of year-over-year sales decline.

These downsides have also caused this Zacks Rank #4 (Sell) stock to decline close to 20% in a year against the industry’s growth of 15%.

Nevertheless, the company has been focused on refining its portfolio through meaningful buyouts and divestitures to improve performance. In fact, both the RTE cereal business and the aforementioned in-store bakery facilities were acquired by TreeHouse Foods from Conagra Brands (CAG - Free Report) as part of the Private Brands acquisition. The company’s other acquisitions include Flagstone Foods, PFF Capital Group, Inc. (“Protenergy”), Cains Foods, L.P., Associated Brands and Naturally Fresh, Inc.

TreeHouse Foods, which shares space with Campbell Soup (CPB - Free Report) , also remains committed to exiting the underperforming businesses and shifting focus toward areas with high growth potential. To this end, the company completed the divestiture of the Snack business to Atlas Holdings on Aug 1. Additionally, the sale of the in-store bakery facilities to Rich Products highlights TreeHouse Foods’ focus on enhancing the portfolio.

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