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TreeHouse Foods (THS) Q1 Earnings Top Estimates, Sales Up Y/Y

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TreeHouse Foods, Inc. (THS - Free Report) released first-quarter 2020 results, wherein both top and bottom lines beat the Zacks Consensus Estimate and improved year over year. The company’s retail business catered well to the unexpected rise in demand in March, stemming from the coronavirus-led stockpiling and increased at-home consumption. This compensated for softness in the food-away-from-home business.   

Quarter in Detail

Adjusted earnings from continuing operations amounted to 37 cents per share that surpassed the Zacks Consensus Estimate of 32 cents. Further, the bottom line grew 12.1% year over year.

TreeHouse Foods Inc Price, Consensus and EPS Surprise

TreeHouse Foods Inc Price, Consensus and EPS Surprise

TreeHouse Foods Inc price-consensus-eps-surprise-chart | TreeHouse Foods Inc Quote

Net sales of $1,084.9 million came ahead of the consensus mark of $1,047 million and advanced 1.7% year over year. Organic sales grew 2.6%, though it was partly hurt by SKU rationalization, the divestiture of two in-store Bakery facilities and foreign currency headwinds.

Gross margin came in at 18%, down 40 basis points (bps) from the year-ago quarter’s figure. This was accountable to an adverse mix of lower-margin business, unfavorable pricing and costs incurred in connection with the pandemic, like higher production shifts, increased sanitization measures and protective equipment. This was partly offset by the lower cost of the restructuring program.

Total operating expenses, as a percentage of sales, dropped 1.7 percentage points to 15.2%. However, adjusted EBITDA from continuing operations declined 1.3% to $98.7 million due to an adverse mix of lower-margin business, unfavorable pricing and mark-to-market losses on investments. This was cushioned by reduced freight costs and the coronavirus-led surge in demand.

Segment Details

As notified earlier, the company has reorganized itself from three segments (on the basis of product categories) to two segments (on the basis of market dynamics).

Meal Preparation: During the first quarter, sales in the segment climbed 0.4% year over year to $673.6 million. The upside was backed by improved volumes/mix primarily stemming from the coronavirus-led increase in demand, which compensated for distribution losses. This was partially mitigated by adverse pricing and currency woes. Direct operating income (DOI) margin in the segment contracted 70 bps due to an adverse mix of lower-margin business, somewhat made up by increased volumes and reduced freight costs.

Snacking & Beverages: Net sales rose 3.8% to $411.3 million on improved volumes/mix, courtesy of the coronavirus-led increase in demand, which offset distribution losses. This was partially mitigated by adverse pricing and SKU rationalization. Results were also affected by divestitures. DOI margin declined 10 bps, mostly due to the same factors responsible for the DOI margin decline in the Meal Preparation segment.

Other Financial Updates

The company concluded the quarter with cash and cash equivalents of $330.4 million, long-term debt of $2,189.5 million and total shareholders’ equity of $1,788.1 million.

In the first quarter, cash provided by operating activities of continuing operations amounted to $68.5 million. Also, during the quarter, the company drew $100 million, as a precaution, from its revolving credit facility of $750 million to increase financial flexibility and liquidity amid the crisis. For 2020, the company still expects free cash flow between $250 million and $300 million.

Guidance

Management remains pleased with its first-quarter performance amid the coronavirus crisis. The company benefited from increased demand. The adjusted EBITDA was in line with the forecast despite the company incurring higher costs to increase production shifts and ensure the availability of labor at all manufacturing and distribution facilities.

While management is encouraged about the rise in demand, thanks to pantry hoarding and increased stay-at-home trends, it incurs incremental costs to cater to the rising demand. Further, the duration and impact of the pandemic remain uncertain. All said, the company reiterated its guidance for 2020.

Sales are expected in the range of $4.10-$4.40 billion. The company delivered net sales of $4288.9 million (nearly $4.29 billion) in 2019. For 2020, management expects adjusted earnings from continuing operations of $2.40-$2.65 per share compared with $2.39 recorded in 2019.

The Zacks Consensus Estimate for sales and earnings in 2020 is currently pegged at $4.29 billion and $2.58 per share, respectively.

Net sales for the second quarter of 2020 are expected in a band of $1.05-$1.09 billion, indicating growth of about 4% at the midpoint. Further, management expects adjusted earnings from continuing operations of 40-50 cents, suggesting a roughly 13% increase at the midpoint. The Zacks Consensus Estimate for second-quarter sales and earnings is pegged at $1.01 billion and 45 cents per share, respectively.

The Zacks Rank #2 (Buy) stock has gained 8.4% in the past three months against the industry’s decline of 12.3%.

Looking for More Promising Food Stocks? Check These

BGS Foods (BGS - Free Report) , with a Zacks Rank #1 (Strong Buy), has a trailing four-quarter positive earnings surprise of around 5.4%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Smucker (SJM - Free Report) , with a Zacks Rank #1, has a trailing four-quarter positive earnings surprise of around 2%, on average.

Campbell Soup Company (CPB - Free Report) has a long-term earnings growth rate of 7.2% and a Zacks Rank #2 (Buy).

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