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Key Takeaways From Treehouse Foods' 4th-Quarter Earnings

Treehouse Foods Inc. (NYSE:THS) released its fourth-quarter results before the market opened on Feb. 13. The company posted better-than-expected earnings, but revenue failed to edge past projections. The company's mixed results were weighed down by headwinds such as stockkeeping unit rationalization and unfavorable volume mix.

Snapshot of the quarter


Earnings came in at $1.10 per share in the fourth quarter, which exceeded earnings of $1.03 per share reported in the prior-year quarter. Revenue amounted to $1.14 billion, down from $1.48 billion a year ago. Analysts had projected earnings of $1.09 per share on $1.16 billion in revenue.

Organic sales plunged 3.8% in the reported quarter due to the adverse impact from volume mix, which was only partially offset by favorable pricing.

At the end of the quarter, the company had cash and cash equivalents of $202.3 million and long-term debt of $2.09 billion.

Segment details

In the baked goods category, sales declined 4.4% to $406.5 million. The company attributed the decline to SKU rationalization as well as unfavorable volume mix. In contrast, the direct operating income margin grew 80 basis points to 13.3% on the back of a decline in freight costs. In addition, cost savings resulting from Treehouse's 2020 and Structure to Win initiatives led to the margin growth. Partially offsetting the gains were lower volumes and higher period expenses.

The beverages category saw sales dip 6.5% to $268 million. Factors that caused the decline were adverse pricing and trade coupled with adverse volume mix. The direct operating income margin plummeted 130 basis points to 16.5%.

In the meals solutions division, revenue decreased roughly 3.5% to $465 million and the direct operating income margin dipped 30 basis points to 13.7%.

Key insights from the quarter

On Jan. 13, Treehouse reached an agreement with Post Holdings (NYSE:POST) to cancel its previously announced deal to sell its ready-to-eat cereal business. Later that month, Treehouse entered into a contract with Rich Products Corp., a privately held, multinational food products company, to sell two of its in-store bakery facilities that are situated in Fridley, Minnesota and Lodi, California. Treehouse purchased both the RTE cereal business and in-store bakery business as part of the Private Brands transaction from Conagra Brands (NYSE:CAG) in 2016.

Revenue and earnings guidance

For 2020, the company projects revenue will be between $4.10 billion and $4.40 billion. Adjusted earnings per share from continuing operations are expected to be in the range of $2.40 to $2.65.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.