TreeHouse Foods' (THS) Effective Cost-Saving Initiatives Aid
TreeHouse Foods, Inc. THS is working on strengthening its position as a private brand leader in higher-growth, higher-margin categories like snacking and beverages. The company is making considerable progress in enhancing its manufacturing and supply-chain capabilities through TMOS and related initiatives, positioning itself for improved efficiency, cost savings and market competitiveness. These upsides keep the company well-placed for 2024.
TMOS & Supply-Chain Initiatives Bode Well
Treehouse Foods' supply-chain initiatives aim to achieve $250 million in savings over three years, supporting long-term growth. Key strategies include implementing the Treehouse Management Operating System across manufacturing networks, improving overall equipment effectiveness, and optimizing logistics and distribution networks.
The implementation of TMOS is expected to bring substantial cost savings from the start of 2024. There has already been a notable improvement in overall equipment effectiveness (OEE), with a four-percentage point increase due to TMOS initiatives. These measures have been contributing significantly to the company’s financial performance, with operations and supply-chain improvements adding $4 million year over year in the third quarter.
Driven by these factors, the company has outlined a comprehensive growth strategy for 2024-2027. THS’ objectives encompass achieving net sales growth of 3-5%, attaining adjusted EBITDA growth of 8-10% and generating a free cash flow in excess of $200 million.
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Strategic Focus on High-Value Segments
TreeHouse Foods is strategically focusing on profitable, high-growth areas while divesting the less essential parts of its business. This approach is evident from the recent sale of the Lakeville, MN-based facility and the Snack Bars division for $61 million. Additionally, the company plans to acquire the Bick's pickle brand for $20 million to strengthen its position in the Canada pickle market and improve operations, which is expected to boost profit margins. This deal is set to be completed in the fourth quarter of 2023.
Effective Pricing Boosts Growth
The company has been reaping benefits from its strong pricing strategies, which have been helping it combat inflation. This was reflected in the third quarter of 2023, wherein THS’ revenues rose 3.6% to $863.3 million mainly due to a 3.2% rise in pricing. This approach also led to a notable increase in adjusted EBITDA, reaching $89.9 million in third quarter, up from $79.6 million recorded in year ago period, underscoring the effectiveness of its pricing initiatives in driving sales growth.
Sliding Sales Outlook
Despite TreeHouse Foods' strategic focus on high-margin private-label snacking and beverage categories for 2023 and effective pricing efforts, there are some challenges in the near future. The company revised its net sales outlook for fiscal 2023 downward in its fiscal third-quarter report.
For fiscal 2023, TreeHouse Foods expects year-over-year adjusted net sales growth of 4.5% to $3.4-$3.5 billion, down from previously stated growth of 7.5-9.5% to $3.71-$3.78 billion.
For the fourth quarter of fiscal 2023, revenues are projected to be $910-$940 million, implying a 3% year-over-year decline at the mid-point primarily due to an anticipated decline from a voluntary product recall and a specific supply-chain disruption.
Shares of this Zacks Rank #3 (Hold) company have lost 1.8% in the past three months against the industry’s growth of 12.7%.
3 Hot Stocks to Consider
We have highlighted three better-ranked stocks, namely MGP Ingredients, Inc. MGPI, Ingredion Incorporated INGR and Benson Hill Inc. BHIL.
MGP Ingredients produces and markets ingredients and distillery products to the packaged goods industry. The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for MGP Ingredients’ current financial-year sales and EPS suggests growth of 6% and 14.2%, respectively, from the year-ago reported figures. MGPI has a trailing four-quarter earnings surprise of 16.2%, on average.
Ingredion, an ingredients solutions provider specializing in nature-based sweeteners, starches and nutrition ingredients, currently carries a Zacks Rank of 2.
The Zacks Consensus Estimate for Ingredion’s current financial-year sales and earnings suggests growth of 5% and 24.7%, respectively, from the year-ago reported numbers. INGR has a trailing four-quarter earnings surprise of 23.9%, on average.
Benson Hill is a food technology company that unlocks the natural genetic diversity of plants with its cutting-edge food innovation engine. It currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Benson Hill’s current financial-year sales suggests growth of 2.7% from the year-ago reported numbers. BHIL has a trailing four-quarter earnings surprise of 37.1%, on average.
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TreeHouse Foods, Inc. (THS) : Free Stock Analysis Report
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