U.S. markets close in 4 hours 14 minutes
  • S&P 500

    4,256.51
    -48.69 (-1.13%)
     
  • Dow 30

    33,849.05
    -302.96 (-0.89%)
     
  • Nasdaq

    12,877.67
    -224.88 (-1.72%)
     
  • Russell 2000

    1,983.17
    -37.36 (-1.85%)
     
  • Crude Oil

    86.89
    +0.36 (+0.42%)
     
  • Gold

    1,778.20
    -11.50 (-0.64%)
     
  • Silver

    19.68
    -0.40 (-1.99%)
     
  • EUR/USD

    1.0170
    -0.0001 (-0.01%)
     
  • 10-Yr Bond

    2.8990
    +0.0750 (+2.66%)
     
  • GBP/USD

    1.2043
    -0.0051 (-0.42%)
     
  • USD/JPY

    135.3920
    +1.1770 (+0.88%)
     
  • BTC-USD

    23,407.37
    -456.90 (-1.91%)
     
  • CMC Crypto 200

    555.56
    -17.25 (-3.01%)
     
  • FTSE 100

    7,515.23
    -20.83 (-0.28%)
     
  • Nikkei 225

    29,222.77
    +353.86 (+1.23%)
     

TreeHouse Foods (THS) Looks Troubled: High Costs a Key Concern

  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
·4 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.
  • Oops!
    Something went wrong.
    Please try again later.

TreeHouse Foods, Inc. THS appears to be in trouble. The company has been struggling with elevated cost headwinds, which are likely to persist. Although management is undertaking prudent pricing actions to combat the cost headwinds, on its third-quarter earnings call, it slashed adjusted earnings expectations for 2021. Also, the Zacks Rank #5 (Strong Sell) company lowered the upper limit of its sales view.

The Zacks Consensus Estimate for 2021 earnings per share (EPS) has declined from $2.11 to $1.17 over the past 60 days. Shares of this manufacturer and distributor of private label packaged foods and beverages have declined 12.1% in the past six months compared with the industry’s fall of 4.1%.

Let’s take a closer look.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Elevated Costs – a Major Concern

During the third quarter of 2021, TreeHouse Foods’ gross margin came in at 16.3%, contracting 170 basis points from the year-ago quarter’s figure. The downside was caused by commodity inflation. Gross margin was also adversely impacted by supply-chain disruptions leading to higher labor costs, supply shortages and an unfavorable channel mix. Adjusted EBITDA from continuing operations decreased 20.5% to $108.6 million due to commodity and freight cost inflation. It was also affected by supply chain disruptions leading to higher labor costs, supply shortages and an unfavorable channel mix.

Management, on its third-quarter earnings call, stated that it expects a further increase in input costs. The company predicts additional cost inflation of $125 million in 2021. Although THS is undertaking pricing actions to battle elevated input costs, it might not be sufficient to fully offset the rise in input costs.

Unimpressive 2021 View

For 2021, net sales are anticipated in the range of $4.20-$4.325 billion compared with $4.20-$4.45 billion expected earlier. Management, on its last earnings call, stated that it expects the current operating constraints to limit TreeHouse Food’s ability to meet high demand conditions. Adjusted earnings from continuing operations are expected in the band of $1.08-$1.28 per share, down from the previous guidance of $2.00-$2.50. The bottom line is likely to be affected by the escalating inflationary trends as well as higher costs related to labor and supply-chain disruptions.

TreeHouse Foods also provided guidance for the fourth quarter. Fourth-quarter net sales are expected in the range of $1.04-$1.16 billion. This suggests a decline from $1.18 million reported in the year-ago quarter.

While THS is on track with solid pricing actions, one cannot ignore the above-mentioned headwinds in the near term.

3 Consumer Staple Picks

Some top-ranked stocks from the Consumer Staples sector are MGP Ingredients MGPI, The Hain Celestial Group HAIN and Inter Parfums, Inc. IPAR.

MGP Ingredients, the producer and supplier of distilled spirits, and specialty wheat proteins and starch food ingredients, currently sports a Zacks Rank #1 (Strong Buy). Shares of the company have rallied 33.3% in the past six months. 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 55.5% and 61.4%, respectively, from the year-ago period’s figures. MGPI has a trailing four-quarter earnings surprise of 117.6%, on average.

Inter Parfums develops, manufactures and distributes prestige perfumes and cosmetics. It currently sports a Zacks Rank #1. Inter Parfums has a trailing four-quarter earnings surprise of 29.7%, on average.

The Zacks Consensus Estimate for IPAR’s current financial-year sales and EPS suggests growth of 55.9% and 100%, respectively, from the year-ago period’s figures. Shares of the company have moved up 32% in the past six months.

The Hain Celestial, which provides various natural and organic foods as well as personal care products in North America and Europe, carries a Zacks Rank #2 (Buy) at present. It has a trailing four-quarter earnings surprise of 9.7%, on average. Shares of The Hain Celestial have moved up 2.5% in the past six months.

The Zacks Consensus Estimate for HAlN’s current financial-year EPS suggests growth of 14.5% from the year-ago period’s reported number.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

The Hain Celestial Group, Inc. (HAIN) : Free Stock Analysis Report

TreeHouse Foods, Inc. (THS) : Free Stock Analysis Report

Inter Parfums, Inc. (IPAR) : Free Stock Analysis Report

MGP Ingredients, Inc. (MGPI) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research