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TreeHouse Foods (THS) Q2 Loss Narrower Than Expected, Stock Up

Shares of TreeHouse Foods, Inc. THS moved up 3.9% on Aug 8 as the company posted second-quarter 2022 results, with the top and the bottom line surpassing the Zacks Consensus Estimate. Quarterly revenues increased year over year. Management raised its fiscal 2022 net sales view while reiterating adjusted EBITDA guidance.

The company’s top line gained from robust pricing actions and improved volume in Snacking & Beverages division. The company is also gaining from strength in private label amid a rising inflationary environment. That said, ongoing challenges related to labor and materials availability are headwinds.

TreeHouse Foods, Inc. Price, Consensus and EPS Surprise


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


Quarter in Detail

TreeHouse Foods reported an adjusted loss from continuing operations of 4 cents per share, narrower than the Zacks Consensus Estimate of a loss of 17 cents. The bottom line declined significantly from the earnings of 26 cents reported in the year-ago quarter.

Net sales of $1,197.6 million surpassed the consensus mark of $1,104 million. The top line also advanced 19.4% year over year. The volume/mix grew 2.1%, whereas pricing increased 17.7%. Organic sales grew 19.8%. THS witnessed currency headwinds to the tune of 0.4%. Better pricing was the main driver, which helped the company counter commodity and freight cost inflation. Moreover, increased volume in the Snacking & Beverages unit led by higher demand in private label contributed to the upside. However, this was partly negated by labor and supply-chain bottlenecks, which limited the company’s ability to serve the demand.

The gross margin of 13.5% contracted 3.1 percentage points from the year-ago quarter’s figure, mainly due to additional costs associated with labor and supply chain disruption. Also, higher inbound freight costs and commodity inflation were a downside. These were somewhat offset by positive pricing actions to counter inflation. Favorable category mix, positive fixed cost overhead absorption as well as reduced costs for purchases of personal protective equipment offered and sanitation some offered respite.

Total operating expenses stood at $183.6 million, up from $162.0 million reported in the year-ago quarter. This can be attributed to professional fees and higher outbound freight. These were somewhat offset by reduced spending on strategic growth initiatives and other restructuring programs. Adjusted EBITDA from continuing operations came in at $66.5 million, down 28.2%.

Segment Details

Meal Preparation: Sales in the segment rose 18.3% year over year to $765.9 million. Higher net sales were mainly fueled by positive pricing to counter commodity and freight cost inflation. This was somewhat offset by reduced volume, thanks to labor and supply chain constraints. Notably, volume/mix declined by 1.7%, while pricing improved by 20.5% in the quarter. The direct operating income (DOI) margin for the segment contracted by 2.8 percentage points year over year.

Snacking & Beverages: Net sales grew 21.4% to $431.7 million, backed by pricing actions to recover commodity and freight inflation. Also, higher private label demand led to robust category performance. That said, volumes were somewhat hurt by labor and supply-chain limitations. Notably, volume/mix increased 9% and pricing rose 12.7%. The DOI margin fell 1.4 percentage points.

Other Financial Updates & Guidance

TreeHouse Foods concluded the quarter with cash and cash equivalents of $199.1 million, long-term debt of $1,883.5 million and total shareholders’ equity of $1,813.6 million. For six months ended Jun 30, 2022 net cash used in operating activities amounted to $26.6 million.

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In 2022, management expects net sales growth in mid-to-high teens, mainly fueled by pricing actions to mitigate inflation, low single-digit volume growth and strengthening private label demand partly offset by labor and material availability. Earlier, net sales were anticipated to increase a minimum of 11% year over year for 2022.

Adjusted EBITDA is still estimated in the range of $385-$415 million for 2022, indicating growth of nearly 5% at the midpoint. Management expects the majority of earnings growth to come in the second half of 2022, as labor shortages and supply-chain disruptions are likely to impact profitability and volumes mostly in the first half.

For the third quarter of 2022, the company expects 50-100 basis points of sequential growth in adjusted EBITDA margin. The company remains on track with its pricing actions to recover further inflation, which is likely to be implemented late third quarter. Management expects the labor and supply chain environment to remain challenging in the second half of the year.

Shares of this Zacks Rank #2 (Buy) company have increased 18.4% in the past three months against the industry’s 1.3% decline.

3 Hot Staple Bets

Some better-ranked stocks are United Natural Foods UNFI, The Chef's Warehouse CHEF and General Mills, Inc. GIS.

Chef’s Warehouse, a distributor of specialty food products in the United States, currently flaunts a Zacks Rank #1 (Strong Buy). CHEF has a trailing four-quarter earnings surprise of 355.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Chef Warehouse’s current financial-year sales suggests growth of 40.7%from the year-ago reported numbers.

United Natural Foods distributes natural, organic, specialty, produce and conventional grocery and non-food products. UNFI currently carries a Zacks Rank #2 (Buy).

The Zacks Consensus Estimate for UNFI’s current financial year sales suggests 7.6% growth from the year-ago period’s reported figures. United Natural Foods has a trailing four-quarter earnings surprise of 29.9%, on average.

General Mills, which manufactures and markets branded consumer foods worldwide, currently carries a Zacks Rank of 2. GIS has a trailing four-quarter earnings surprise of 6.5%, on average.

The Zacks Consensus Estimate for General Mills’ current financial year sales and earnings per share suggests growth of almost 2% and 1.5%, respectively, from the corresponding year-ago reported figures.

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