TreeHouse Foods (THS) Q3 Earnings Top Estimates, Sales Miss
TreeHouse Foods, Inc. THS posted third-quarter 2022 results, wherein the bottom line beat the Zacks Consensus Estimate while declining year over year. Net sales increased from the year-ago period but fell short of the consensus mark. The company’s top line gained from robust pricing actions to counter inflation.
That said, a tough labor and supply-chain scenario was a downside, which is likely to persist. Shares of the company dropped 2.4% on Nov 7.
On Oct 3, 2022, TreeHouse Foods concluded the sale of a significant portion of its Meal Preparation business, which included pasta, pourable and spoonable dressing, preserves, red sauces, syrup, dry blends and baking, dry dinners, pie filling, pita chips and other sauces. From the third quarter of 2022, the divested business is presented as discontinued operations.
The abovementioned divestiture enabled the company to lower its debt by $500 million and solidify its balance sheet. Further, it placed THS well to capitalize on solid demand trends and fuel growth across its higher-margin private label snacking and beverage categories. This portfolio reshaping action highlights the company’s focus on areas with higher growth potential.
Quarter in Detail
TreeHouse Foods reported adjusted earnings from continuing operations of 18 cents per share, which beat the Zacks Consensus Estimate of 13 cents. However, the bottom line declined significantly from the adjusted earnings of 46 cents reported in the year-ago quarter.
TreeHouse Foods, Inc. Price, Consensus and EPS Surprise
TreeHouse Foods, Inc. price-consensus-eps-surprise-chart | TreeHouse Foods, Inc. Quote
Net sales of $875 million fell short of the consensus mark of $1,288 million. However, the top line advanced 16.4% year over year, mainly on strong pricing to counter inflation. This was somewhat negated by labor and supply-chain hurdles, which limited the company’s capacity to cater to demand. Volumes were soft due to the exiting lower-margin business, mainly in Pickles.
The volume/mix fell 4.2%, whereas pricing increased 20.7%. Organic sales grew 16.5%. THS witnessed currency headwinds to the tune of 0.1%.
The gross margin of 14.8% contracted 1.9 percentage points from the year-ago quarter’s figure, mainly due to additional costs associated with labor and supply-chain disruptions. Also, warehouse capacity hurdles were a downside. These were somewhat offset by positive pricing actions to counter inflation and a favorable category mix.
Total operating expenses stood at $138.8 million, up from $116.9 million reported in the year-ago quarter. This can be attributed to elevated employee compensation costs (due to labor shortage) and increased professional fees. These were somewhat offset by reduced spending on strategic growth initiatives and other restructuring programs.
Adjusted EBITDA from continuing operations came in at $76.6 million, down by $9.2 million due to additional costs associated with labor and supply-chain bottlenecks amid a tough macro environment.
Other Updates & Guidance
TreeHouse Foods concluded the quarter with cash and cash equivalents of $74.7 million, long-term debt of $1,879.4 million and total shareholders’ equity of $1,715 million.
While management expects the labor and supply-chain environment to remain challenging, it is making a solid improvement around service, which is likely to continue in 2023.
Management expects the demand for private label food and beverages to remain robust in 2023. Moreover, it expects net sales growth to be strong in the fiscal due to the company’s pricing actions to counter inflation in 2022.
For the fourth quarter of 2022, TreeHouse Foods anticipates net sales (from continuing operations) growth of 22-24%, mainly backed by pricing. It expects an adjusted EBITDA margin of 10.5-12%, indicating significant sequential growth due to pricing actions undertaken to date, cost-saving efforts and peak seasonality.
This Zacks Rank #1 (Strong Buy) stock has risen around 3% in the past three months against the industry’s decline of 0.9%.
Other Staple Stocks to Consider
Some other top-ranked stocks from the sector are Lamb Weston LW, The J.M. Smucker SJM and Conagra Brands CAG.
Lamb Weston, a frozen potato product company, currently sports a Zacks Rank #1. LW has a trailing four-quarter earnings surprise of 47.3%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 14.6% and 45.7%, respectively, from the year-ago reported numbers.
The J.M. Smucker, which manufactures and markets branded food and beverage products, sports a Zacks Rank #1 at present. The J.M. Smucker has a trailing four-quarter earnings surprise of 20.8%, on average.
The Zacks Consensus Estimate for SJM’s current financial-year sales suggests growth of 4.6% from the year-ago reported number.
Conagra Brands, which operates as a consumer-packaged goods food company, currently carries a Zacks Rank of 2 (Buy). CAG has a trailing four-quarter earnings surprise of 1.8%, on average.
The Zacks Consensus Estimate for Conagra Brands’ current financial-year sales and EPS suggests growth of 5.2% and around 3%, respectively, from the corresponding year-ago reported figures.
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