TreeHouse Foods (THS) Q4 Earnings Beat, Sales Decline Y/Y
TreeHouse Foods, Inc. THS posted soft fourth-quarter 2023 results, as both the top and bottom lines declined year over year, and net sales fell short of the Zacks Consensus Estimate. The company’s shares plummeted 15.5% during the trading session on Feb 16.
Shares of THS have declined 11.4% in the past three months against the industry’s growth of 4.3%.
While operating amid a tough consumer landscape in the food and beverage space, management remains confident about its business as it enters 2024. The continued strength of the private brand space reflects robust prospects for this Zacks Rank #2 (Buy) company’s products to consumers and retailers. This is likely to result in strong net sales growth in the second half of 2024 and thereafter. Though management expects its first-half results to be hurt by its broth business, it remains confident about its long-term position due to its relevant growth investments.
Quarter in Detail
TreeHouse Foods reported adjusted earnings of 77 cents per share, which beat the Zacks Consensus Estimate of 71 cents. However, the bottom line declined from adjusted earnings per share of 97 cents in the year-ago period.
TreeHouse Foods, Inc. Price, Consensus and EPS Surprise
TreeHouse Foods, Inc. price-consensus-eps-surprise-chart | TreeHouse Foods, Inc. Quote
Net sales of $910.8 million declined 4.8% year over year and missed the Zacks Consensus Estimate of $927 million.
The decrease in net sales resulted from the adverse volume/mix in the company’s retail business, which stemmed from supply-chain hurdles at one of THS’ broth facilities, and in its pretzels and cookies categories. Planned distribution exits, mainly in the in-store bakery and coffee categories, also led to the sales decline. These were partly compensated by volume/mix gains from the Coffee Roasting Capability buyout.
Organic sales decreased 8% owing to a decline in the volume/mix. Pricing was up 0.1%.
The gross margin of 16.7% contracted 1.6 percentage points from the year-ago quarter’s figure, mainly due to supply-chain hurdles (as discussed above), adverse fixed cost absorption due to soft volumes and elevated cost related to the maintenance of labor and manufacturing plant. This was partly made up by reduced commodity costs.
Total operating expenses were $109.7 million, up from the $105.5 million reported in the year-ago quarter due to greater severance expenses and lower TSA income, partly offset by reduced professional fees related to strategic growth efforts, lower freight costs, reduced brokerage commissions and a decline in retention bonus expenses.
Due to the factors leading to a lower gross margin and higher operating expenses, the company’s adjusted EBITDA from continuing operations came in at $108.4 million, down from $118.5 million in the year-ago period.
Other Updates
TreeHouse Foods concluded the quarter with cash and cash equivalents of $320.3 million, long-term debt of $1,396 million and total shareholders’ equity of $1,664.8 million. In the year ended Dec 31, 2023, the company’s net cash from operating activities was $157.3 million.
During the fourth quarter, THS bought back about 1.2 million shares for $50 million (excluding excise tax). In the full year 2023, the company repurchased 2.3 million shares for $100 million. At the end of the fourth quarter, TreeHouse Foods had shares worth $166.7 million pending under its buyback authorization.
Guidance
For 2024, TreeHouse Foods expects net sales in the band of $3.43-$3.5 billion, which indicates growth of nearly flat to 2% from the 2023 level. Management expects organic volume and mix to be slightly positive in the year, offset by modest pricing deflation. However, gains from the recent acquisitions are likely to positively impact the volume and mix.
Adjusted EBITDA from continuing operations is likely to be in the band of $360-$390 million in 2024 compared with the $365.9 million reported in 2023.
For 2024, management expects capital expenditures of around $145 million and free cash flow of at least $130 million.
For the first quarter of 2024, net sales are projected in the range of $780-$810 million, indicating a decline of nearly 7% at the midpoint. THS expects organic volume and mix to be down in the mid-single-digits in the quarter, mainly due to capacity constraints at one of its broth facilities, along with deflationary pricing. Recent buyouts are likely to have a low-single-digit positive impact.
The company expects first-quarter adjusted EBITDA from continuing operations in the band of $45-$55 million.
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