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TreeHouse Foods (THS) Q4 Earnings Beat Estimates, Sales Miss

Zacks Equity Research

TreeHouse Foods, Inc. THS released fourth-quarter 2019 results, wherein the bottom line beat the Zacks Consensus Estimate and grew year over year. However, the company continued with its soft sales trend, marking the 11th straight quarter of year-over-year sales decline. Moreover, sales missed the consensus mark. Headwinds like SKU rationalization and adverse impacts from volume/mix affected the quarter’s outcome.

Shares of the company fell 1.2% in yesterday’s trading session. We note that the company has lost around 8% in the past three months against the industry’s growth of 3.8%.

Quarter in Detail

Adjusted earnings from continuing operations amounted to $1.10 per share that surpassed the Zacks Consensus Estimate by a penny. The bottom line grew 10% from the year-ago quarter’s level of $1.00.

Net sales of $1,139.5 million missed the consensus mark of $1,161 million and fell 4.5% year over year. The downside was caused by adverse impacts from SKU rationalization of 0.7%. Organic sales fell 3.8% primarily due to adverse volume/mix of almost 4%. Pricing favorably impacted organic sales by almost 0.2%.

TreeHouse Foods, Inc. Price, Consensus and EPS Surprise

TreeHouse Foods, Inc. Price, Consensus and EPS Surprise

Gross margin came in at 19.8%, down 130 basis points (bps) from the year-ago quarter’s figure. The downside was caused by lower volumes and increased expenses related to change in regulatory requirements, partly offset by lower cost of restructuring program.

Total operating expenses, as a percentage of sales, increased 0.4 percentage points to 17%. Further, adjusted EBITDA from continuing operations increased 4.9% to $161.1 million driven by lower freight costs, savings from the Structure to Win and TreeHouse 2020 initiatives, partly offset by lower volume.

Segment Details

Baked Goods:
During the fourth quarter, sales in the segment fell 4.4% year over year to $406.5 million. The downside was caused by SKU rationalization and adverse volume/mix. This was partially mitigated by favorable impacts from pricing. Direct operating income (DOI) margin in the segment advanced 80 bps to 13.3%, driven by lower freight costs, savings from the Structure to Win and TreeHouse 2020 initiatives. These were partially negated by lower volumes and higher period expense.

Beverages: Sales fell 6.5% to $268 million due to unfavorable pricing and trade as well as negative impact of volume/mix. DOI margin declined 130 bps to 16.5% due to unfavorable pricing, partially countered by lower freight costs. 

Meals Solutions: Net sales declined almost 3.5% to $465 million due to adverse volume/mix and adverse currency fluctuation. However, the decline was partly compensated by improved pricing and lower spending on trade. DOI margin declined 30 bps to 13.7% due to unfavorable volume/mix. These were partially mitigated by pricing actions and reduced trade spend.

Other Financial Updates

This Zacks Rank #3 (Hold) company concluded the quarter with cash and cash equivalents of $202.3 million, long-term debt of $2,091.7 million and total shareholders’ equity of $1,830.9 million.

In 2019, cash provided by operating activities amounted to $263.9 million. For 2020, the company expects free cash flow between $250 million and $300 million.

Other Developments & Guidance

On Jan 13, 2020, TreeHouse Foods and Post Holdings POST mutually decided to pull the plug on their deal, as part of which the former would sell its ready-to-eat (RTE) cereal business to the latter. Also, TreeHouse Foods inked a deal to offload two of its in-store bakery facilities to Rich Products Corporation, which is likely to help the former focus on core growth areas. Notably, the transaction with Rich Products is expected to conclude by Apr 10, 2020.

Sales for 2020 are expected in the range of $4.10-$4.40 billion. The company delivered net sales of $4288.9 million (nearly $4.29 billion) in 2019. For 2020, the company anticipates adjusted EBITDA in the range of $480-$510 million. Net interest expense is projected to be in the range of $93-$97 million. In the same time frame, management expects adjusted earnings from continuing operations in the band of $2.40-$2.65, suggesting a rise of 6% year over year at midpoint.

The Zacks Consensus Estimate for sales and earnings for 2020 is currently pegged at $4.35 billion and $2.65, respectively.

Net sales for the first quarter of 2020 are expected in the band of $0.98-$1.02 billion. The company delivered net sales of $1,301.1 million (nearly $1.30 billion) in the first quarter of 2019. The Zacks Consensus Estimate for sales in the first quarter is pegged at $1.07 billion.

Further, management expects first-quarter 2020 adjusted earnings from continuing operations in the range of 20 cents to 30 cents. The company posted adjusted earnings of 13 cents in the first quarter of 2019. The Zacks Consensus Estimate for earnings in the first quarter of 2020 is pegged at 42 cents.

Stocks to Consider

Lamb Weston Holdings, Inc. LW has a long-term earnings growth rate of 8.8%. Currently, it carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Hain Celestial Group, Inc. HAIN delivered positive earnings surprise of 7%, on average, in the trailing four quarters. It currently carries a Zacks Rank #2.

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Click to get this free report The Hain Celestial Group, Inc. (HAIN) : Free Stock Analysis Report TreeHouse Foods, Inc. (THS) : Free Stock Analysis Report Post Holdings, Inc. (POST) : Free Stock Analysis Report Lamb Weston Holdings Inc. (LW) : Free Stock Analysis Report To read this article on Zacks.com click here.