TreeHouse Foods (THS) Q4 Earnings Beat Estimates, Sales Up Y/Y
TreeHouse Foods, Inc. THS posted fourth-quarter 2020 results, with the top and the bottom line beating the Zacks Consensus Estimate. While sales increased year on year, earnings registered a decline. Nonetheless, the Zacks Rank #3 (Hold) company provided an optimistic view for 2021.
During the quarter, both the company’s segments witnessed strong retail demand amid the coronavirus pandemic. However, lower demand conditions in food-away-from-home channels continued to remain a drag. Shares of the company dropped 2.8% during the trading session on Feb 11, following fourth-quarter results.
Quarter in Detail
Adjusted earnings from continuing operations amounted to $1.07 per share that surpassed the Zacks Consensus Estimate by a penny. However, the bottom line declined 2.7% year over year. High labor and freight costs as well as disruptions caused by COVID-19 pandemic affected the bottom line.
Net sales of $1,177.2 million came ahead of the consensus mark of $1,149 million and increased 3.3% year over year. Organic sales rose 4% owing to higher volume/mix, backed by elevated retail demand amid the pandemic that was partially countered by distribution losses and lower food-away-from-home demand. Additionally, favorable pricing supported organic sales growth. These were partially countered by the unfavorable impacts stemming from the divesture of the two In-Store Bakery facilities.
Gross margin came in at 19.4%, contracting 40 basis points from the year-ago quarter’s figure. The decline was caused by incremental costs associated with the pandemic, which included higher production shifts, increased sanitization measures, supplemental payments and protective equipment. This was partially compensated by improved channel mix of greater retail business and higher throughput.
Total operating expenses, as a percentage of sales, dropped 2.2 percentage points to 14.8%. Adjusted EBITDA from continuing operations declined 1.5% to $154.2 million owing to higher freight costs and variable incentive compensation.
TreeHouse Foods, Inc. Price, Consensus and EPS Surprise
TreeHouse Foods, Inc. price-consensus-eps-surprise-chart | TreeHouse Foods, Inc. Quote
Segment Details
Meal Preparation: During the quarter, sales in the segment increased 3.1% year over year to $717.4 million. The upside was mainly triggered by the inclusion of the business from the pasta acquisition. Also volume/mix increased on account of distribution gains and better retail demand amid the pandemic, which offset the effects of distribution losses and lower food-away-from-home demand. Moreover, pricing increased due to reduced trade spend. Direct operating income (DOI) margin in the segment declined 1.3 percentage points owing to higher COVID-19 related operational costs.
Snacking & Beverages: Net sales rose 3.9% to $460.9 million on improved volume/mix, stemming from distribution gains, innovation and higher retail demand as a result of the pandemic. The upsides compensated for distribution losses and lower volumes associated with divestitures of the In-Store Bakery facilities. DOI margin rose 1.6 percentage points owing to productivity gains led by pandemic-induced demand.
Other Financial Updates & Guidance
The company concluded the quarter with cash and cash equivalents of $364.6 million, long-term debt (excluding operating lease liabilities) of $2,199 million and total shareholders’ equity of $1,865 million. In 2020, cash flows provided by operating activities of continuing operations amounted to $403.6 million.
Management is encouraged with its operations amid the pandemic-led burgeoning demand. The company is optimistic about its prospects for the private-label space. Further, management provided its view for 2021.
For 2021, net sales are now anticipated to be $4.40-$4.60 billion, indicating a rise from sales of $4.35 billion in 2020. Adjusted earnings from continuing operations are expected to be $2.80-$3.20 per share, which reflects growth from earnings of $2.73 reported in 2020. The Zacks Consensus Estimate for sales and earnings in 2021 is currently pegged at $4.47 billion and $3.03 per share, respectively.
Additionally, management informed that the company is witnessing significant inflation across several agricultural commodities, including items like oils, wheat and oats. Hence, the company is undertaking pricing measures across categories and resorting to cost-saving measures. The company expects the impacts of its pricing actions to be evident in the second half of 2021.
On Dec 11, 2020, TreeHouse concluded the buyout of the majority of Riviana Foods’ U.S. branded pasta portfolio. This move is likely to contribute to adjusted earnings from continuing operation in the range of 20-30 cents, in 2021
We note that the company’s shares have surged 26.4% in the past three months compared with the industry’s 3.5% rise.
Looking for Food Stocks? Check These
Sanderson Farms, Inc. SAFM, flaunting a Zacks Rank #1 (Strong Buy), has a long-term earnings growth rate of 48.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Darling Ingredients Inc. DAR, with a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 26.3%, on average.
The Hain Celestial Group, Inc. HAIN, also with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 26.7%, on average.
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