TreeHouse Foods (THS) Stock Tumbles Despite Q3 Earnings Beat
TreeHouse Foods, Inc. THS posted third-quarter 2023 results, wherein the bottom line increased year over year and beat the Zacks Consensus Estimate.
Though net sales increased year over year on solid pricing, results were affected by a voluntary product recall and a discrete supply-chain headwind. These factors, along with soft co-manufacturing and food-away-from-home revenues and sluggish consumption in specific categories, were downsides. Consequently, management lowered its net sales guidance for 2023. Shares of the company tumbled 10.3% during the trading session on Nov 6.
However, THS surpassed the overall private brand market performance within the retail channel. TreeHouse Foods remains focused on improving its supply chain and implementing TMOS initiatives to strengthen its network. These aspects, along with robust brands, place the Zacks Rank #1 (Strong Buy) company well for the long run.
Quarter in Detail
TreeHouse Foods reported adjusted earnings from continuing operations of 57 cents per share, which beat the Zacks Consensus Estimate of 48 cents. THS’ adjusted earnings from continuing operations came in at 36 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 $863.3 million advanced 3.6% year over year but came in lower than the Zacks Consensus Estimate of $955 million.
Growth in net sales was mainly driven by the buyout of the Coffee Roasting Capability, pricing actions undertaken to recover commodity inflation and higher retail volumes. This was somewhat offset by lower co-manufacturing and food-away-from-home volumes. Supply-chain hurdles also affected certain categories.
The volume/mix (excluding buyouts) fell 3.4%, whereas pricing increased 3.2%. Organic sales decreased 0.6%. THS witnessed currency headwinds to the tune of 0.1%, and the volume/mix associated with acquisitions contributed 4.3% to net sales.
The gross margin of 15.9% contracted 0.1 percentage points from the year-ago quarter’s figure, mainly due to supply-chain hurdles stemming from a voluntary product recall. This was partly made up by pricing actions to recover commodity and freight inflation and reduced costs from operations.
Total operating expenses were $103.9 million, down from the $138.6 million reported in the year-ago quarter.
Adjusted EBITDA from continuing operations came in at $89.9 million, up from $79.6 million in the year-ago period. The upside can be attributed to improved pricing, partly negated by reduced fixed cost absorption and category mix.
Other Updates
TreeHouse Foods concluded the quarter with cash and cash equivalents of $19.7 million, long-term debt of $1,550.7 million and total shareholders’ equity of $1,695.8 million. In the first nine months of 2023, the company’s net cash from operating activities was $11 million.
During the third quarter, THS bought back about 1.1 million shares for $50 million (excluding excise tax) and had shares worth $216.7 million pending under its buyback authorization.
Guidance
Management revised its full-year 2023 guidance. For 2023, TreeHouse Foods now expects net sales in the band of $3,435-$3,465 million, which indicates growth of nearly 4.5% at the midpoint. Earlier, TreeHouse Foods expected net sales growth of 7.5-9.5% to a range of $3.71-$3.78 billion. The updated sales guidance reflects the impact of the Snacks Bars business divestiture, the product recall, a discrete supply-chain headwind and the continuation of ongoing consumer trends.
Adjusted EBITDA is likely to be in the band of $360-$370 million, suggesting roughly 25% growth at the midpoint. For 2023, management expects capital expenditures of around $140 million.
For the fourth quarter, adjusted net sales are projected in the range of $910-$940 million, indicating a decline of nearly 3% at the midpoint. The decrease is likely to be an effect of the voluntary recall and a discrete supply-chain headwind.
The adjusted gross margin is expected to see a slight increase sequentially and year over year in the fourth quarter due to TMOS and supply-chain savings efforts.
The company expects fourth-quarter adjusted EBITDA in the band of $103-$113 million, indicating a roughly 9% decrease at the midpoint due to the factors impacting the quarterly sales and operating costs associated with the anticipated wind-down of considerable portions of the transition services agreement related to the sale of the Meal Preparation business.
Shares of the company have declined 20.9% in the past six months compared with the industry’s decrease of 15.6%.
3 Other Appetizing Picks
Lamb Weston LW, which offers frozen potato products, currently sports a Zacks Rank #1. LW delivered an earnings surprise of 46.2% in the last reported quarter. 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 28.3% and 24.8%, respectively, from the year-ago reported numbers.
Flowers Foods FLO, a packaged bakery food products company, currently has a Zacks Rank #2 (Buy). FLO has a trailing four-quarter earnings surprise of 7.6%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current fiscal-year sales suggests growth of 6.7% from the corresponding year-ago reported figure.
Celsius Holdings CELH, a functional drink and liquid supplement company, currently carries a Zacks Rank #2. CELH delivered a positive earnings surprise in the preceding three quarters.
The Zacks Consensus Estimate for Celsius Holdings’ current fiscal-year sales suggests growth of 89.9% from the corresponding year-ago reported figure.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Flowers Foods, Inc. (FLO) : Free Stock Analysis Report
TreeHouse Foods, Inc. (THS) : Free Stock Analysis Report
Lamb Weston (LW) : Free Stock Analysis Report
Celsius Holdings Inc. (CELH) : Free Stock Analysis Report
