TreeHouse (THS) Down 7.4% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for TreeHouse Foods (THS). Shares have lost about 7.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is TreeHouse due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
TreeHouse Foods Q2 Earnings Beat Estimates, View Raised
TreeHouse Foods posted robust second-quarter 2023 results, wherein the top and bottom lines grew year over year and surpassed the Zacks Consensus Estimate. Encouragingly, management raised its net sales and adjusted EBITDA guidance for fiscal 2023.
The company is likely to keep gaining from a more focused portfolio, greater service levels and prudent investments in enhancing capacities (such as the recently concluded coffee acquisition). Management remains confident about achieving its near and long-term targets due to favorable industry trends, and its solid strategy.
Quarter in Detail
TreeHouse Foods reported adjusted earnings from continuing operations of 42 cents per share, which beat the Zacks Consensus Estimate of 40 cents. The bottom line grew significantly from the year-ago quarter’s adjusted earnings of 5 cents.
Net sales of $843.6 million advanced 4.1% year over year and came ahead of the Zacks Consensus Estimate of $830 million.
Growth in net sales was mainly driven by favorable pricing actions undertaken to recover commodity inflation. This was somewhat offset by lower volumes stemming from softness in food and beverage consumption, the exit of the lower-margin business and distribution losses.
The volume/mix fell 7.2%, whereas pricing increased 11.2%. Organic sales grew 4%. TreeHouse Foods witnessed currency headwinds to the tune of 0.2%, and acquisitions contributed 0.3% to net sales.
The gross margin of 15.7% expanded 2 percentage points from the year-ago quarter’s figure, mainly due to pricing actions to recover commodity and freight inflation. These were somewhat offset by additional costs associated with investments to improve the supply chain to enhance service levels. These included higher labor and manufacturing-related costs.
Total operating expenses were $103.3 million, down from the $136.7 million reported in the year-ago quarter.
Adjusted EBITDA from continuing operations came in at $76.4 million, up from $53.1 million in the year-ago period. The upside can be attributed to the same factors that drove the gross margin.
Other Updates
TreeHouse Foods concluded the quarter with cash and cash equivalents of $16.9 million, long-term debt of $1,594.5 million and total shareholders’ equity of $1,734.9 million. In the first six months of 2023, the company’s net cash used in operating activities was $49.8 million.
Guidance
Management raised its fiscal 2023 guidance. For fiscal 2023, TreeHouse Foods expects net sales growth of 7.5-9.5% to $3.71-$3.78 billion. Earlier, TreeHouse Foods expected net sales growth of 6-8% to $3.66-$3.73 billion. The upgraded sales guidance mainly reflects the coffee acquisition effect.
Adjusted EBITDA is likely to be $360-$370 million, suggesting 27% growth at the mid-point. Management earlier expected adjusted EBITDA of $345-$365 million, suggesting 24% year-over-year growth at the mid-point. The updated adjusted EBITDA guidance includes certain anticipations for the fourth quarter of 2023.
For the fourth quarter, the gross margin is likely to improve year over year and sequentially mainly due to TMOS and supply-chain saving efforts. The company also expects to incur temporary operating expenses of $5-$7 million in the fourth quarter.
For the third quarter of 2023, revenues are projected at $950-$970 million, indicating 10% growth at the mid-point. This is likely to be backed by volume/mix, including volume gains from the coffee buyout. The company expects third-quarter adjusted EBITDA of $81-$89 million, indicating 11% growth at the mid-point from the year-ago period’s reported figure.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -14.48% due to these changes.
VGM Scores
At this time, TreeHouse has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise TreeHouse has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
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TreeHouse Foods, Inc. (THS) : Free Stock Analysis Report
