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Why TreeHouse Foods Inc. Stock Fell Thursday

Daniel Sparks, The Motley Fool

What happened

Shares of food and beverage manufacturer TreeHouse Foods (NYSE: THS) fell Thursday by as much as 15.5%. The stock is down 13% at the time of this writing.

The drop came after management admitted "disappointing" fourth-quarter operational results. TreeHouse also announced plans to close its manufacturing facility in Visalia, California, where it produces pretzels and cereal snack mixes, by the end of the first quarter of 2018.

A chalkboard sketch of a chart showing an arrow pointing down.

Image source: Getty Images.

So what

TreeHouse's fourth-quarter net sales were $1.70 billion, down from $1.78 billion in the year-ago quarter. Adjusted earnings per share landed at $1.02, compared to $1.14 in the year-ago quarter. Both figures were above consensus analyst estimates, but TreeHouse missed the mark on guidance. The company said it expected earnings per share in 2018 to be between $2.00 and $2.40. On average, analysts were anticipating EPS of about $2.77 during the period.

TreeHouse's plans to close its manufacturing facility in Visalia "is consistent with the August 2017 announcement of TreeHouse 2020, the Company's restructuring program," management noted.

The restructuring program is a multiyear plan aimed at reducing its cost structure, freeing up capital to help TreeHouse invest in market-differentiation opportunities.

The store's closure will include the elimination of 294 jobs.

Now what

Explaining some of its worse-than-expected guidance for earnings per share, TreeHouse expects the closure of its facility in Visalia to result in about $0.28 of charges per share. Adding back in this $0.28, guidance would have been for 2018 EPS of $2.28 to $2.68.

"2018 will be a transition year," said CEO Sam Reed. "Although the retail grocery landscape continues to evolve, private label absolutely continues to be the right place to be within food and beverage."

Despite this optimism, TreeHouse investors will need to be patient. "It will take some time for our TreeHouse 2020 initiatives to manifest them in our results," Reed said.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.