Against a backdrop of challenging consumer trends within the food and beverage space, TreeHouse Foods, Inc. (THS) released its fourth-quarter results for 2023. Unfortunately, the figures reflected a decline in both top and bottom lines compared to the previous fiscal. Despite the robust strength of the private brand sector, net sales did not meet expectations and as a result, the company suffered a 15.5% plunge in share value on February 16.
Over the last three months, THS shares have experienced an 11.4% drop, a stark contrast to the industry’s 4.3% growth during the same period. The company’s performance certainly raises concerns among stakeholders and underscores the need for strategic interventions to reverse the downward trend.
Quarter in Detail
TreeHouse Foods reported adjusted earnings of 77 cents per share which surpassed the Zacks Consensus Estimate of 71 cents. However, this positive result was overshadowed by a year-over-year decline from an adjusted 97 cents per share in the previous period.
Net Sales and Operational Performance
Net sales of $910.8 million recorded a 4.8% decrease year-over-year, falling short of the Zacks Consensus Estimate of $927 million. The downward trajectory in net sales can be attributed to adverse volume/mix in the retail business, supply-chain obstacles at one of THS’ broth facilities, and challenges in the pretzels and cookies categories. Furthermore, planned distribution exits exacerbated the decline, particularly in the in-store bakery and coffee categories. Although offset by volume/mix gains from the Coffee Roasting Capability acquisition, organic sales experienced an 8% decline due to a drop in volume/mix, while pricing increased by 0.1%.
The gross margin also contracted, coming in at 16.7%, a 1.6 percentage point reduction from the previous year, mainly due to supply-chain issues, adverse fixed cost absorption, and elevated costs related to labor and manufacturing plant maintenance. The company reported an increase in operating expenses, largely due to higher severance expenses and lower TSA income, offset by reductions in professional fees, freight costs, brokerage commissions, and retention bonus expenses. Adjusted EBITDA from continuing operations declined to $108.4 million from $118.5 million in the year-ago period due to these factors.
Financial Position and Guidance
As of the end of 2023, TreeHouse Foods had cash and cash equivalents of $320.3 million, long-term debt of $1,396 million, and total shareholders’ equity of $1,664.8 million. Looking ahead, the company anticipates net sales in the range of $3.43-$3.5 billion for 2024, indicating near-flat to 2% growth over 2023. Additionally, they expect adjusted EBITDA from continuing operations in the range of $360-$390 million, incurring a slight decline from the figure reported in 2023.
For the upcoming quarter, net sales are projected to decrease by nearly 7% at the midpoint with forecasts anticipating mid-single-digit volume and mix decreases, primarily due to capacity constraints at one of the broth facilities and deflationary pricing.
Other Solid Picks
Amidst a challenging landscape, other companies like Chewy (CHWY), e.l.f. Beauty, Inc. (ELF), and Inter Parfums (IPAR) are proving to be solid performers. Chewy, in particular, has demonstrated impressive growth and currently holds a Zacks Rank #1 (Strong Buy) with a trailing four-quarter earnings surprise of 234.1%, on average.
While these companies may be faring well in comparison to THS, the broader financial landscape remains volatile, with no guarantee of continued success. Investors would be wise to carefully consider any potential investments and remain cautious in these uncertain times.
