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TreeHouse (THS) Down 19.1% Since Last Earnings Report: Can It Rebound?
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A month has gone by since the last earnings report for TreeHouse Foods (THS - Free Report) . Shares have lost about 19.1% 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 the most recent earnings report in order to get a better handle on the important catalysts.
TreeHouse Q4 Earnings Beat on Strong Demand & Pricing
TreeHouse Foods posted fourth-quarter 2021 results. On the earnings release, management stated that it is on track with the previously announced plans to explore strategic alternatives for the business. This includes a potential sale of the company or divesting a significant portion of the Meal Preparation business to focus more on the Snacking and Beverages business. The move follows the company’s strategic review process, which began earlier this year. Management highlighted that these efforts are likely to boost shareholders’ returns.
The company reported adjusted earnings from continuing operations of 11 cents per share, beating the Zacks Consensus Estimate of 8 cents. The bottom line declined significantly from $1.07 reported in the year-ago quarter. TreeHouse Foods, Inc. Price, Consensus and EPS Surprise
Net sales of $1,165.9 million surpassed the consensus mark of $1,122 million. The top line, however, dropped 1% year over year. The results were marred by the ongoing supply-chain disruptions, which significantly hurt the company’s ability to fulfill the strong demand. Unfavorable volume/mix of 9.4% (excluding acquisitions), owing to supply-chain headwinds, hurt the top line. This was partly negated by 5.6% gains from pricing, which helped recover the inflation in commodity and freight costs. The gains from the pasta acquisition, higher demand from food-away-from-home and co-manufacturing sales channels, new product sales, and favorable Canadian foreign exchange also aided the results. Organic sales declined 3.8% in the reported quarter.
The gross margin of 14.7% contracted 470 basis points from the year-ago quarter’s figure. The decline was caused by supply-chain disruptions, leading to higher labor costs and supply shortages, as well as commodity inflation. This was partly mitigated by favorable pricing actions to recover commodity and freight cost inflation, and unfavorable volume/mix stemming from increased food-away-from-home demand. Lower costs related to the COVID-19 pandemic also offset the decline in the gross margin.
Total operating expenses, as a percentage of sales, increased 1.6 percentage points to 16.4% due to higher freight costs. Adjusted EBITDA from continuing operations slumped 47.3% to $81.2 million, as pricing actions did not fully offset elevated costs resulting from labor shortages and supply-chain disruptions, leading to commodity and freight cost inflation. The adjusted EBITDA margin declined 610 bps to 7% in the reported quarter.
Meal Preparation: Sales in the segment rose 0.6% year over year to $721.4 million. The increase was driven by favorable pricing to recover commodity and freight cost inflation, gains from the pasta business acquisition, and increased demand in the food-away-from-home and co-manufacturing sales channels. This was partly negated by unfavorable volume/mix (excluding acquisitions) resulting from supply-chain disruptions hurting its ability to service demand. Distribution losses outpacing distribution gains in the retail sales channel also hurt volume. Volume/mix (excluding acquisitions) declined 11%, while pricing improved 7.1% in the quarter. Organic net sales for the segment declined 3.9%. The direct operating income (DOI) margin for the segment contracted 7.1 percentage points year over year, driven by supply-chain disruptions, offset by pricing actions.
Snacking & Beverages: Net sales declined 3.6% to $444.5 million, driven by a 3.9% fall in organic net sales. Net sales were impacted by unfavorable volume/mix (excluding acquisitions) of 7.1%, offset by pricing gains of 3.2%. Volume/mix was affected by supply-chain disruptions and lower COVID-related retail grocery demand in 2021 compared with the peak in the prior year, partly offset by new product sales, particularly in the Liquid Beverages category. Pricing benefited from pricing actions to recover commodity and freight cost inflation. The DOI margin fell 6 percentage points.
Other Financial Updates & Guidance
The company concluded 2021 with cash and cash equivalents of $308.6 million, long-term debt (excluding operating lease liabilities) of $1,890.7 million, and total shareholders’ equity of $1,845.4 million. In 2021, cash provided by operating activities of continuing operations amounted to $332.1 million.
Management provided its 2022 guidance. For 2022, net sales are anticipated to increase a minimum of 11% year over year. Net sales for 2022 are expected to mainly benefit from pricing actions, offset by volume constraints stemming from labor shortages and supply-chain disruptions. Adjusted EBITDA is estimated to be $385-$415 million for 2022, indicating growth of 5% at the mid-point. The company expects the majority of earnings growth to come in the second half of 2022, as labor shortages and supply-chain disruptions are likely to impact profitability and volume in the first half.
For first-quarter 2022, the company anticipates a further decline in the adjusted EBITDA margin (both sequentially and year over year). However, it expects adjusted EBITDA to improve as the year progresses, driven by the implementation of increased pricing actions to offset inflation at the end of the first quarter. Also, the company expects to benefit from further actions to mitigate the impacts of labor and supply-chain disruptions, which is likely to aid volume and profitability.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -764% due to these changes.
VGM Scores
Currently, TreeHouse has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 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. Notably, TreeHouse has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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TreeHouse (THS) Down 19.1% Since Last Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for TreeHouse Foods (THS - Free Report) . Shares have lost about 19.1% 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 the most recent earnings report in order to get a better handle on the important catalysts.
TreeHouse Q4 Earnings Beat on Strong Demand & Pricing
TreeHouse Foods posted fourth-quarter 2021 results. On the earnings release, management stated that it is on track with the previously announced plans to explore strategic alternatives for the business. This includes a potential sale of the company or divesting a significant portion of the Meal Preparation business to focus more on the Snacking and Beverages business. The move follows the company’s strategic review process, which began earlier this year. Management highlighted that these efforts are likely to boost shareholders’ returns.
The company reported adjusted earnings from continuing operations of 11 cents per share, beating the Zacks Consensus Estimate of 8 cents. The bottom line declined significantly from $1.07 reported in the year-ago quarter.
TreeHouse Foods, Inc. Price, Consensus and EPS Surprise
Net sales of $1,165.9 million surpassed the consensus mark of $1,122 million. The top line, however, dropped 1% year over year. The results were marred by the ongoing supply-chain disruptions, which significantly hurt the company’s ability to fulfill the strong demand. Unfavorable volume/mix of 9.4% (excluding acquisitions), owing to supply-chain headwinds, hurt the top line. This was partly negated by 5.6% gains from pricing, which helped recover the inflation in commodity and freight costs. The gains from the pasta acquisition, higher demand from food-away-from-home and co-manufacturing sales channels, new product sales, and favorable Canadian foreign exchange also aided the results. Organic sales declined 3.8% in the reported quarter.
The gross margin of 14.7% contracted 470 basis points from the year-ago quarter’s figure. The decline was caused by supply-chain disruptions, leading to higher labor costs and supply shortages, as well as commodity inflation. This was partly mitigated by favorable pricing actions to recover commodity and freight cost inflation, and unfavorable volume/mix stemming from increased food-away-from-home demand. Lower costs related to the COVID-19 pandemic also offset the decline in the gross margin.
Total operating expenses, as a percentage of sales, increased 1.6 percentage points to 16.4% due to higher freight costs. Adjusted EBITDA from continuing operations slumped 47.3% to $81.2 million, as pricing actions did not fully offset elevated costs resulting from labor shortages and supply-chain disruptions, leading to commodity and freight cost inflation. The adjusted EBITDA margin declined 610 bps to 7% in the reported quarter.
Meal Preparation: Sales in the segment rose 0.6% year over year to $721.4 million. The increase was driven by favorable pricing to recover commodity and freight cost inflation, gains from the pasta business acquisition, and increased demand in the food-away-from-home and co-manufacturing sales channels. This was partly negated by unfavorable volume/mix (excluding acquisitions) resulting from supply-chain disruptions hurting its ability to service demand. Distribution losses outpacing distribution gains in the retail sales channel also hurt volume. Volume/mix (excluding acquisitions) declined 11%, while pricing improved 7.1% in the quarter. Organic net sales for the segment declined 3.9%. The direct operating income (DOI) margin for the segment contracted 7.1 percentage points year over year, driven by supply-chain disruptions, offset by pricing actions.
Snacking & Beverages: Net sales declined 3.6% to $444.5 million, driven by a 3.9% fall in organic net sales. Net sales were impacted by unfavorable volume/mix (excluding acquisitions) of 7.1%, offset by pricing gains of 3.2%. Volume/mix was affected by supply-chain disruptions and lower COVID-related retail grocery demand in 2021 compared with the peak in the prior year, partly offset by new product sales, particularly in the Liquid Beverages category. Pricing benefited from pricing actions to recover commodity and freight cost inflation. The DOI margin fell 6 percentage points.
Other Financial Updates & Guidance
The company concluded 2021 with cash and cash equivalents of $308.6 million, long-term debt (excluding operating lease liabilities) of $1,890.7 million, and total shareholders’ equity of $1,845.4 million. In 2021, cash provided by operating activities of continuing operations amounted to $332.1 million.
Management provided its 2022 guidance. For 2022, net sales are anticipated to increase a minimum of 11% year over year. Net sales for 2022 are expected to mainly benefit from pricing actions, offset by volume constraints stemming from labor shortages and supply-chain disruptions. Adjusted EBITDA is estimated to be $385-$415 million for 2022, indicating growth of 5% at the mid-point. The company expects the majority of earnings growth to come in the second half of 2022, as labor shortages and supply-chain disruptions are likely to impact profitability and volume in the first half.
For first-quarter 2022, the company anticipates a further decline in the adjusted EBITDA margin (both sequentially and year over year). However, it expects adjusted EBITDA to improve as the year progresses, driven by the implementation of increased pricing actions to offset inflation at the end of the first quarter. Also, the company expects to benefit from further actions to mitigate the impacts of labor and supply-chain disruptions, which is likely to aid volume and profitability.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
The consensus estimate has shifted -764% due to these changes.
VGM Scores
Currently, TreeHouse has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 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. Notably, TreeHouse has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.