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Treehouse Foods (THS) Appears Attractive: Time to Buy?
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Treehouse Foods Inc. (THS - Free Report) has been riding on the back of its solid fundamentals, cost cutting initiatives and expansion through back-to-back acquisitions. Also, this Zacks Rank #2 (Buy) stock appears to be a sound investment opportunity, with a long-term earnings growth rate of 17.50% and a VGM Score of “B”. Moreover, the stock has jumped over 23.5% year to date. Let’s delve deeper to find out what’s leading to the bullish run for this Illinois-based food company.
Driving Factors
Treehouse Foods has witnessed positive same store growth trends in food away from home outlets, which mainly focus on clean ingredients and labels, resulting in higher demand for “natural” or organic type products. This is owing to customers’ changing preference toward more freshly prepared foods, and natural, organic, or specialty foods. The company expects continued growth in this area and will focus on the necessary resources available to address these trends, and prioritize consumer’s needs by developing new formulations, packaging, and sizes.
In addition, it has expanded its product offerings through a number of acquisitions in the past. The most recent one was in Feb 2016, when Treehouse Foods acquired the Private Brands Business from ConAgra Foods, Inc. (CAG - Free Report) for $2.7 billion. The Private Brands Business is a leading manufacturer of private label refrigerated and shelf stable products in the bars, bakery, cereal, condiments, pasta, and snacks categories. The addition of Private Brands will boost the company’s portfolio and is expected to be more accretive to fourth-quarter seasonal sales. This will lead to a higher percentage of both sales and profits in the third quarter.
The company expects to utilize its scale, management depth, integration expertise and access to capital to pursue both small and large acquisitions in the future.
We note that the company is also in the process of cutting costs and improving efficiency. It is closing and consolidating facilities, which will help maintain margins.
Recently, TreeHouse Foods reported second-quarter 2016 earnings of 54 cents per share, in line with the Zacks Consensus Estimate. However, earnings declined 18.2% from the year-ago level due to lower gross margin and currency headwinds. Net sales missed the Zacks Consensus Estimate by 2.5% due to the lower margin structure of the acquired business of Private Brands. Nonetheless, sales surged 103.3% year over year due to the buyout of the private brands operations of ConAgra Foods and favorable volume/mix, primarily in the North American Retail Grocery segment.
Notably, the company has delivered positive earnings surprises in three of the past four quarters. In the trailing four quarters, it outperformed the Zacks Consensus Estimate by an average of 7.12%.
For 2016, TreeHouse is optimistic about its acquisitions and plans to focus on integrating its recently closed acquisition of the Private Brands Business.
TreeHouse’s net sales are expected to double in 2016 to approximately $6.3−$6.5 billion, driven by the addition of the Private Brands Business, despite its lower margin structure than the legacy TreeHouse business.
We believe TreeHouse Foods’ positive earnings surprise history, coupled with strong earnings potential underscore its solid future potential.
Other Stocks to Consider
Some other well-ranked stocks in the food industry include Ingredion, Inc. (INGR - Free Report) and Omega Foods Corp. , both sporting a Zacks Rank #1 (Strong Buy).
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Treehouse Foods (THS) Appears Attractive: Time to Buy?
Treehouse Foods Inc. (THS - Free Report) has been riding on the back of its solid fundamentals, cost cutting initiatives and expansion through back-to-back acquisitions. Also, this Zacks Rank #2 (Buy) stock appears to be a sound investment opportunity, with a long-term earnings growth rate of 17.50% and a VGM Score of “B”. Moreover, the stock has jumped over 23.5% year to date. Let’s delve deeper to find out what’s leading to the bullish run for this Illinois-based food company.
Driving Factors
Treehouse Foods has witnessed positive same store growth trends in food away from home outlets, which mainly focus on clean ingredients and labels, resulting in higher demand for “natural” or organic type products. This is owing to customers’ changing preference toward more freshly prepared foods, and natural, organic, or specialty foods. The company expects continued growth in this area and will focus on the necessary resources available to address these trends, and prioritize consumer’s needs by developing new formulations, packaging, and sizes.
In addition, it has expanded its product offerings through a number of acquisitions in the past. The most recent one was in Feb 2016, when Treehouse Foods acquired the Private Brands Business from ConAgra Foods, Inc. (CAG - Free Report) for $2.7 billion. The Private Brands Business is a leading manufacturer of private label refrigerated and shelf stable products in the bars, bakery, cereal, condiments, pasta, and snacks categories. The addition of Private Brands will boost the company’s portfolio and is expected to be more accretive to fourth-quarter seasonal sales. This will lead to a higher percentage of both sales and profits in the third quarter.
The company expects to utilize its scale, management depth, integration expertise and access to capital to pursue both small and large acquisitions in the future.
We note that the company is also in the process of cutting costs and improving efficiency. It is closing and consolidating facilities, which will help maintain margins.
TREEHOUSE FOODS Price and Consensus
TREEHOUSE FOODS Price and Consensus | TREEHOUSE FOODS Quote
Healthy Q2 Performance
Recently, TreeHouse Foods reported second-quarter 2016 earnings of 54 cents per share, in line with the Zacks Consensus Estimate. However, earnings declined 18.2% from the year-ago level due to lower gross margin and currency headwinds. Net sales missed the Zacks Consensus Estimate by 2.5% due to the lower margin structure of the acquired business of Private Brands. Nonetheless, sales surged 103.3% year over year due to the buyout of the private brands operations of ConAgra Foods and favorable volume/mix, primarily in the North American Retail Grocery segment.
Notably, the company has delivered positive earnings surprises in three of the past four quarters. In the trailing four quarters, it outperformed the Zacks Consensus Estimate by an average of 7.12%.
For 2016, TreeHouse is optimistic about its acquisitions and plans to focus on integrating its recently closed acquisition of the Private Brands Business.
TreeHouse’s net sales are expected to double in 2016 to approximately $6.3−$6.5 billion, driven by the addition of the Private Brands Business, despite its lower margin structure than the legacy TreeHouse business.
We believe TreeHouse Foods’ positive earnings surprise history, coupled with strong earnings potential underscore its solid future potential.
Other Stocks to Consider
Some other well-ranked stocks in the food industry include Ingredion, Inc. (INGR - Free Report) and Omega Foods Corp. , both sporting a Zacks Rank #1 (Strong Buy).
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>