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TreeHouse (THS) Up 6.9% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for TreeHouse Foods (THS). Shares have added about 6.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is TreeHouse due for a pullback? 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 Foods Q3 Earnings Beat Estimates

TreeHouse Foods posted third-quarter 2023 results, wherein the bottom line increased year over year and beat the Zacks Consensus Estimate.

Though net sales increased year over year on solid pricing, results were affected by a voluntary product recall and a discrete supply-chain headwind. These factors, along with soft co-manufacturing and food-away-from-home revenues and sluggish consumption in specific categories, were downsides. Consequently, management lowered its net sales guidance for 2023.

However, TreeHouse Foods surpassed the overall private brand market performance within the retail channel. TreeHouse Foods remains focused on improving its supply chain and implementing TMOS initiatives to strengthen its network. These aspects, along with robust brands, place the company well for the long run.

Quarter in Detail

TreeHouse Foods reported adjusted earnings from continuing operations of 57 cents per share, which beat the Zacks Consensus Estimate of 48 cents. TreeHouse Foods’ adjusted earnings from continuing operations came in at 36 cents in the year-ago period.

Net sales of $863.3 million advanced 3.6% year over year but came in lower than the Zacks Consensus Estimate of $955 million.

Growth in net sales was mainly driven by the buyout of the Coffee Roasting Capability, pricing actions undertaken to recover commodity inflation and higher retail volumes. This was somewhat offset by lower co-manufacturing and food-away-from-home volumes. Supply-chain hurdles also affected certain categories.

The volume/mix (excluding buyouts) fell 3.4%, whereas pricing increased 3.2%. Organic sales decreased 0.6%. TreeHouse Foods witnessed currency headwinds to the tune of 0.1%, and the volume/mix associated with acquisitions contributed 4.3% to net sales.

The gross margin of 15.9% contracted 0.1 percentage points from the year-ago quarter’s figure, mainly due to supply-chain hurdles stemming from a voluntary product recall. This was partly made up by pricing actions to recover commodity and freight inflation and reduced costs from operations.

Total operating expenses were $103.9 million, down from the $138.6 million reported in the year-ago quarter.

Adjusted EBITDA from continuing operations came in at $89.9 million, up from $79.6 million in the year-ago period. The upside can be attributed to improved pricing, partly negated by reduced fixed cost absorption and category mix.

Other Updates

TreeHouse Foods concluded the quarter with cash and cash equivalents of $19.7 million, long-term debt of $1,550.7 million and total shareholders’ equity of $1,695.8 million. In the first nine months of 2023, the company’s net cash from operating activities was $11 million.

During the third quarter, TreeHouse Foods bought back about 1.1 million shares for $50 million (excluding excise tax) and had shares worth $216.7 million pending under its buyback authorization.

Guidance

Management revised its 2023 guidance. For 2023, TreeHouse Foods now expects net sales in the band of $3,435-$3,465 million, which indicates growth of nearly 4.5% at the midpoint. Earlier, TreeHouse Foods expected net sales growth of 7.5-9.5% to a range of $3.71-$3.78 billion. The updated sales guidance reflects the impact of the Snacks Bars business divestiture, the product recall, a discrete supply-chain headwind and the continuation of ongoing consumer trends.

Adjusted EBITDA is likely to be $360-$370 million, suggesting 25% growth at the mid-point. For 2023, management expects a capital expenditure of $140 million.

For the fourth quarter, adjusted net sales are projected to be $910-$940 million, indicating a decline of 3% at the mid-point. The decrease is likely to be an effect of the voluntary recall and a discrete supply-chain headwind.

The adjusted gross margin is expected to see a slight increase sequentially and year over year in the fourth quarter due to TMOS and supply-chain savings efforts.

The company expects fourth-quarter adjusted EBITDA of $103-$113 million, indicating a 9% decrease at the mid-point due to the factors impacting quarterly sales and operating costs associated with the anticipated wind-down of considerable portions of the transition services agreement related to the sale of the Meal Preparation business.

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How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

The consensus estimate has shifted -23.63% due to these changes.

VGM Scores

At this time, TreeHouse has a poor Growth Score of F, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. 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.

Performance of an Industry Player

TreeHouse belongs to the Zacks Food - Miscellaneous industry. Another stock from the same industry, Kraft Heinz (KHC), has gained 8.3% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.

Kraft Heinz reported revenues of $6.57 billion in the last reported quarter, representing a year-over-year change of +1%. EPS of $0.72 for the same period compares with $0.63 a year ago.

For the current quarter, Kraft Heinz is expected to post earnings of $0.77 per share, indicating a change of -9.4% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.3% over the last 30 days.

Kraft Heinz has a Zacks Rank #2 (Buy) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.

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