TreeHouse Foods, Inc. (
reported second quarter 2012 adjusted earnings of 60 cents per
share, beating the Zacks Consensus Estimate of 58 cents. The
adjusted earnings per share also surpassed the year-ago earnings of
43 cents by 39.5%. On a reported basis, earnings came in at 53
cents per share, compared with 39 cents in the year-ago
Total revenue jumped 7.1% year over year to $527.4 million. The
year-over-year improvement was attributable to positive effect of
increased pricing and increase in segment revenue due to
acquisition of Naturally Fresh Inc. in the previous quarter.
However, revenue missed the Zacks Consensus Estimate of $535.0
North American Retail Grocery segment
Net revenue for the segment surged 5.9% year over year to $371.5
million, driven by 4.8% increase in pricing and gains from the
acquisition of Naturally Fresh and partially offset by reduction in
sales volume in powdered drinks and soup categories. Direct
operating income in the reported quarter increased 1.5% year over
year to $54.9 million due to higher input and production costs
being partially offset by pricing actions.
Food Away From Home segment
Net revenue for the segment jumped 11.0% year over year to $87.9
million, driven by 4.9% increase in pricing and gains from the
acquisition of Naturally Fresh and partially offset by 3.7%
reduction in sales volume of pickles and Mexican sauces. Also,
direct operating income improved 4.0% year over year to $10.5
million in the quarter.
Industrial and Export segment
Net revenue for the segment upped 8.7% year over year to $68.0
million, boosted by increased pricing and overall sales volume.
However, direct operating income dipped 21.6% year over year to
$8.3 million, primarily due to higher input and distribution
Openings and Closures
The company is highly focused on quality offerings along with
optimization of production costs. In this connection the company
announced closure of various facilities in the coming year.
TreeHouse expects to cease production at its Mendota, Illinois
soup facility in the first quarter of 2013. The company plans to
move the production to its Pittsburgh soup facility. Total closure
cost (including non-cash asset write-offs, severance and other
costs related to closure) is expected to be around $17.7 million.
The plant closure has been planned in consideration of the
declining retail sales trend of soups over the last five years.
TreeHouse also plans to stop production at the salad dressing
facility at Seaforth, Ontario, Canada in the second quarter of
2013. Total closure cost (including non-cash asset write-off,
severance and other costs related to closure) is expected to be
around $17.3 million. The company aims ultimately to move
production of salad dressings to other manufacturing plants which
have undergone capacity expansion over the last two years.
The company expects total revenue to be around $2.2 billion,
which will represent year-over-year increase of 8%. In addition,
TreeHouse decreased its adjusted earnings per share guidance for
2012 and now expects adjusted earnings in the range of $2.75 to
$2.90 per share, down from the previous guidance of $3.00 to $3.15.
The pessimism reflects TreeHouse's lower revenue expectations for
soups in the coming quarters.
We remain cautious about the strong earnings growth in the
coming quarters considering the declining trend of company's soup
revenue. Based on this, we expect analysts to revise their
estimates downward in the coming days. Currently, the Zacks
Consensus Estimate for 2012 and 2013 are pegged at $3.07 and $3.43,
Illinois-based TreeHouse, which competes with the likes of
Ralcorp Holdings Inc.
, currently carries a Zacks #3 Rank, implying a short-term Hold
rating. We also reiterate our long-term Neutral recommendation on
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TREEHOUSE FOODS (THS): Free Stock Analysis
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