TreeHouse Moves Ahead with Flagstone Acquisition - Analyst Blog


Per Reuters, TreeHouse Foods, Inc. ( THS ) is in advanced talks to acquire Flagstone Foods -- a Minneapolis-based maker of dried fruits and nuts -- for around $800-$900 million. TreeHouse has reportedly truimphed over a Chinese group at the auction for Flagstone. TreeHouse expressed its interest in buying Flagstone in May.

This IL-based food manufacturer is on an acquisition spree and has expanded into new categories and markets. In fact, TreeHouse has acquired around six food companies in the past four years.

On May 30, the company completed the all-cash acquisition of Protenergy Natural Foods, which was announced on Apr 21, for approximately $150 million (CAD $170 million). Protenergy Natural Foods is an industry leading developer and manufacturer of premium quality food and beverage products. Besides adding items such as soups, broths, and gravies to TreeHouse's portfolio, the acquisition will also add $200 million in revenues.

Also, TreeHouse will leverage the potential of Protenergy to bolster its private-label soup offerings and gain access to the private-label category. The company is tweaking its packaging from steel cans to re-sealable cartons and is also introducing tetra packs. Moreover, the combination of these companies will focus on delivering innovative and quality products. The deal will positively impact the company's 2014 earnings by approximately 5 cents to 7 cents and also benefit 2015 earnings by approximately 11 cents to 14 cents.

These acquisitions have played an important role in pulling up the revenues of the company. Recently, the company reported its first quarter 2014 results. Adjusted earnings increased 8.1% from the prior year quarter and revenues grew 14.6%, driven by acquisitions of Cains Foods and Associated Brands, made last year. The company's top-line growth was also driven by single-serve coffee and productivity gains. We also expect the Flagstone acquisition, if it happens, to improve TreeHouse's performance going forward.

However, the company needs to be careful with its acquisitions as both Cains Foods and Associated Brands have lower margins, thereby creating margin pressure.

TreeHouse carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Other better-ranked companies in the food industry include BRF S.A. ( BRFS ), The Hain Celestial Group, Inc. ( HAIN ) and Inventure Foods, Inc. ( SNAK ). While BRF S.A. and Hain Celestial carry a Zacks Rank #1 (Strong Buy), Inventure holds a Zacks Rank #2.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: HAIN , SNAK , BRFS , THS

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