2020 Strategy, Buyouts Aid TreeHouse Foods, Input Costs High

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TreeHouse Foods, Inc.THS is on track with its TreeHouse 2020 strategic plan that was announced in second-quarter 2017. The plan has been designed to restructure and realign the business as a whole. Alongside cost savings, the initiative is expected to manage the company's portfolio, and optimize production and supply chain. 

TreeHouse 2020 aims to improve the company's operating margin by 300 basis points (bps) by the end of 2020, by undertaking complete business integration and expense reduction. The company expects to invest these savings in market-differentiated capacities to cater to consumers' ever-changing demands. In this regard, the company made certain achievements in the first phase of the program. Also, the company is on track to simplify structure, undertake plant consolidation and complete the rollout of the TreeHouse Management Operating System in 2018.

Further, TreeHouse Foods has always been focused on expanding its product offerings through acquisitions. In February 2016, the company acquired Private Brands Business for $2.7 billion. The addition of Private Brands aided revenues and helped the company lower debt. TreeHouse Foods' other acquisitions include Flagstone Foods, PFF Capital Group, Inc. ("Protenergy"), Cains Foods, L.P., Associated Brands, and Naturally Fresh, Inc. The company expects to utilize its scale, management depth, integration expertise and access to capital to pursue both small and large acquisitions in future.

Escalated Costs Weigh on Margins

TreeHouse Foods has been posting lower DOI margin for the past four quarters, owing to higher commodity and freight costs. During the second quarter, division DOI margin declined 140 bps to 9.9%, due to volume/mix impacts and escalated freight expenses. Notably, DOI margins declined in all segments, except Condiments. Freight and commodity costs also weighed on TreeHouse Foods' gross and EBITDA margins in the second quarter. Unfortunately, freight and commodity cost headwinds are expected to linger in 2018, which is a threat to margins.

In fact, many other food companies like Campbell Soup CPB , Lamb Weston LW and General Mills GIS are also battling input cost inflation. Coming back to TreeHouse Foods, we expect the company's aforementioned drivers and strong product portfolio to help offset hurdles.

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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 Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: CPB , THS , GIS , LW

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