With divestitures and escalating input costs acting as dampeners, TreeHouse Foods, Inc. THS has been in bad shape. Shares of this foods and beverage manufacturing company have declined 45% over the past six months, compared with the industry 's fall of 7.5%.
Well, the food industry has been grappling with stiff competition and changing consumer preferences. Despite these headwinds, companies such as United Natural Foods UNFI
, Tyson Foods TSN
and J. M. Smucker SJM
have been able to thrive and expand, courtesy of their well-chalked growth initiatives and business tie-ups. However, TreeHouse Foods' strategic efforts are yet to revive the company's performance. That said, lets look closely at some of the headwinds plaguing this Zacks Rank # 5 (Strong Sell) company's performance.
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Divestitures & Weak Pricing
TreeHouse Foods' fourth-quarter 2017 results marked its third consecutive quarter of year-over-year decline in earnings and sales. While earnings bore the brunt of soft sales and margins, revenues were mainly marred by divestiture of SIF (Canned Soup and Infant Feeding) business - which led to reduced sales at Baked Goods and Meals segments. Incidentally, the divestiture of the SIF business dented the company's revenues during the third quarter. In fact, soft sales trends compelled the company to announce the closure of its pretzels and cereals manufacturing facility in Visalia. The move is likely to further dent the performance of the company's Baked Goods segment. Further, intense industry competition has led to unfavorable pricing impacts in most of the company's segments. Moreover, volume/mix affected the Meals category.
Input Cost Surge Dents Margins
To add to the disappointments, TreeHouse Foods' performance has been bruised by higher freight and commodity costs, dragging its direct operating income (DOI) margin. During the fourth quarter, division DOI margin contracted 270 basis points year over year. Management expects input cost inflation to remain a headwind in 2018, wherein freight costs are also expected to be a major hurdle.
Rough Road Ahead
Unfortunately, management anticipates the aforementioned headwinds to linger, which is evident from its dismal first-quarter fiscal 2018 outlook. Earnings for the first quarter are expected in the range of 10-20 cents per share, which reflects a year-over-year decline due to soft sales volumes, operational inefficiencies and the unfavorable timing of elevated commodity and freight costs with respect to pricing.
Although TreeHouse foods has been stringently working toward business restructuring and reducing costs to better align its business with the changing industry landscape, such efforts are yet to offset persisting challenges.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report United Natural Foods, Inc. (UNFI): Free Stock Analysis Report Tyson Foods, Inc. (TSN): Free Stock Analysis Report The J. M. Smucker Company (SJM): Free Stock Analysis Report TreeHouse Foods, Inc. (THS): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research