Pricing & Cost Woes to Mar TreeHouse Foods (THS) Q1 Earnings

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TreeHouse Foods, Inc.THS is slated to release first-quarter 2018 results on May 3. This manufacturer of packaged foods and beverages has a mixed record of earnings surprises over the trailing four quarters. Let's see what's in store for TreeHouse Foods this time around.

TreeHouse Foods, Inc. Price and EPS Surprise

TreeHouse Foods, Inc. Price and EPS Surprise | TreeHouse Foods, Inc. Quote

Headwinds Looming Over TreeHouse Foods

TreeHouse Foods' last reported results marked its third consecutive quarter of year-over-year decline in earnings and sales. The company has been bearing the brunt of pricing pressure stemming from stiff competition in the grocery industry. This, along with commodity cost inflation and rising freight costs has been marring TreeHouse Foods' DOI margin for a while now.

These factors were reflected in the fourth quarter, wherein earnings bore the brunt of soft sales and margins, whereas revenues were marred by divestiture of SIF (Canned Soup and Infant Feeding) business. Divestiture of SIF business led to reduced sales at Baked Goods and Meals segments. Further, intense industry competition pressurized pricing in most segments, while volume/mix also remained challenged in the Meals segment. Apart from this, higher freight and commodity costs weighed upon the company's direct operating income (DOI) margin, which marked its second consecutive quarter of year-over-year contraction.

Can Strategy for 2020 Provide Respite?

The company remains on track with its TreeHouse 2020 strategic plan that was announced in second-quarter 2017. The plan was designed to restructure and realign the business as a whole. Alongside of 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 bps by the end of 2020, by undertaking complete business integration and expense reduction.

However, it looks like these efforts will take time to offset the hurdles completely. Unfortunately, management expects input cost inflation to remain a headwind in 2018, wherein freight costs are also expected to be a major deterrent. These hiccups also weighed on management's guidance for the first quarter. Earnings for the first quarter are expected in the range of 10-20 cents per share, which shows a year-over-year decline due to soft volumes, operational inefficiencies, and the unfavorable timing of elevated commodity and freight costs with respect to pricing.

The Zacks analysts expect earnings for the quarter to slump 77.1% year over year to 14 cents. This estimate has remained stable over the past 30 days. Also, the Zacks Consensus Estimate for revenues is $1,427 million, down from $1,536 million recorded in the year-ago period.

What the Zacks Model Unveils

Our proven model doesn't show that TreeHouse Foods is likely to beat bottom-line estimates this quarter. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Even though TreeHouse Foods has an Earnings ESP of +1.03%, the company's Zacks Rank #5 (Strong Sell) makes surprise prediction difficult. Notably, we caution against stocks with a Zacks Rank #4 (Sell) or 5 going into earnings announcements.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Church & Dwight CHD a Zacks #3 Ranked stock, has an Earnings ESP of +0.52%. You can see  the complete list of today's Zacks #1 Rank stocks here .

Colgate CL , a #3 Ranked company, has an Earnings ESP of +0.69%.

Estee Lauder EL has an Earnings ESP of +0.50% and a Zacks Rank of 3.

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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 , Earnings , Stocks
Referenced Symbols: EL , THS , CL , CHD

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