Quantcast

Will Strategy for 2020 Fuel TreeHouse Foods Amid Cost Woes?


Shutterstock photo

Treehouse Foods, Inc . THS remains on track with its TreeHouse 2020 strategic plan, which is likely to boost margins and improve the company's bottom line.

The plan was announced in the second quarter of 2017 with an intention to restructure and realign the business as a whole. TreeHouse 2020 plan aims to improve the company's operating margin by 300 bps, by the end of 2020. The plan focuses on undertaking complete business integration and expense reduction. The company plans to invest these savings in market differentiated capacities to cater to consumers' ever-changing demands.

Also, the company remains on track to close certain facilities, shut at least 15 production lines and complete the rollout of the TreeHouse Management Operating System in 2018. It looks like the focus on TreeHouse 2020 and an expected annual savings of about $55 million from the company's Structure to Win plan has raised investors' confidence in TreeHouse Foods' stock. Evidently, shares of the Zacks Rank #3 (Hold) company have surged 36% in the past three months, against the industry 's growth of 3.1%.


Apart from the TreeHouse 2020 plan, the company is focused on organic foods as consumers appear to be more interested in foods described as being "better for you," which include fresh or freshly prepared foods, and natural, organic, or specialty foods. Moreover, Treehouse Foods has witnessed positive comparable store sales growth trends in food away from home outlets, which mainly focus on clean ingredients and labels, resulting in higher demand for "natural" or organic type products. Notably, premium, better for you, and natural and organic offerings now form more than 21% of the company's sales.

High Costs Pose as Headwinds

However, the company has been witnessing lower direct operating income (DOI) margin for the past three quarters, owing to higher commodity and freight costs. During the first quarter, division DOI margin contracted 270 bps year over year to 8.9%, due to volume/mix impacts, unfavorable pricing with respect to the rising commodity expenses, escalated freight expenses and impact from SKU rationalization. In fact, DOI margins declined in all segments, except Meals. Management expects increased freight and commodity costs to remain headwinds for some time now. These barriers also weighed on management's guidance for the second quarter.

Nevertheless, we believe that the above-mentioned initiatives will help TreeHouse Foods counter the cost hurdles and drive the company's results.

Looking for Better Stocks? Check These

Medifast MED , a Zacks Rank #1 (Strong Buy) stock, has long-term earnings per share growth rate of 15%. You can see the complete list of today's Zacks #1 Rank stocks here .

The Chef's Warehouse CHEF , a Zacks Rank #2 stock, has long-term earnings per share growth rate of 22%.

Tate & Lyle TATYY , a Zacks Rank #2 stock, has long-term earnings per share growth rate of 3.1%.

Today's Stocks from Zacks' Hottest Strategies

It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.

And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite
yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.

See Them Free>>


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

The Chefs' Warehouse, Inc. (CHEF): Free Stock Analysis Report

TreeHouse Foods, Inc. (THS): Free Stock Analysis Report

MEDIFAST INC (MED): Free Stock Analysis Report

Tate & Lyle PLC (TATYY): Free Stock Analysis Report

To read this article on Zacks.com click here.

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: CHEF , THS , MED , TATYY


More from Zacks.com

Subscribe






Zacks.com
Contributor:

Zacks.com

Equity Research








Research Brokers before you trade

Want to trade FX?