Can TreeHouse Foods' Restructuring Plans Lift Performance?
Solid restructuring initiatives as well as focus on boosting organic offerings are adding sheen to TreeHouse Foods, Inc. THS. However, sluggish sales trend and weaknesses in the snack’s unit are concerns. Let’s take a closer look at the aspects impacting this foods and beverages player.
Restructuring Efforts are Yielding
The company is progressing well with the Structure to Win program, which focuses on aligning SG&A expenses with division structures. Markedly, the company generated Structure to Win savings worth $75 million in 2018, which exceeded original full-year target of $30 million and run-rate target of $55 million. The company expects to maintain solid cost control in 2019, wherein it anticipates Structure to Win plan to continue yielding. This will enable TreeHouse Foods to cut SG&A expenses, which were earlier expected to decline by nearly $20 million (on a net basis) in 2019.
Additionally, the company is on track with 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. The plan 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, it made certain achievements in the first phase of the program.
The company is also progressing well with TreeHouse Management Operating Structure (TMOS). According to this plan, the company closed the Visalia pretzel plant in the first quarter of 2019 and announced the closure of Minneapolis Snacks plant. TreeHouse Foods has rolled out TMOS to 15 sites and launched lean production facilities at 12 places.
Efforts to Strengthen Portfolio
TreeHouse Foods focuses on expanding product offerings through acquisitions. Some of the noteworthy buyouts include Private Brands, Flagstone Foods, and Naturally Fresh, Inc. among others.
Apart from this, the company is trying to bolster footing in the organic foods space. Notably, premium, better for you, natural and organic offerings contribute more than 21% to the company’s sales. In fact, we note that the restaurants and retailers are increasing the use of cage-free eggs, as they are healthy. The company expects sustained growth in these areas and it continues to focus on developing formulations, packaging and improving sizes.
Can Efforts Cushion Headwinds?
The company’s first-quarter 2019 results marked its eighth consecutive quarter of year-over-year sales decline. The downside was caused by SKU rationalization of low-margin businesses and the divestiture of McCann's business. Excluding SKU rationalization and divestiture impacts, sales declined primarily due to adverse volume/mix and foreign currency headwinds.
Moreover, we note that softness in the Snacks segment is a persistent concern. Troubles in the division prompted management to announce the closure of the Snack nuts and Trail mix plant in Minnesota. Meanwhile, the company continues to review strategic opportunities for the snacks business and expects to complete the same by August. Going ahead, management expects the Snacks and Meals Solutions business to drag second-quarter results.
Due to such headwinds, shares of the company have declined 7.7% in the past three months, against the industry’s rise of 7.1%.
Nevertheless, we expect this Zacks Rank #3 (Hold) company to tide over the aforementioned hurdles on the back of solid restructuring initiatives. This is likely to help boost investors’ confidence.
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General Mills GIS, with a Zacks Rank #2, has long-term earnings growth rate of 7%.
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