TreeHouse Foods, Inc.THS reported better-than-expected fourth-quarter 2016 results, after a weak third quarter performance. The acquisition of Private Brands business from ConAgra Foods, Inc. CAG (closed in Feb 2016) led to the growth. Shares of the food company gained 12.4% yesterday.
The Illinois-based food company posted adjusted earnings per share of $1.14 in the fourth-quarter 2016. Earnings exceeded both the Zacks Consensus Estimate and the prior-year quarter's earnings of $1.08 by 5.6% and were ahead of the company's guided range of $1.07−$1.12 per share. Higher net sales driven by volume growth in base business has more than offset the lower gross margin related to the acquisition of the Private Brands business, which has a lower margin structure than the legacy TreeHouse business.
Net sales of $1.78 billion also surged 105.3% and beat the Zacks Consensus Estimate of $1.76 billion by 1.1%. The acquisition of the private brands operations and favorable volume/mix, primarily in the North American Retail Grocery segment, drove the sales. It was however partially offset by lower pricing. All the segments posted strong growth on a year-over-year basis.
Coming to the share price movement, Treehouse Foods has outperformed the Zacks categorized Food-Miscellaneous/Diversified industry in the last three months. While the industry grew 4.9%, the stock gave a return of 34.2%, over the same time frame.
Adjusted EBITDA increased 74.9% to $210.3 million, driven by the inclusion of operating income from the Private Brands acquisition and favorable commodity costs, partially offset by higher costs, unfavorable pricing primarily from competitive pressure, and higher variable incentive compensation.
Treehouse Foods, Inc. Price, Consensus and EPS Surprise
North American Retail Grocery : Segment sales surged 123.3% to $1.49 billion, driven by acquisitions and higher volume, offset by unfavorable pricing. Operating income increased 14.3% to $213.2 million in the quarter.
Food Away From Home : Segment sales grew 69.5% to $152 million, driven by acquisitions which more than offset the unfavorable impact from volume/mix and pricing. Operating income increased 12.3% to $18.7 million in the quarter.
Industrial and Export : Segment sales increased 22.8% to $131.4 million, driven by acquisitions and higher volume, offset by unfavorable pricing. Operating income increased 12.3% to $16.1 million in the quarter.
Adjusted earnings per share were $2.95 per share in 2016. Earnings exceeded the Zacks Consensus Estimate of $2.82 per share by 4.6% and were ahead of the company's guided range of $2.80−$2.85 per share. However, it declined 7.8% from the prior-year quarter's earnings of $3.20 per share.
Net sales were $6.18 billion in 2016, which surged 92.6% and also beat the Zacks Consensus Estimate of $6.16 billion by 0.2%.
The company expects the lower sales trends to continue in 2017 with overall top-line growth for the industry to be relatively flat. However, it anticipates margin improvement to persist in 2017 and 2018 as revenues from most of the Private Brands categories will begin to stabilize. TreeHouse remains on track to fully integrate its acquisition of the Private Brands business.
TreeHouse expects earnings in the range of $3.50 to $3.70 per share in 2017. Net sales are expected to increase to approximately $6.4-$6.6 billion in 2017, driven by volume gains and an additional month of sales from the Private Brands acquisition in 2017.
Gross margin is expected to be in a range of 19.5% to 20.5% due to favorable volume/mix, realized synergies from integrating the Private Brands Business, partially offset by an anticipated increase in commodity costs.
First Quarter 2017 Outlook
The company expects earnings in the range of 60 to 70 cents per share, compared to adjusted earnings of 48 cents per share in the first quarter of 2016. The expected increase is due to an additional month of Private Brands results and realized synergies from the Private Brands acquisition and facility restructurings.
Zacks Rank & Key Picks
TreeHouse carries a Zacks Rank #3 (Hold).
Lamb Weston has long-term earnings growth rate of 3.24% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Campbell, carrying a Zacks Rank #2 (Buy), has growth rate of 5.56%.
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