TreeHouse Foods, Inc. THS reported mixed third-quarter fiscal 2024 results. The bottom line improved year over year and matched the Zacks Consensus Estimate, while the top line declined and missed the same. Management lowered its 2024 adjusted net sales and adjusted EBITDA guidance, indicating softer consumer demand and a voluntary recall of frozen griddle products.
TreeHouse Foods identified potential contamination during routine product testing and initiated a voluntary recall of the frozen griddle products, demonstrating the company’s commitment to food safety and the well-being of its customers and consumers. Despite these challenges, THS achieved supply-chain savings, resulting in margin improvements and profits within the guided range.
TreeHouse Foods posted adjusted earnings of 74 cents per share, which was in line with the Zacks Consensus Estimate. The bottom line increased from 57 cents in the year-ago quarter.
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TreeHouse Foods, Inc. Price, Consensus and EPS Surprise
TreeHouse Foods, Inc. Price, Consensus and EPS Surprise
TreeHouse Foods, Inc. price-consensus-eps-surprise-chart | TreeHouse Foods, Inc. Quote
Net sales of $839.1 million dropped 2.8% year over year due to a voluntary recall of frozen griddle products. Apart from this, the sales decline was due to unfavorable volume/mix performance, negatively impacted by nearly $5-$10 million due to Hurricane Helene, which disrupted distribution in the Southeastern region of the United States. This downside was also due to the targeted commodity-driven pricing adjustments in selected categories. Adjusted net sales of $854.4 million declined 1.4% year over year. The top line missed the Zacks Consensus Estimate of $879.9 million.
Organic sales decreased 2.7% year over year. The volume/mix contributed to a decline of 0.8% in the reported period. The pricing and product recall returns further led to declines of 0.5% and 1.4%, respectively. The facility restoration impact remained flat for the third quarter.
The gross margin of 15.6% contracted by 0.3 percentage points from the year-ago quarter mainly due to a voluntary recall of frozen griddle products, which impacted the gross profit by 3.2 percentage points. However, the adjusted gross margin improved 18.9%, indicating an increase of 1.6 percentage points from the year-ago quarter, due to the implementation of supply chain initiatives.
Total operating expenses were $99.4 million, down from $103.9 million in the year-ago quarter. This decrease was caused by lower freight costs, reduced expenses for growth, reinvestment restructuring programs and decreased employee incentive compensation, though partially offset by the lapping of TSA income.
Adjusted EBITDA from continuing operations totaled $102.5 million, up from $89.9 million in the third quarter of 2023. This increase was driven by supply-chain savings initiatives.
THS’ Financial Health Snapshot
TreeHouse Foods concluded the quarter with cash and cash equivalents of $102 million, long-term debt of $1,399.9 million and total shareholders’ equity of $1,552.6 million. In the first nine months ended Sept. 30, 2024, the company’s net cash used in operating activities from continuing operations was $30.4 million.
Sneak Peek Into THS’ 2024 Outlook
For 2024, TreeHouse Foods expects adjusted net sales of $3.37-$3.4 billion, which indicates a decline of 2% to 1% from the reported level of 2023. This forecast is revised from the previous guidance of $3.43-$3.5 billion, implying a flat to a 2% increase year over year. This indicates soft consumption trends and the estimated impact of the voluntary griddle recall.
Management revised its adjusted EBITDA guidance downward in the range of $335-$345 million compared with $360-$380 million projected earlier. This revision implies weakening consumption trends and a softer mix, leading to supply chain deleverage, along with the anticipated impact of the voluntary griddle recall.
However, management continues to expect sequential enhancements in adjusted EBITDA, fueled by cost-saving efforts, improved net sales from new distribution wins and a return to normalized service levels in the Broth business.
For 2024, management still expects capital expenditures of nearly $145 million, while it now anticipates free cash flow of at least $120 million, revised from the previous guidance of $130 million.
What to Expect From THS in Q4?
Adjusted net sales for the fourth quarter are projected to be between $900 million and $930 million, indicating a decline of 2% to 1% year over year. Organic volume and mix are anticipated to increase by low-single digits, while pricing is likely to be a small drag.
Adjusted EBITDA from continuing operations for the fourth quarter is estimated in the range of $116-$126 million.
This Zacks Rank #3 (Hold) stock has lost 17.4% in the past three months compared with the industry’s decline of 3%.
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