It has been about a month since the last earnings report for TreeHouse Foods (THS). Shares have added about 7.3% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is TreeHouse due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
TreeHouse Foods 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 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. Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended downward during the past month.
The consensus estimate has shifted -27.8% due to these changes.
VGM Scores
Currently, TreeHouse has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise TreeHouse has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.
Performance of an Industry Player
TreeHouse belongs to the Zacks Food - Miscellaneous industry. Another stock from the same industry, Sysco (SYY), has gained 4.8% over the past month. More than a month has passed since the company reported results for the quarter ended September 2024.
Sysco reported revenues of $20.48 billion in the last reported quarter, representing a year-over-year change of +4.4%. EPS of $1.09 for the same period compares with $1.07 a year ago.
Sysco is expected to post earnings of $0.93 per share for the current quarter, representing a year-over-year change of +4.5%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.
Sysco has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.
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