TreeHouse: Reshaped Portfolio Focuses on Private Label Snacking and Beverage Categories
TreeHouse Foods’ newly reshaped portfolio is focused on higher growth and higher margin private label snacking and beverage categories to “drive improved execution,” the company said during its Q4 2022 earnings call today.
During the call, CEO and president Steve Oakland told investors and analysts that the company ended FY 2022 by shifting operations to faster growing, more profitable categories after selling the majority of its meal prep business to U.K-based private equity firm Investindustrial earlier this year. The $950 million deal, announced in June, will reportedly reduce TreeHouse’s debt, strengthen its balance sheet and focus its business in the snacking and beverage categories.
In June 2021, Post Holdings announced the acquisition of TreeHouse’s private label ready-to-eat cereal business for $85 million which included the company’s two plants in Lancaster, Ohio and Sparks, Nevada in addition to its R&D facility in Sauget, Illinois.
“We have a clear purpose, ambition and growth strategy attached to a solid portfolio of categories. We’ve rallied around operation and commercial excellence, portfolio optimization and people in talent,” said Oakland during today’s call. “It’s a new TreeHouse, we’ve sharpened and refined our strategic growth pillars to better reflect how we will engage and delight our stakeholders.”
Overall, the Illinois-based company reported Q4 total net sales up 22% to $996.2 million, primarily driven by pricing actions aimed at combating inflationary headwinds. Additionally, net income from continuing operations was $40.1 million, representing 4% margin, a 570 point sequential improvement compared to Q3 2022.
According to VP and controller Patrick O’Donnell, future price hikes will be determined by potential pockets of inflation and deflation that occur during the back half of the year, in addition to “fact-based conversations” with its customers.
Currently, half of TreeHouse’s facilities are operating at a normal level of service and the remaining half are expected to improve over the course of the year. The sale of the company’s meal preparation business will dramatically reduce its portfolio and retail footprint, falling from 29 categories with 40 production plants manufacturing 40,000 SKUs to 18 categories with 26 production plants manufacturing 9,000 SKUs.
TreeHouse closed out the year with approximately 93 to 94% service in the fourth quarter and expects that number to continue to move up despite some pockets of labor challenges and material availability.
“I’m incredibly proud to have closed out 2022 a more focused company, operating in faster growing, more profitable categories,” said Oakland in a prepared statement. “Today, we are better positioned to capitalize on the strong market dynamics in private label snacking & beverages. The macro environment continues to support a clear consumer shift to value, as demonstrated by private label unit share gains for 54 weeks in the categories in which we operate.”
Meanwhile, net loss from discontinued operations was $63.5 million in the fourth quarter of 2022 compared to $1.7 million net income from discontinued operations for the same period in 2021. The company cited the October 3 divestiture of a significant portion of its meal preparation business as the root cause of the loss.
Looking ahead, TreeHouse issued 2023 guidance projecting growth between +6% and +8% with year-over-year pricing contribution expected to be most impactful during the first half of the year. Additionally, the company anticipates adjusted EBITDA from continuing operations of $345 to $365 million.
“Our near-term priorities continue to be increasing service levels and mitigating supply chain disruption so that we can better capture the robust demand for our products and drive growth for our customers,” said Oakland in the statement. “We are energized and excited about our future as a private label snacking and beverages leader, and it is reflected in our strong outlook for 2023.”
