Credit Suisse confident in potential of TreeHouse private brands

by Eric Schroeder
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Private label products, TreeHouse Foods, ConAgra Foods
A meeting with TreeHouse Foods increased Credit Suisse’s confidence in the long-term potential of the acquisition of the private brands business of ConAgra Foods, Inc.

NEW YORK — A recent meeting with the management team at TreeHouse Foods has increased Credit Suisse’s confidence in the long-term potential of the Oak Brook, Ill.-based company’s acquisition of the private brands business of ConAgra Foods, Inc.

Sam Reed, TreeHouse Foods
Sam Reed, c.e.o. of TreeHouse

In the meeting, Sam Reed, chief executive officer of TreeHouse, described a recent two-day offsite gathering with top management as “its best showing of engagement and cohesiveness as he has ever seen,” Robert Moskow, an analyst with Credit Suisse, wrote in an Aug. 16 research report.

Mr. Moskow wrote that the ConAgra team appeared excited about becoming part of a focused store-brand organization that is prepared to invest in the business.

That said, he cautioned that as the research group digs deeper into the near-term challenges facing the private brands business, he can see why TreeHouse management has tried to keep high expectations for growth from “getting too far ahead of reality.”

Robert Moskow, Credit Suisse
Robert Moskow, an analyst with Credit Suisse

“Consensus estimates for 2H 16 e.p.s. and the 36% jump to $4.18 in 2017 still appear achievable to us given the timing of synergies and the seasonal skew of the business,” Mr. Moskow said. “However, the bulls on the stock who are hoping for positive revisions above and beyond this pace probably should temper their expectations.”

TreeHouse Foods completed the acquisition of the private brands business of Chicago-based ConAgra Foods on Feb. 1. TreeHouse paid $2.7 billion in cash plus transaction expenses for the business. The acquisition of ConAgra’s private brands operations expanded TreeHouse’s presence in private label dry and refrigerated grocery.

In his report, Mr. Moskow said TreeHouse’s management offered a “balanced” tone regarding where the private brands business currently is. He said that while category sales growth remains subdued despite widening price gaps with brands, the integration of the business will be “long and complex” because it involves multiple systems and business units.

“The private brands business lacks premiumization expertise and has experienced severe turnover in its sales force,” he said. “The Flagstone business lost its business momentum with customers following a major sunflower seed recall and will need to make a bigger investment in supply chain flexibility.”

On the positive side, Mr. Moskow said stock-keeping unit rationalization work in TreeHouse’s core business continues to drive gross margin higher, and the coffee business has regained distribution with retailers.

On Aug. 4, Christopher D. Sliva was named president of TreeHouse Foods, Inc. while Dennis F. Riordan announced plans to step down from his position of executive vice-president, chief financial officer and interim president of TreeHouse Foods’ Private Brands. The company has initiated an executive search to find a new c.f.o., after which Mr. Riordan will transition to a senior adviser role.

Mr. Moskow said the retirement of Mr. Riordan does not sound like a sign of a problem.

“C.f.o. Dennis Riordan reiterated his rationale for announcing his retirement, and his commitment to stay involved with the company during and after the transition to a new c.f.o.,” he said. “We see no reason to see his departure as anything other than a personal decision.”  
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