Beverage opportunities perk up for TreeHouse

by Jeff Gelski
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TreeHouse Foods beverages
Beverages may have the biggest opportunity for growth for TreeHouse Foods.

OAK BROOK, ILL. — Beverages, currently the division with the smallest amount of sales for TreeHouse Foods, Inc., may have the biggest opportunity for growth.

Oak Brook-based TreeHouse Foods early in 2017 reorganized into five divisions: baked foods with annual sales of $1.3 billion to $1.5 billion, condiments at $1.3 billion to $1.5 billion, meals at $1.2 billion to $1.4 billion, snacks at $1.2 billion to $1.4 billion, and beverages at $900 million to $1.1 billion.

Sam Reed, TreeHouse Foods
Sam K. Reed, chairman and c.e.o. of TreeHouse Foods

“Our real growth engine here is beverages,” said Sam K. Reed, chairman and chief executive officer of TreeHouse Foods, in a Feb. 9 earnings call. “I think you may recall some time ago that when we talked about the original estimates for the business, we were looking at foods only, and now that we have added on-trend beverages we found a real growth engine.”

Growth in single-cup coffee continues, he said.

“In addition to that, we now are expanding capacity in specialty teas and finding a very fine market there not only in retail but particularly in food service, and then lastly, we have announced the introduction of cold brew coffee, which all indications are will be not a substitute for but in addition to our single cup,” Mr. Reed said.

TreeHouse Foods coffee pods
Growth in single-cup coffee continues.

TreeHouse Foods cited data from Information Resources, Inc. showing that private label took up 23% of the coffee equivalent cup volume share among private label and the top six brands in multi-outlets in the 52-week period ended Dec. 25, 2016. Starbucks and Green Mountain Coffee brands both were at 12%, followed by Folgers and Donut Shop both at 7%, and Dunkin’ Donuts and McCafe both at 5%.

“We have supersized the category in pursuit of heavy users as more than one-half of private label scan cups are now sold in 36-count or larger cases,” Mr. Reed said. “In parallel to traditional retail channels, we have expanded our e-commerce beachhead and will add production capacity yet again to accommodate omni-shopper demand.”

TreeHouse Foods cold brew coffee
TreeHouse recently announced the introduction of cold brew coffee.

TreeHouse Foods on Feb. 9 sustained a loss of $228,594,000 for the fiscal year ended Dec. 31, 2016, which compared with net income of $114,910,000, or $2.67 per share on the common stock, in the previous fiscal year. TreeHouse Foods recorded a non-cash charge of $352.2 million in the fourth quarter related to impairment of goodwill and other intangible assets primarily associated with the North American Retail Grocery – Flagstone reporting unit. TreeHouse Foods sustained a loss of $281,823,000 in the fourth quarter, which compared with net income of $37,255,000, or 86c per share, in the previous year’s fourth quarter. 

TreeHouse Foods posted net sales of $6,175,088,000 for the fiscal year, up 93% from $3,206,405,000 in the previous fiscal year. Net sales for the fourth quarter increased 105% to $1,776,676,000 from $865,414,000 due to the acquisition of the private brands operations from ConAgra Foods, Inc., now Conagra Brands, and favorable volume/mix, primarily in the North American Retail Grocery segment. Lower pricing partially offset the sales increase.

TreeHouse Foods bottled tea
Private label growth could come in specialty teas.

In providing guidance for 2017, TreeHouse Foods expects net income between $200 million and $220 million. The company expects net sales in 2017 to be between $6.4 billion and $6.6 billion, driven by an increase in volume and an additional month of sales from acquiring the private brands business.

“Clean label” product development and stock-keeping unit (s.k.u.) reduction will be priorities.

Dennis  Riordan, TreeHouse Foods
Dennis Riordan, president of TreeHouse Foods

“First and foremost, we are continuing our emphasis on making the right products,” said Dennis Riordan, president of TreeHouse Foods, in the earnings call. “This means two things. First, we will devote more R.&D. time and effort on better-for-you formulations. We are working with our customers to develop more clean label products and increase our emphasis on natural and organic ingredients. Clearly this is where consumers are going, and it’s reflected in our business.”

The second area involves reducing s.k.u. complexity by eliminating nearly but not quite identical product formulations, he said.

“We have said it before, and I’ll say it again now, we have too many s.k.u.s relative to the number of products we make and the customers we service, and ultimately the cost of complexity falls into product costs,” Mr. Riordan said. “We can do a better job of managing those costs down. Each of our divisions will have complexity reduction targets.” 
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