OAK BROOK, ILL. — TreeHouse Foods is busier than normal. The integration of Flagstone Foods and Protenergy Natural Foods combined with the company’s efforts to maintain its share of the private label single-serve coffee category in the wake of the introduction of the Keurig 2.0 coffee maker has stretched management’s focus across three businesses critical to the company’s future.
Using a basketball metaphor, Sam K. Reed, chairman, president and chief executive officer, said the company expects to achieve a “triple double” in full year 2014 with double digit gains in revenue, operating income and earnings per share.
“It has been four long years since we last achieved this result; an all too rare event even in the best of times,” he said. “This level of performance reflects external expansion to pursue new growth opportunities, internal development to enhance our legacy margin structure and constant innovation to satisfy changing consumer and customer demands.”
Growth categories for the company during the quarter included single-serve beverages which were up 40% year-over-year, pickles (up 7%), soup (7%), salad dressings (3%), and Mexican and pasta sauce (7%).
“These increases more than offset flatness in our dry dinners and non-dairy creamer businesses,” said Dennis Riordan, chief financial officer. “All businesses combined for a volume/mix growth rate of 4.7% in the third quarter compared to a year ago. Just to be clear, last year, we reported positive volume/mix in this segment of 2.3%, so our growth was not due to easy comps.”
For the third quarter ended Sept. 30, TreeHouse net income was $19,882,000, equal to 48c per share on the common stock, and a decline compared with the same period of the previous year when net income totaled $22,665,000, or 62c per share.
Sales for the quarter rose sharply to $795,726,000, which compared with $567,150,000.
The company noted several unusual items impacted third quarter earnings, including $18.5 million in acquisition- and integration-related costs, $7.4 million in stock-based compensation expenses, and a $6.6 million loss related to foreign currency.
“Regarding growth, our go-to-market progress will be headlined by continued double-digit growth in single-serve beverages, aseptic soup and broth, as well as healthy snacks,” Mr. Reed said. “Our core center-of-store staples will be joined by perimeter displays of on-the-go foods; thus broadening the appeal of our products to baby boomers and millennials alike.”
Mr. Reed noted that over the past 52 weeks the single-serve coffee market has grown at a rate of 95% and snack nuts, trail mix constitute the largest private label category the company is in due to the Flagstone Foods acquisition. In single-serve coffee he noted that there will be more opportunities for TreeHouse Foods as retailers try to differentiate their offerings and appeal to particular market segments, whether it is related to a price, premium or organic positioning.
In healthy snacking, Mr. Riordan said the category is “still wide open.”
“As we track the opportunities and look at the top grocers, we look at their perimeter programs, we look at their center-of-the-store programs and it’s amazing how many of the large food retailers have minimal exposure to the nuts or display of nuts on the perimeter, which is really what drives a lot of the volume,” he said. “We’re also far more focused now on looking at the convenience side too because it’s such a grab-and-go kind of occasion. So not only has the category grown, but we think there’s a lot of whitespace with our retailers to continue that double-digit growth rate that Flagstone has had over the last four to five years.”
TreeHouse management also expects the clean label trend to continue.“What is interesting is that even customers who in the past we’ve tended to think of them as more value-oriented, they are also looking for cleaner labels and they are also looking for organic products,” Mr. Reed said. “And it’s an all-out effort for us and our R.&D. teams to work on the reformulations that fit these customer needs. And I’ve been surprised sometimes when I’ve looked at some of the labels. As you know, we don’t talk about customers, but some of the labels I’ve seen that were traditionally purely (a) value play and you’re looking at the labels and you’re seeing things like preservative-free and organic. So, it’s a trend that I think is going to be very strong.”