Private label chips and single-serve coffee pods, TreeHouse Foods
TreeHouse delivered steady progress in the first three months of the year, driven by growth in retail single-serve coffee and broad gains in snacks.

OAK BROOK, ILL. — Despite continued challenges in the retail landscape, TreeHouse Foods, Inc. delivered steady progress in the first three months of the year, driven by growth in retail single-serve coffee and broad gains in snacks that offset weakness in soups, hot cereal and non-dairy creamers.

Chris Sliva, TreeHouse Foods
Chris Sliva, executive vice-president and c.o.o. of TreeHouse Foods

“Flat volume and mix is not ordinarily a cause for celebration within the TreeHouse ranks,” said Chris Sliva, executive vice-president and chief operating officer of TreeHouse Foods, during a May 5 earnings call with financial analysts. “However, when considering a center-of-store food and beverage marketplace that is embarking on its fifth consecutive year of virtually no unit volume growth, and given our ongoing rationalization of inefficient customer practices, it represents a positive step towards our longer-term expectations.”

For the first quarter ended March 31, TreeHouse posted a net loss of $3,346,000, which compared with net income of $17,852,000, or 42c per share on the common stock, in the prior-year period. Results included acquisition, integration and related expenses, expense for market-to-market adjustments, and restructuring and facility consolidation costs. Adjusted EBIDTA increased 48% over the previous year to $125,217,000.

Net sales advanced 62% to $1,270,173,000 from $783,145,000, driven by the acquisition of the private brands operations from ConAgra Foods, Inc., which was completed in February.

The company’s integration of the private brands business is on track, said Sam K. Reed, chairman, president and chief executive officer.

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

“TreeHouse private brands customer service and financial performance have both steadily improved as ConAgra’s corporate influence wanes and TreeHouse’s operating engagement waxes,” Mr. Reed said. “Our annual leadership meeting was marked by an atmosphere of communitas as legacy TreeHouse and new private brands teams totaling 560 former rivals undertook a rite of passage in a new venture of equals.”

Net sales for the private brands business totaled $506 million, marking a decline from the comparable quarter under ConAgra’s ownership; however, higher gross margins resulted in a slight increase in operating profit despite the sales decline, said Dennis Riordan, executive vice-president and chief financial officer.

Dennis Riordan
Dennis Riordan, executive vice-president and c.f.o. of TreeHouse Foods

“We are expecting that the trend of lower sales but better margins will continue into the second quarter but are confident that most of the private brands categories will begin to stabilize their top lines in the second half of the year,” Mr. Riordan said. “Our confidence is based on the marked improvement we’ve seen in service levels. Overall the private brands order fill rates are now nearly at the levels we achieve in our legacy businesses and the positive momentum should have them at parity with our overall corporate goals.

“Another positive sign is that we started to slowly win back some lost business. Our first ‘rewins’ as I will call them are in cookies and crackers, which will start shipping later in the year. These rewins can be traced directly to the quality of our products and are the result of productivity and capital investments made at those plants. We are actively involved in other bid situations that could result in other category rewins.”

Operating income for the North American Retail Grocery segment, which includes branded and private label products to customers within the United States and Canada, was $127,955,000, up from $77,317,000, and net sales were $1,019,310,000, up from $592,413,000, due to the private brands acquisition.

“Excluding the acquisition, our volume/mix was flat while foreign currency reduced sales by 1.3%,” Mr. Riordan said.

Operating income for the Food Away From Home segment, which includes condiments, snacks, retail bakery products and single-serve beverages to food service customers, was $15,915,000, up from $12,026,000, and net sales were $112,597,000, up from $88,277,000.

“On an organic basis, sales were relatively flat with pricing and foreign currency basically offsetting each other,” Ms. Riordan said.

Operating income for the Industrial and Export segment, which includes the company’s co-pack business and non-dairy powdered creamer sales to industrial customers, was $21,090,000, down from $21,536,000, and net sales were $138,266,000, up from $102,455,000.

“In our Industrial and Export business sales increased due to the acquisition, where organic volume/mix was down 9.4% as we had lower co-pack sales of national brands in our coffee, soup and infant feeding businesses,” Mr. Riordan said. “While the lower sales were expected in the soup business they did occur faster than we had originally expected.

“The good news offsetting this is that we have freed up capacity for our retail carton soup and broth products going into next year’s soup season. This is important for us given that our retail carton soup and broth had volume increases of 38% in the first quarter compared to the year before and we expect the trend toward carton soup products to further increase next season.”