Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Treehouse Foods Inc (THS, Financial) achieved the upper end of their net sales guidance and came close to the upper end of their adjusted EBITDA range for the first half of 2024.
- The company made significant progress in converting net sales pipeline opportunities, contributing to positive volume growth in the second half.
- Supply chain initiatives have driven improved service levels and secured anticipated savings, benefiting both current and future performance.
- The broth facility is operating in line with the plan and ahead of the second half seasonal peak, reinforcing confidence in meeting annual net sales targets.
- Treehouse Foods Inc (THS) is well-positioned at the intersection of growing private brand groceries and consumer shift towards snacking, with private brands consistently gaining market share.
Negative Points
- Net sales and adjusted EBITDA both declined relative to the prior year, with net sales down 1.9% year over year.
- Pricing was a drag of 3% due to targeted commodity-driven pricing adjustments.
- Operations and supply chain were a $3 million headwind versus the prior year, primarily driven by higher labor costs and the impact of broth facility restoration.
- SG&A and other expenses contributed a negative $8 million versus last year, primarily due to investments in employee rewards and benefits and less TSA income.
- The company had to impair assets within their ready-to-drink coffee business, indicating challenges in that segment.
Q & A Highlights
Q: Steve, how would you dimensionalize the full-year sales based on wins that you have visibility into versus potential future wins?
A: The guidance given today counts those things that have been secured. Restoring our broth facility was key, and we've guided that it's nicely on track. The numbers reflect just those things that are committed. There are opportunities that could impact the fourth quarter, but they'll be more impactful for next year. (Steven Oakland, CEO)
Q: Have you seen TreeHouse's share of private label in your categories stabilize or start to improve?
A: We've seen ourselves do well in places like cookies, dough, and crackers, but it hasn't been obvious outside the business. We expect to turn in the back half, and the guidance suggests we'll need to do a little better than the marketplace, reflecting a gain of share, especially in the fourth quarter. (Steven Oakland, CEO)
Q: Pat, did you quantify the amount of the timing shift of the freight benefits from 3Q to 2Q?
A: Yes, that's $50 million of the over-delivery that we saw in the second quarter. (Patrick O'Donnell, CFO)
Q: Are you seeing a rational bidding environment, and has there been any impact from deflationary inputs?
A: We are not seeing anything we would describe as irrational bidding behavior. We feel confident in the categories we're in, which was a change with our strategy of focusing on growing categories. (Patrick O'Donnell, CFO)
Q: Do you think you're done with rationalization efforts, and are you fully back to where you were in terms of sales on broth?
A: Looking at the portfolio is good hygiene, and we think those kinds of things need to happen. For the most part, we're in a great place. We like the categories we're in. Regarding broth, we will be very close to 100% by the fourth quarter, and it may take us into the first quarter to be absolutely 100%. (Steven Oakland, CEO)
Q: What percentage of the business is exposed to foodservice, and have you seen any impact from a slowdown in QSRs?
A: Foodservice is small for us, less than 10% of our business. The only exposure we have to QSR is in our pickle business, and it's with one of the hottest QSR chains in the country. We have not seen an impact on our guidance so far. (Steven Oakland, CEO)
Q: Are there further opportunities for M&A, and how are valuations?
A: There are some opportunities for us, more akin to what we did in coffee. We think there are a couple of assets around that would tuck in nicely, bringing capability and capacity in categories with good private-label growth rates. Valuations for capital assets are easier to value and more reasonable. (Steven Oakland, CEO)
Q: Are there any accounts that you permanently lost in broth, and are you at full capacity?
A: There are some smaller customers we had to leave due to allocation of current production. We will be at full capacity by the fourth quarter, and we have more business on the books today than before the issues. (Steven Oakland, CEO)
Q: Are you seeing an emerging presence of private label coupled with prominent brands on displays, and is this supporting strong market share trends?
A: Retail partners are listening to their consumers who are looking for value. Private label is a way for them to provide value, and we think this merchandising will continue nationally. (Steven Oakland, CEO)
Q: Is there any channel where you are underpenetrated or overpenetrated, and how does this affect your portfolio?
A: We are represented well in mass and hard discount channels. We have a core grocery business where we expect the most leverage of private label. We have a balanced distribution base and have leaned into channels with growth, reflected in our sales pipeline. (Steven Oakland, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
