TreeHouse Foods’ Solid Run Looks Set to Continue

The demand for packaged food is on the rise due to busy lifestyles, easy availability, and scarcity of time. In addition, rising food commodity prices and a tough economic environment plays a role in forcing consumers to spend less on dining outside. Hence, cooking more at home drives sales of the packaged food industry as well.

Driven by such tailwinds, TreeHouse Foods (NYSE: THS  ) has been on a good run this year, with shares up more than 30%. The company has been successfully competing against bigger players like General Mills (NYSE: GIS  ) and Campbell Soup, along with others such as B&G Foods (NYSE: BGS  ) . TreeHouse stock has outperformed its peers year-to-date and looks good for more due to the following reasons. 

THS Chart

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TreeHouse's aggressive acquisitions
TreeHouse has been expanding its footprint through acquisitions. It had acquired Cains Foods and the aseptic cheese and pudding business from Associated Milk Producers. The accretive nature of these acquisitions, along with higher volume and favorable mix, drove up the company's revenue by 5.4% year over year to $567.2 million . Impressively, all segments of the company witnessed revenue growth.

TreeHouse had also acquired Associated Brands from TorQuest Partners. This acquisition will expand TreeHouse's retail presence in the private-label dry grocery market, and is expected to be accretive to the tune of $200 million to revenue and $0.14 to $0.16 per share to earnings.

Aggregate consumer demand for food and beverage continues to increase. Recent census data reveals that only one family in 10 has enjoyed a 1% annual gain in household income since the Great Recession . However, private-label consumption has increased for 10 consecutive rolling 12-week reporting periods as per IRI. This is a good sign for TreeHouse as it is aggressively strengthening its position in private-label foods.

Instead of spending much on promotions and advertisements, TreeHouse has been investing in culinary options, new packaging concepts, and customer promotions that better fit today's customer's needs for better-tasting, healthy, and more convenient food options. While following this strategy, TreeHouse has also kept prices affordable .

In essence, TreeHouse has been a growth engine fueled by merger and acquisitions and guided by strategy. The company thinks that market conditions offer great opportunity for further strategic expansions. Given its ability to find, fund, and integrate businesses, one can expect more acquisitions from TreeHouse going forward. 

In my opinion, this is the correct thing to do as TreeHouse has been making smart acquisitions and integrating them well into its existing business structure. As we saw above, TreeHouse is expecting good additions to both its top and bottom lines after the Associated Brands acquisition. The company's management seems good at spotting acquisition targets that could prove accretive in the long run. 

General Mills and B&G Foods -- Following a similar strategy
But when it comes to packaged food, Cheerios-maker General Mills cannot be ignored. In 2012, it was recognized as "The Most Reputable Company in America" by Forbes magazine and is one of the safest bets for investors in the food industry. The company started its fiscal 2014 with strong results, exemplified by an increase of 8% in revenue and 6% year over year growth in earnings. It reported revenue of $4.31 billion and earnings of $0.70 per share .

General Mills also is expanding its presence in both domestic as well as international markets through acquisitions. On the international front, General Mills reported a 27% year-over-year increase in sales of $1 billion in the first quarter of 2014. It also saw a huge uptick in European sales as a result of Yoplait International.

For fiscal 2014, earnings per share are expected to grow in the high single-digits. Despite the size, General Mills has been able to achieve volume growth and still enjoy pricing power at the same time, which companies like B&G Foods have not been able to do.

Like its peers, B&G Foods has also been growing on the back of strategic acquisitions. However, B&G Foods' base business revenue in the latest quarter declined $6.1 million, or 3.9%, versus the same period a year-ago. Out of this, $3.5 million was attributable to a net price decrease and $2.6 million was attributable to a unit volume decrease , so unlike General Mills, B&G Foods lost both on volume and pricing.

However, the decline was more than offset by gains of $27.2 million as a result of a series of acquisitions in the recent past. For example, Pirate's Brands, which was acquired at the beginning of July 2013, contributed $16.5 million, New York Style and Old London brands added $11.4 million, and the TrueNorth brand added $5.4 million to the overall increase of $27.2 million in sales in the third-quarter . As a result of these acquisitions, B&G's consolidated results looked solid as it reported a 17.6% year over year growth in revenue to $181.4 million.

B&G Foods recently acquired Rickland Orchards from Natural Instincts, a maker of Greek yogurt-coated granola bars and bites, for $57.5 million. The brand generated annualized net sales of more than $50 million and could lead to continued growth in B&G Foods' top line.

Bottom line
TreeHouse has adopted a number of strategies to grow its business. It has been aggressively making acquisitions, trying out new packaging concepts, and focusing on food that suits consumer tastes. Also, with earnings expected to grow at a CAGR of almost 11.37% over the next five years , TreeHouse looks like a better prospect than both General Mills (8% growth ) and B&G Foods (10.90% growth ). Thus, in spite of its solid run up so far this year, more upside could be in store for TreeHouse.

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