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Why TreeHouse Foods Inc. Stock Popped Today

By Jeremy Bowman - Updated May 3, 2018 at 1:56PM

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Shares of the private-label food supplier rose after it reported solid earnings numbers.

What happened

Shares of TreeHouse Foods (THS -2.62%) were moving higher today after the private-label packaged food supplier posted better-than-expected results in its first-quarter report, reaching the upper end of its previous guidance. As a result, the stock was up 12.2% as of 12:53 p.m. EDT.

Containers of nuts and other snacks are stacked high.

Image source: Getty Images.

So what 

Overall revenue fell 3.6% in the period to $1.48 billion, but excluding the divestiture of its soup and infant formula division and its stock-keeping unit (SKU) rationalization, sales increased 1.9%. That result topped analyst estimates of $1.44 billion.

Adjusted gross margin fell 240 basis points to 16.3% as the company continued its restructuring, absorbed higher food-commodity costs, and took a hit from a labor dispute. Operating expenses fell 0.2% as a percentage of revenue due to cost-cutting, but because of the decline in gross margin, adjusted earnings per share fell from $0.61 a year ago to $0.18. That still beat expectations of $0.13. 

CEO Steve Oakland acknowledged the difficulties in the transition:

Our work to address near-term challenges such as margin recovery is ongoing. More broadly, we are working to better position ourselves to address the evolving retail landscape. As a private label industry leader, we are in the ideal position within food and beverage, as private label continues to grow at the expense of brands.

Now what

TreeHouse maintained its guidance for the year, calling for EPS of $2 to $2.40, which compares to expectations at $2.10 and a result of $2.81 last year. For the current quarter, it forecast EPS of $0.20 to $0.30, seeing a sequential increase due to higher pricing, operational improvements, and cost controls.  However, that was short of estimates at $0.34.

The stock is still down sharply over the past year, but the market seems to believe that TreeHouse is making progress on its restructuring plan, which aims to improve operating margins by 300 basis points through improvements to manufacturing and supply chain, and changes to its customer and category portfolio, as shown by the sale of its soup and infant formula division.

If management can deliver on its full-year guidance, shares look reasonably priced after today's gains.

 

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