TreeHouse Foods, Inc. :THS-US: Earnings Analysis: Q3, 2017 By the Numbers : November 24, 2017

TreeHouse Foods, Inc. reports financial results for the quarter ended September 30, 2017.

We analyze the earnings along side the following peers of TreeHouse Foods, Inc. – Campbell Soup Company, Lancaster Colony Corporation, Conagra Brands, Inc., J. M. Smucker Company, Hain Celestial Group, Inc., B&G Foods, Inc., McCormick & Company, Incorporated, Kraft Heinz Company and Kellogg Company (CPB-US, LANC-US, CAG-US, SJM-US, HAIN-US, BGS-US, MKC.V-US, KHC-US and K-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 1,548.80 million, Net Earnings of USD 28.80 million.
  • Gross margins narrowed from 16.36% to 15.79% compared to the same period last year, operating (EBITDA) margins now 10.30% from 10.39%.
  • Year-on-year change in operating cash flow of -210.91% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Narrowing of operating margins contributed to decline in earnings.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2017-09-30 2017-06-30 2017-03-31 2016-12-31 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 1548.8 1522.2 1533.8 1776.68 1586.75
Revenue Growth (%YOY) -2.39 -1.24 20.76 105.3 98.68
Earnings (mil) 28.8 -34.2 28.2 -281.82 37.17
Earnings Growth (%YOY) -22.53 -318.56 942.8 -856.47 30.71
Net Margin (%) 1.86 -2.25 1.84 -15.86 2.34
EPS 0.5 -0.6 0.49 -4.96 0.65
Return on Equity (%) 1.12 -1.34 1.12 -10.65 1.34
Return on Assets (%) 1.75 -2.11 1.71 -16.54 2.15

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Market Share Versus Profits

Revenues History
Earnings History

THS-US’s change in revenue this period compared to the same period last year of -2.39% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that THS-US is holding onto its market share. Also, for comparison purposes, revenues changed by 1.75% and earnings by 184.21% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s year-on-year decline in earnings was influenced by a weakening in gross margins from 16.36% to 15.79%, as well as issues with cost controls. As a result, operating margins (EBITDA margins) went from 10.39% to 10.30% in this time frame. For comparison, gross margins were 16.18% and EBITDA margins were 9.24% in the previous period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

THS-US’s decline in gross margins has not produced any significant offsetting improvement in its working capital . This leads Capital Cube to conclude that the decline in gross margins are likely from operating issues and not trade-offs with the balance sheet. Working capital days are currently 53.59 days, compared to last year’s level of 49.96 days.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

THS-US’s change in operating cash flow of -210.91% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

The company’s decline in earnings has been influenced by the following factors: (1) Decline in operating margins (EBIT margins) from 5.64% to 5.51% and (2) one-time items that contributed to a decrease in pretax margins from 3.32% to 1.94%

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

TreeHouse Foods, Inc. is a food manufacturer servicing primarily in retail grocery and foodservice channels. Its products include non dairy powdered creamers and sweeteners; condensed, ready to serve, and powdered soups; refrigerated and shelf stable salad dressings and sauces; powdered drink mixes; single serve hot beverages; specialty teas; hot and cold cereals; macaroni and cheese, skillet dinners and other value added side dishes and salads; salsa and Mexican sauces; jams and pie fillings; pickles and related products; aseptic sauces; and liquid non dairy creamer. The company operates through three business segments: North American Retail Grocery, Food Away From Home and Industrial and Export. The North American Retail Grocery segment sells branded and private label products to customers within the United States and Canada. These products include non-dairy powdered creamers, condensed and ready to serve soups, broths and gravies, salad dressings and sauces, pickles and related products, Mexican sauces, jams and pie fillings, aseptic products, liquid non-dairy creamer, powdered drinks, hot cereals, macaroni and cheese and skillet dinners. The Food Away From Home segment sells non-dairy powdered creamers pickles and related products, Mexican sauces, refrigerated dressings, aseptic products and hot cereals to foodservice customers, including restaurant chains and food distribution companies, within the United States and Canada. The Industrial and Export segment includes co pack business and non dairy powdered creamer sales to industrial customers for use in industrial applications, including products for repackaging in portion control packages and for use as ingredients by other food manufacturers, pickles and related products, Mexican sauces, infant feeding products and refrigerated dressings. Export sales are primarily to industrial customers outside of North America. The company was founded on January 25, 2005 and is headquartered in Oak Brook, IL.

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