Treehouse Foods: Competitive pressure dents sales but earnings rise 2.3%

By Vince Bamford contact

- Last updated on GMT

The Treehouse product range includes snacking nurs and trail mixes. Photo: iStock - Svetl
The Treehouse product range includes snacking nurs and trail mixes. Photo: iStock - Svetl

Related tags: Private label, Conagra

Treehouse Foods has said 2016 marks the “beginning of an important journey” as it focuses on integrating the private label business it has acquired from ConAgra Foods.

While reporting its financial results for the final quarter of last year, Treehouse said it expected net sales to double in 2016 to between $6.3bn and $6.5bn as a result of the acquisition of ConAgra private label operations in categories including snacks, nuts and crackers; cereal; bars; pasta and frozen bakery.

We remain dedicated to building a private label platform that offers a broad portfolio of products that are important to our customers and supports their efforts to build their corporate brands, while offering consumers the best combination of choice and value​,” said Treehouse chairman, president and chief executive officer Sam K Reed.

The company added it expected the overall food industry would continue to face weakness in the coming year, and that the industry’s top-line growth would be “relatively flat​”. 

Flat profit margin

The company's gross margin is expected to be roughly flat year-on-year in 2016, said Treehouse, as profit contribution from the newly acquired private label business was below legacy margin. Treehouse said it also expects foreign exchange headwinds, although it added these issues would be partly offset by internal improvements and other savings initiatives.

In terms of 2015 performance, unfavorable Canadian foreign exchange, reduced volume/mix across most categories, and pricing concessions had been responsible for a 4.2% drop in overall net sales to $865.4m in the fourth quarter, said the company.

Competitive pressure

Volumes fell in the company’s North American Retail Grocery division as a result of competitive pressure across most of its operations, which include branded and private-label products in categories such as soup, dressings, beverages, cereals, baking mixes, nuts and other snacks. Division net sales for the fourth quarter fell 2.3% to $668.8m

Overall adjusted earnings before interest, taxes, depreciation, amortization, and non-cash stock based compensation was $120.2m in the fourth quarter, up 2.3% on the same period in 2014. Improved margins and favorable commodity costs had more than offset the lower sales and unfavorable Canadian exchange, said Treehouse.

ConAgra acquisition

Treehouse-completes-acquisition-of-ConAgra-private-label-business_strict_xxl

Treehouse Foods paid $2.7bn for ConAgra’s private-label operations in a deal announced last November

Treehouse has taken on 9,500 ConAgra employees and “the vast majority of ConAgra private label operations​”, including 32 manufacturing facilities in the US, Canada and Italy. Following the acquisition, Treehouse employs around 16,000 staff across more than 50 manufacturing facilities.

Under the deal, ConAgra sold the vast majority of its private label business – including cereals and snacks operations - just three years after it acquired them from Ralcorp Holdings for $4.95bn.

Some private-label operations were not part of the sale, including canned pasta, cooking spray, peanut butter, pudding/gels and Gelit frozen pasta. ConAgra has also retained baked snacks brands HK Anderson and Kangaroo.

The ConAgra private-label businesses will operate as Treehouse Private Brands which, together with Bay Valley Foods, will be the operating platforms of Treehouse Foods.

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