OAK BACH, ILL. — During a conference call with securities analysts on Aug. 8 to discuss second-quarter results, private label food and beverage maker TreeHouse Foods, Inc. reiterated its intention to divest a “significant portion” of its meal prep segment in favor of its snack foods beverage unit.
“We continue to work very diligently to transform the TreeHouse portfolio through the divestment of a significant portion of our meal prep business so that we can build leadership and depth around a focused group of categories in our higher growth snack and beverage businesses,” said Steven T. Oakland, President and Chief Executive Officer.
Investors reacted positively to the company’s second-quarter results. In early morning trading on August 8, TreeHouse’s stock price reached $46.54 per share, up 9% from the August 7 close of $42.68 per share.
TreeHouse suffered a loss of $29.4 million for the second quarter ended June 30, compared to net income of $8.4 million, equivalent to 15 cents a share for the same period last year. Adjusted EBITDA from continuing operations, meanwhile, was $66.5 million, down 28% from $92.6 million in the same period last year.
TreeHouse net sales were $1.19 billion for the second quarter, up 19% from $1 billion for the same period last year. The revenue increase was primarily due to favorable pricing to offset raw material and freight cost inflation, as well as higher volume in the snack and beverage business segment, the company said.
“We experienced strong revenue growth of 19.4% to $1.2 billion,” said Patrick M. O’Donnell, chief accounting officer, who was named TreeHouse’s interim chief financial officer in June.
“Pricing contributed 17.7% to growth while volume was up 2.1%, offset by 48 basis points in FX,” Mr O’Donnell said. “Our ability to capture growing additional volume, particularly across multiple categories of snacks and beverages, has been encouraging.”
Direct operating income for the TreeHouse Meal Preparation segment was $56 million, down 14% from $65.2 million for the same period in fiscal 2021. Quarterly revenue was $766 million, up 18% from $648 million in 2021. The revenue increase was primarily due to pricing and partially offset by lower volumes due to labor and supply chain restrictions, the company said.
Direct operating income from the snack and beverage business increased 5% to $38.8 million from $36.9 million. Revenue for the Snacking and Beverages business units was $432 million in the second quarter, up 21% from $356 million in the second quarter of 2021.
“Increasing demand for private label led to strong category performance as consumers seek lower-priced alternatives in an inflationary environment,” the company said. “However, volume growth was partially subdued due to work and supply chain disruptions.”
Mr. Oakland said supply chain disruptions are less severe in the company’s snack and beverage segment than in the food preparation segment. He also highlighted higher demand for snacks and beverages as consumers spend more time away from home.
“As the economy has opened up, much of the snack and drink mix is made up of on-the-go items,” he said.
As inflation drives up shelf prices, private label is gaining momentum, Mr. Oakland said.
“The combination of high shelf prices and high-priced gasoline results in a dollar saving for a basket of private label goods that has never been greater,” he said. “You can see that the pandemic-driven trends of the past two years have actually started to reverse this year and that private label gains have accelerated since March.”
Mr. O’Donnell added perspective.
“History tells you that in times of economic downturn, private label acquires new customers and, as a result, gains market share,” he said. “In the past, these periods have been dramatic changes for private label. Private labels are in a much better position today than in past economic downturns.
“First, the quality and range of private label products has improved dramatically. The number of options now span the spectrum from natural and organic to national branded equivalents to value propositions.
“And secondly, the retail landscape has also changed dramatically. The growth in point of sale has been driven in large part by discount retailers with a focus on private label. There are also retailers today whose private label programs not only drive traffic but also play a key role in their store image.”
Mr. Oakland added, “Overall, I am encouraged by our progress and believe we are very well on track, continuing to improve our service and profitability throughout the year as we begin to enter our seasonal peak. We effectively manage inflation through pricing, partnering with our customers and replicating our cost savings efforts across the network.”