Stocking the pantry improves TreeHouse Foods’ performance
TreeHouse Foods, Inc. planned to undergo adjustments in the upcoming fiscal year 2020. In February 2020, the company underwent its second reorganization in four years, with the goal of aligning the organizational structure with the demands of the clientele. Then the pandemic struck, driving up sales and requiring unexpected adjustments from the company’s leadership.
During a conference call to report financial results on February 11, President and CEO Steven T. Oakland stated, “We entered 2020 focused on unlocking the potential of our businesses.” We divided into two departments: meal preparation and snacking and beverages. By doing this, we were able to better match categories and businesses with our consumers’ perceptions of the jobs inside the categories, freeing up each company to concentrate on its own special plans and techniques that would best position them for success.
“The extraordinary pantry stocking that occurred in March and April as the pandemic spread was unlike anything any of us had ever seen.” 2020 was also a different year than anyone could have predicted, as we all know.
TreeHouse Foods ended the year with net profits of $13.8 million, or 87¢ per share on common stock, thanks to that “different” year. This is an improvement over the $361 million loss the company reported for the fiscal year 2019.
Sales increased from $4.29 billion to $4.35 billion in the previous year.
“Private label presents significant opportunities for TreeHouse, and we are confident about it fundamentally,” Mr. Oakland stated. We are witnessing indications that our customers’ ambition to fortify their own brands is resurfacing as the retail landscape and consumers have adjusted to the current circumstances. We are uniquely positioned to fulfill this fundamental desire. As the business with the broadest reach and most profound skills in private label today, we like our position in the market to seize this opportunity.
The meal preparation business unit of TreeHouse had an increase in sales from $2.68 billion in 2019 to $2.7 billion in fiscal 2020. Operating profit per unit dropped from $381.3 million to $370.6 million.
The 1.3% organic growth in meal prep was fueled by volume, mix, and price, according to chief financial officer William J. Kelley. “The December acquisition of the Riviana pasta company added an additional 1.7% to growth.”
Operating income increased to $235 million from $193 million in the previous year, while sales of snacks and beverages increased to $1.65 billion from $1.61 billion.
“Drink mixes and beverages accounted for 24% of that growth within Snacking & Beverages,” Mr. Kelley stated. We are happy to see some new businesses in this area, and broth is an excellent example since it continues to profit from the current at-home cooking environment.
“Successes in our ready-to-drink beverage portfolio also give us hope. The primary causes of the 3% increase in sweet and savory sales during the quarter were new distribution in cookies and retailer candy promotions.
TreeHouse Foods is projecting adjusted earnings per share for the fiscal year 2021 to be between $2.80 and $3.20. It is anticipated that sales will range from $4.4 billion to $4.6 billion.
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The demand for food consumed at home, freight prices, the effect of COVID-19 on staffing and plant operations, and commodity inflation are some of the issues that could have an impact on fiscal 2021 earnings.
“We expect headwinds of $100 million to $110 million in 2021 as a result of rising ingredient costs,” Mr. Kelley stated. “This headwind will persist for the remainder of the year and has already started to affect our results. This is on top of higher labor expenses brought on by competitive labor markets and growing freight expenses. We’ve been putting a lot of effort into reducing the effects of these inflationary pressures.
“We are certain that we can counteract these expenses by combining price changes with continuous lean manufacturing initiatives to counteract labor cost increases. Our attempts to integrate Riviana will also result in increased usage efficiencies. We anticipate that the impact on price will become apparent as the second half of the year approaches.