Looking Into Treehouse Foods's Return On Invested Capital

According to Benzinga Pro data, during Q4, Treehouse Foods THS posted sales of $996.20 million. Earnings were up 74.14%, but Treehouse Foods still reported an overall loss of $23.40 million. Treehouse Foods collected $1.30 billion in revenue during Q3, but reported earnings showed a $90.50 million loss.

What Is Return On Invested Capital?

Earnings data without context is not clear and can difficult to base trading decisions on. Return on Invested Capital (ROIC) helps to filter signal from noise by measuring yearly pre-tax profit relative to invested capital by a business. Generally, a higher ROIC suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q4, Treehouse Foods posted an ROIC of -0.26%.

It is important to keep in mind that ROIC evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but does not account for factors that could affect earnings and sales in the near future.

ROIC is a powerful metric for comparing the effectiveness of capital allocation for similar companies. A relatively high ROIC shows Treehouse Foods is potentially operating at a higher level of efficiency than other companies in its industry. If the company is generating high profits with its current level of invested capital, some of that money can be reinvested in more capital which will generally lead to higher returns and, ultimately, earnings per share (EPS) growth.

For Treehouse Foods, a negative ROIC ratio of -0.26% suggests that management may not be effectively allocating their capital. Effective capital allocation is a positive indicator that a company will achieve more durable success and favorable long-term returns; poor capital allocation can be a leech on the performance of a company over time.

Upcoming Earnings Estimate

Treehouse Foods reported Q4 earnings per share at $0.98/share, which beat analyst predictions of $0.92/share.

This article was generated by Benzinga's automated content engine and reviewed by an editor.