TreeHouse Foods Stumbles As Sales Dip And Griddle Recall Hits Q3 Earnings; CEO Bets on Future Margins

TreeHouse Foods Inc THS shares plummeted after the company reported a third-quarter sales decline of 2.8% year-over-year to $839.1 million, missing the consensus of $881.14 million.

Adjusted net sales for the quarter stood at $854.4 million, excluding the voluntary griddle product recall. A voluntary recall of frozen griddle products, distribution disruptions from Hurricane Helene, and selective price adjustments in key categories drove a decline in net sales.

The quarter’s gross margin contracted 30 basis points year over year to 15.6%. The operating margin was 3.8%, down 10 bps year over year.

Adjusted EBITDA from continuing operations was $102.5 million (+14% YoY), and the margin was 12.2%.

Total operating expenses for the quarter were $99.4 million, down $4.5 million YoY, driven by reduced freight costs, lower expenses for growth initiatives, and decreased employee incentive compensation.

Adjusted EPS was $0.74, missing the analyst consensus of $0.75.

Net cash used in operating activities reached $30.4 million in the first nine months of 2024, compared to $11.0 million in operating cash flow in 2023. As of September end, the company held $102 million in cash and equivalents.

“Our third quarter results were mixed, as a tough operating environment with softer consumer takeaway led to sales below our expectations. However, I was pleased with our supply chain savings, which led to margin improvement and profit that was within our guidance range,” stated Steve Oakland, Chairman, Chief Executive Officer, and President.

“As we look forward, we continue to expect sequential improvement in organic volume growth, though the challenging consumer backdrop and the impact of the recall have led us to temper our expectations. I continue to be confident in our competitive positioning moving forward and believe our strategy, which includes initiatives in our supply chain and margin management opportunities, can drive meaningful profit improvement,” added Oakland.  

Q4 Outlook: TreeHouse anticipates net sales of $900 million—$930 million versus the consensus of $966.72 million. Adjusted EBITDA from continuing operations is expected to be $116 million—$126 million.

2024 Outlook updated: TreeHouse now expects adjusted sales of $3.37 billion—$3.40 billion against an estimate of $3.46 billion. This represents approximately -2% to -1% year-over-year and reflects weakening consumption trends and the estimated impact of the voluntary griddle recall.

The company now expects FY24 adjusted EBITDA of $335 million—$345 million (prior $360 million—$380 million) and capital expenditures of $145 million.

THS now expects a free cash flow of at least $120 million (prior $130 million) in 2024.

Price Action: THS shares are trading lower by 16% at $31.25 at the last check Tuesday.