TreeHouse Foods has almost halved this year’s sales growth target following the disposal of its private-label snack bar business.
The largest own-label supplier in the US said the divestiture to John B. Sanfilippo & Son – announced in September along with a factory in Minnesota – would cut TreeHouse Foods’ annual sales by around $160m.
As a consequence, the business now expects sales to grow by about 4-5% in fiscal 2023 to $3.44bn to $3.47bn, compared to 7.5% to 9.5% previously. That prior estimate was raised in August from 6-8%.
Presenting third-quarter results yesterday (6 November), chairman, president and CEO Steven Oakland said the snacks bar business “was not expected to contribute positive adjusted EBITDA this year”, and so TreeHouse reaffirmed that target at $360-$370m, or growth of 25% at the “midpoint”.
He added the EBITDA guidance “puts us on track to exit the year at our targeted $400m annual run rate”.
Oakland said: “Although bars can be a good consumer category, private brands penetration in this category is very low. With this divestiture, our portfolio is now more focused on categories where we see the greatest opportunity for the company moving forward.”
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TreeHouse Foods’ volumes, on a case basis rather than poundage, rose 1% in the quarter to 30 September from a year earlier. While small, Oakland said the rise outpaced the competition. Volume/mix was, however, down 3.4% but was better than the 3.9% decline reported for the second quarter in August.
He explained: “We saw continued strength in private brand volume compared to national brands. For the quarter, private brand unit sales in the measured retail channel were flat compared to national brands, which continued to decline.
“Importantly, TreeHouse outperformed, delivering organic volume growth in the retail channel of approximately 1%.”
Oakland reiterated the pattern playing out in private label as consumers continue to seek out value propositions or “more affordable options” in the current economic environment.
“This not only underscores that consumers continue to prioritise value in their grocery purchases but it also shows the strength of private brands. It is clear to us that consumers are continuing to adjust their shopping patterns in response to the macroeconomic environment and pressure on their wallets,” he said.
“We anticipate this continuing near term, supporting private-brand strength and growth opportunities.”
Third-quarter sales rose 3.6% to $863.3m and adjusted for the snacks bar disposal were $906.6m.
Adjusted EBITDA climbed 13% to $89.9m, while net income rebounded from a year earlier to a profit of $9.8m from a $12m loss.
TreeHouse Foods faced some disruption from softness in the foodservice channel and its co-manufacturing operations. It also instigated a product recall linked to its broths business and supply issues with an unnamed packaging “vendor”, which together impacted sales by around $15m.
CFO Pat O’Donnell explained: “We saw foodservice traffic decelerate a bit towards the end of the third quarter and that drove down a couple of the categories in the food-away-from-home business. And then from co-manufacturing, we support some significant brands there, and we saw that decelerate a little bit, which is more just a reflection of some of the broader macro trends.”