Oak Brook / IL. (thf) TreeHouse Foods Inc. reported net sales of USD 894.8 million which increased 15.8 percent compared to the first quarter of 2022. GAAP earnings (loss) per diluted share from continuing operations of USD 0.34 compared to USD (0.25) for the first quarter of 2022. Adjusted earnings per diluted share from continuing operations1 was USD 0.68 in the first quarter of 2023 compared to USD (0.16) in the first quarter of 2022.
«We see a long runway for growth at TreeHouse as we invest in opportunities to build capabilities around our strategic pillars – world class supply chain, category leadership, strategic customer partnerships and talent leader,” said Steve Oakland, Chairman, Chief Executive Officer, and President. «We are off to a strong start in 2023, as we are benefiting from the actions we took to focus our portfolio on faster growing, higher margin private label snacking and beverage categories. We are pleased with our team’s efforts that helped drive revenue and profit above our guidance range for the quarter.»
Patrick O’Donnell, EVP and Chief Financial Officer, said, «Along with our team’s continued focus on better execution, our first quarter revenue growth of 15.8 percent reflects our pricing actions to recover inflation and earlier than planned fulfillment of certain customer orders. We are also encouraged by our significant year-over-year progress in profitability in the first quarter. Although the macro environment remains dynamic, we saw greater improvement across the supply chain, which enabled us to strengthen service and better meet increased customer demand. Our expectations for our first half performance give us confidence in our ability to achieve our 2023 guidance.»
Outlook
TreeHouse reaffirmed its previously-issued full year 2023 guidance:
- Net sales growth of 6 percent to 8 percent year-over-year, which represents a range of USD 3.66 to USD 3.73 billion.
- Adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) of USD 345 to USD 365 million, up approximately 24 percent year-over-year at the midpoint.
With regard to the cadence for the remainder of the year:
- Revenue for the first half of the year is anticipated to be between USD 1.705 billion and USD 1.735 billion, which represents growth of 7.7 percent to 9.6 percent.
- Second quarter revenue is expected in the range of USD 810 to USD 840 million, representing flat to 4 percent growth versus the prior year. The Company also noted the following:
- Historically, the second quarter represents the Company’s seasonally lowest volume quarter of the year.
- Improvement in the supply chain in the first quarter enabled the Company to increase production and fulfill certain customer orders that were originally planned for shipment in the second quarter.
- TreeHouse expects adjusted Ebitda of USD 65 to USD 80 million in the second quarter.
- Second quarter adjusted Ebitda margin is expected to be between 7.9 percent to 9.4 percent, representing a 130 to 280 basis point improvement versus the second quarter of 2022.
First Quarter 2023 Financial Results
Net Sales – Net sales for the first quarter of 2023 totaled USD 894.8 million compared to USD 772.6 million for the same period last year, an increase of USD 122.2 million, or 15.8 percent. The change in net sales from 2022 to 2023 was due to the following:
| Q1-2023 | (unaudited) | |
| Pricing | 16.7 | |
| Volume/mix | (0.6)% | |
| Total change in organic net sales1 | 16.1% | |
| Foreign currency | (0.3) | |
| Total change in net sales | 15.8% |
The net sales increase of 15.8 percent was primarily driven by favorable pricing to recover commodity inflation and service improvements in the majority of our categories, which allowed the Company to capture increased demand and fulfill certain customer orders earlier than planned. This was partially offset by the exit of lower margin business, particularly in Pickles.
Gross Profit – Gross profit as a percentage of net sales was 17.0 percent in the first quarter of 2023, compared to 12.8 percent in the first quarter of 2022, an increase of 4.2 percentage points. The increase is primarily due to the Company’s pricing actions to recover commodity and freight inflation experienced in prior periods and favorable category mix. This was partially offset by increased costs to invest in the supply chain to improve service levels as well as increased costs for investment in warehouse capacity.
Total Operating Expenses – Total operating expenses were USD 113.0 million in the first quarter of 2023 compared to USD 155.0 million in the first quarter of 2022, a decrease of USD 42.0 million. The decrease is primarily due to USD 13.4 million of TSA income, lower severance and retention expense due to a non-recurring one-time employee recognition bonus, and lower freight costs due to declining freight rates and improved utilization of full truck load shipments.
Total Other Expense (Income) – Total other income of USD 40.2 million in the first quarter of 2022 decreased by USD 53.4 million to be total other expense of USD 13.2 million in the first quarter of 2023. The decrease was primarily due to a USD 56.7 million unfavorable change in non-cash mark-to-market impacts from hedging activities, largely driven by an unfavorable change to interest rate swaps and less favorable impacts from commodity contracts. Additionally, rising interest rates led to higher costs with selling receivables in our Receivables Sales Program, higher costs in our pension plans, and higher interest expense. This was partially offset by USD 10.7 million of interest income received from our Note Receivable.
Income Taxes – Income taxes were recognized at an effective rate of 26.4 percent in the first quarter of 2023 compared to 14.3 percent recognized in the first quarter of 2022. The change in the Company’s effective tax rate is primarily the result of changes in the amount of tax deductible stock-based compensation and the amount of non-deductible executive compensation.
Net Income (Loss) from Continuing Operations and Adjusted Ebitda – Net income from continuing operations for the first quarter of 2023 was USD 19.2 million, compared to net loss from continuing operations of USD 13.8 million for the same period of the previous year. Adjusted Ebitda1 from continuing operations was USD 90.6 million in the first quarter of 2023, compared to USD 37.3 million in the first quarter of 2022, an increase of USD 53.3 million. The increase is primarily due to the Company’s pricing actions to recover commodity and freight inflation experienced in prior periods, lower freight costs, and favorable category mix. This was partially offset by increased costs to invest in the supply chain to improve service levels and increased costs to invest in warehouse capacity.
Discontinued Operations – Net (loss) income from discontinued operations was a USD 4.0 million loss in the first quarter of 2023 compared to USD 10.8 million of income in the first quarter of 2022, a decrease of USD 14.8 million. The decrease is primarily a result of the divestiture of a significant portion of the Meal Preparation business on October 3, 2022 and an expected loss on disposal adjustment of USD 4.5 million during the first quarter of 2023.
Net Cash Used in Operating Activities from Continuing Operations – Net cash used in operating activities from continuing operations was USD 30.9 million in the first three months of 2023 compared to USD 96.1 million in the first three months of 2022, a decrease in cash used of USD 65.2 million. The cash flow improvement was primarily attributable to higher cash earnings reflecting the Company’s pricing actions to recover commodity and freight inflation experienced in prior periods. Additionally, the Company had an increase in cash flows from the Receivables Sales Program. This was partially offset by a decrease in cash flow driven primarily by payment timing in accounts payable and increases in inventory to improve service.
