Treehouse Foods Inc THS

Pure-Play Exposure to Private Label Should Drive Growth for TreeHouse, but Precludes a Moat

Private-label manufacturers can offer customers lower prices by minimizing the marketing and product spending that most packaged-food companies rely on to create strong brands. Secular trends create tailwinds for growth, but preferences for private label differ greatly by category. Since Steve Oakland took over as CEO in 2018, TreeHouse has slimmed its portfolio. We think this strategy makes sense, as TreeHouse is now more focused on categories where growth and private-label penetration are higher, including snacking, beverages and drink mixes, and aseptic goods. This is reflected in our mid-single-digit top-line growth forecast that exceeds most CPG companies we cover, but we think low operating margins are unlikely to improve given the lack of a moat.