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Treehouse Foods Inc THS

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Treehouse Outperforms Despite Suboptimal Environment; Shares Undervalued, but Tread Carefully

Analyst Note

| Nicholas Johnson, CFA |

No-moat Treehouse Foods reported solid first-quarter results, with adjusted earnings per share of $0.36, ahead of the $0.31 FactSet consensus and only a slight dip from last year’s $0.37. While first-quarter 2021 revenue decreased to $1.057 billion from $1.085 billion in 2020, management reiterated that March 2020 saw unprecedented pantry stocking, which accounted for a $66 million bump in the year-ago quarter. Despite lower volume, the adjusted EDITDA margin expanded 10 basis points to 10%, due partially to improved manufacturing efficiencies. The company reaffirmed its full-year guidance of $4.4 billion-$4.6 billion in revenue, with earnings per share between $2.80 and $3.30 (roughly in line with our $2.95 estimate). As a result, we don’t anticipate making any material changes to our $57 fair value estimate. While we view shares as undervalued, we’d still implore prospective investors to tread carefully. The involvement of activist investor Jana Partners (which caused a significant positive rerating of the shares earlier in 2021) notwithstanding, we believe shares could remain under pressure in the near term. Due to the commoditized nature of many of its products, navigating the industry’s pronounced commodity inflation could be more difficult for Treehouse relative to branded peers.

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Company Profile

Business Description

Treehouse Foods, the largest private label manufacturer in the U.S., is the product of a slew of acquisitions, the most significant being the 2016 acquisition of Ralcorp, Conagra’s former private brands business. The firm plays in over 25 categories, including snacks like pretzels and cookies, meals like pasta and dry dinners, and single-serve beverages like pods and ready-to-drink coffee. Retailers represent its most significant end-market, where it sells products for resale under retailer brands, but it also serves foodservice customers (providing a similar service as its retail business), industrial (selling bulk food for repackaging and repurposing), and branded consumer goods firms (under co-packing arrangements). Over 90% of its revenue comes from the U.S.

2021 Spring Road, Suite 600
Oak Brook, IL, 60523
T +1 708 483-1300
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Mar 31, 2021
Fiscal Year End Dec 31, 2021
Stock Type Slow Growth
Employees 10,900

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