TreeHouse Foods's (NYSE:THS) Q1 Sales Beat Estimates

Adam Hejl /
2024/05/06 7:01 am EDT

Private label food company TreeHouse Foods (NYSE:THS) announced better-than-expected results in Q1 CY2024, with revenue down 3.9% year on year to $820.7 million. On the other hand, next quarter's revenue guidance of $785 million was less impressive, coming in 1.6% below analysts' estimates. It made a non-GAAP loss of $0.03 per share, down from its profit of $0.27 per share in the same quarter last year.

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TreeHouse Foods (THS) Q1 CY2024 Highlights:

  • Revenue: $820.7 million vs analyst estimates of $798.4 million (2.8% beat)
  • EPS (non-GAAP): -$0.03 vs analyst estimates of -$0.01 (-$0.02 miss)
  • Revenue Guidance for Q2 CY2024 is $785 million at the midpoint, below analyst estimates of $797.7 million
  • The company reconfirmed its revenue guidance for the full year of $3.47 billion at the midpoint
  • Gross Margin (GAAP): 13.6%, up from 13.1% in the same quarter last year
  • Free Cash Flow was -$80.7 million, down from $84.3 million in the previous quarter
  • Organic Revenue was down 7.7% year on year
  • Sales Volumes were up 3.8% year on year
  • Market Capitalization: $2.01 billion

"We're encouraged by our solid start to fiscal 2024, delivering net sales results above our expectations. We are building momentum with our commercial pipeline, the largest in recent history, with good progress closing opportunities. I believe this puts TreeHouse in a strong position to deliver our annual net sales commitment," said Steve Oakland, Chairman, Chief Executive Officer, and President.

Whether it be packaged crackers, broths, or beverages, Treehouse Foods (NYSE:THS) produces a wide range of private-label foods for grocery and food service customers.

Shelf-Stable Food

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Sales Growth

TreeHouse Foods is larger than most consumer staples companies and benefits from economies of scale, giving it an edge over its smaller competitors.

As you can see below, the company's revenue has declined over the last three years, dropping 5.1% annually as consumers bought less of its products.

TreeHouse Foods Total Revenue

This quarter, TreeHouse Foods's revenue fell 3.9% year on year to $820.7 million but beat Wall Street's estimates by 2.8%. The company is guiding for a 2.3% year-on-year revenue decline next quarter to $785 million, a reversal from the 5% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 2.4% over the next 12 months, an acceleration from this quarter.

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Volume Growth

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

To analyze whether TreeHouse Foods generated its growth from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.

Over the last two years, TreeHouse Foods's average quarterly sales volumes have shrunk by 2%. This decrease isn't ideal as the quantity demanded for consumer staples products is typically stable. Luckily, TreeHouse Foods was able to offset fewer customers purchasing its products by charging higher prices, enabling it to generate 7.8% average organic revenue growth. We hope the company can grow its volumes soon, however, as consistent price increases (on top of inflation) aren't sustainable over the long term unless the business is really really special.

TreeHouse Foods Year-On-Year Volume Growth

In TreeHouse Foods's Q1 2024, sales volumes jumped 3.8% year on year. This result was a well-appreciated turnaround from the 0.6% year-on-year decline it posted 12 months ago, showing the company is heading in the right direction.

Key Takeaways from TreeHouse Foods's Q1 Results

We were impressed by how significantly TreeHouse Foods blew past analysts' organic revenue growth expectations this quarter. We were also excited its revenue outperformed Wall Street's estimates. On the other hand, its operating margin missed analysts' expectations and its gross margin missed Wall Street's estimates. Overall, this was a mediocre quarter for TreeHouse Foods. The company is down 4.3% on the results and currently trades at $35.65 per share.

TreeHouse Foods may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.