TreeHouse Foods (THS)

Private label food company TreeHouse Foods (NYSE:THS) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 3.5% year on year to $792 million. The company expects next quarter’s revenue to be around $792.5 million, coming in 0.9% above analysts’ estimates. Its non-GAAP profit of $0.03 per share was significantly above analysts’ consensus estimates.

Company Overview

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.

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.

Competitors in the private label manufacturing business include B&G Foods (NYSE:BGS), J&J Snack Foods (NASDAQ:JJSF), and private company Cott Corporation.

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $3.33 billion in revenue over the past 12 months, TreeHouse Foods carries some recognizable products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.

As you can see below, TreeHouse Foods’s revenue declined by 1.8% per year over the last three years as consumers bought less of its products.

This quarter, TreeHouse Foods reported a rather uninspiring 3.5% year-on-year revenue decline to $792 million of revenue, in line with Wall Street’s estimates. Company management is currently guiding for flat sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 1.7% over the next 12 months. While this projection implies its newer products will fuel better top-line performance, it is still below average for the sector.

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 (or lack thereof) 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 volumes have shrunk by 2.3%. This isn’t ideal for a consumer staples company, where demand is typically stable. In the context of its 3% average organic sales declines, we can see that most of the company’s losses have come from fewer customers purchasing its products.

In TreeHouse Foods’s Q1 2025, sales volumes dropped 8.3% year on year. This result represents a further deceleration from its historical levels, showing the business is struggling to move its products.

TreeHouse Foods has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 16.4% gross margin over the last two years. That means TreeHouse Foods paid its suppliers a lot of money ($83.56 for every $100 in revenue) to run its business.

In Q1, TreeHouse Foods produced a 14.5% gross profit margin, in line with the same quarter last year but missing analysts’ estimates by 0.7%. Zooming out, TreeHouse Foods’s full-year margin has been trending up over the past 12 months, increasing by 1.2 percentage points. If this move continues, it could suggest better unit economics due to some combination of stable to improving pricing power and input costs (such as raw materials).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

TreeHouse Foods was profitable over the last two years but held back by its large cost base. Its average operating margin of 3% was weak for a consumer staples business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, TreeHouse Foods’s operating margin might fluctuated slightly but has generally stayed the same over the last year, meaning it will take a fundamental shift in the business model to change.

In Q1, TreeHouse Foods’s breakeven margin was in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

TreeHouse Foods’s EPS grew at an astounding 45.9% compounded annual growth rate over the last three years, higher than its 1.8% annualized revenue declines. This tells us management adapted its cost structure in response to a challenging demand environment.

In Q1, TreeHouse Foods reported EPS at $0.03, up from negative $0.03 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects TreeHouse Foods’s full-year EPS of $2.01 to shrink by 3.7%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

TreeHouse Foods has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.9%, subpar for a consumer staples business.

Taking a step back, an encouraging sign is that TreeHouse Foods’s margin expanded by 4 percentage points over the last year. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

TreeHouse Foods burned through $75.3 million of cash in Q1, equivalent to a negative 9.5% margin. The company’s cash burn was similar to its $80.7 million of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

TreeHouse Foods historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1.5%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

Debt is a tool that can boost company returns but presents risks if used irresponsibly. As long-term investors, we aim to avoid companies taking excessive advantage of this instrument because it could lead to insolvency.

TreeHouse Foods’s $1.58 billion of debt exceeds the $16.4 million of cash on its balance sheet. Furthermore, its 5× net-debt-to-EBITDA ratio (based on its EBITDA of $305.7 million over the last 12 months) shows the company is overleveraged.

At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. TreeHouse Foods could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.

We hope TreeHouse Foods can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.

We liked that TreeHouse Foods's organic revenue outperformed Wall Street’s estimates. On the other hand, its EBITDA missed significantly and its EBITDA guidance for next quarter fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter featuring some areas of strength but also some blemishes. The market seemed to be hoping for more, and the stock traded down 1.1% to $23.16 immediately after reporting.

Updated: July 10, 2025 at 10:54 PM EDT

Are you wondering whether to buy TreeHouse Foods or pass? We urge investors to not only consider the latest earnings results but also longer-term business quality and valuation as well.

We see the value of companies helping consumers, but in the case of TreeHouse Foods, we’re out. To begin with, its revenue has declined over the last three years. And while its EPS growth over the last three years has been fantastic, the downside is its gross margins make it more challenging to reach positive operating profits compared to other consumer staples businesses. On top of that, its relatively low ROIC suggests management has struggled to find compelling investment opportunities.

TreeHouse Foods’s P/E ratio based on the next 12 months is 10.8x. While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $24.72 on the company (compared to the current share price of $20.94).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.