TreeHouse earnings rise 36% in quarter

by Eric Schroeder
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OAK BROOK, ILL. — Boosted in part by strong growth in the company’s retail grocery segment, second-quarter earnings at TreeHouse Foods, Inc. rose 36%. Net income for the quarter ended June 30 was $19,511,000, equal to 54c per share on the common stock, up from $14,345,000, or 40c per share, in the second quarter of fiscal 2011.

TreeHouse said its most recent second-quarter results included several unusual items that affected earnings: a 4c per share charge associated with the acquisition of Naturally Fresh, Inc.; a 4c per share loss on the mark-to-market adjustment of the company’s commodity agreements; and a 1c per share gain on the foreign currency translation of cash held at E.D. Smith.

Sales for the most recent quarter were $527,421,000, up 7% from $492,620,000.

“We are very pleased with our overall performance for the second quarter,” said Sam K. Reed, chairman and chief executive officer. “Excluding the soup business, our retail grocery volume grew 1.9%, with dry dinners, pasta sauces and salsa all posting growth in the double digits. Clearly our customers see the value of a strong private label portfolio of products during these difficult times.”

Operating income within TreeHouse’s North American Retail Grocery business rose 1% to $54,899,000 from $54,102,000, while sales increased 6% to $371,500,000 from $350,861,000. The sales gain reflected a 4.8 percentage point increase in pricing and a 2.8 point increase due to the acquisition of Naturally Fresh, partially offset by a reduced volume/mix.

Operating income within Food Away From Home was $10,479,000, up narrowly from $10,089,000. Sales were up 11% at $87,885,000, driven in large part by the addition of Naturally Fresh.

In reporting its second-quarter results, TreeHouse said it plans to close two manufacturing facilities, citing excess capacity and opportunities to lower production costs. Production at the Mendota, Ill., soup facility is expected to cease in the first quarter of fiscal 2013, with the full plant closing expected by the second quarter of fiscal 2013. Production will shift to TreeHouse’s Pittsburgh soup facility. Total costs associated with the closing will be approximately $17.7 million, the company said.

TreeHouse also said it plans to cease production at its salad dressing facility in Seaforth, Ont., in the second quarter of fiscal 2013, with full plant closing set for the third quarter of fiscal 2013. Production will move to other manufacturing facilities within the company’s existing network. Total costs associated with the closing will be about $17.3 million, the company said.

“Given the declining sales in the retail soup category over the last five years, we have made the decision to close the Mendota soup plant and streamline our manufacturing capacity,” Mr. Reed said. “The plant closure will take place early next year, so our ability to meet our customer requirements for the upcoming soup season will not be affected. Upon completion, we will have a smaller, but much improved soup business.

“In addition, we are also closing our Seaforth, Ont., salad dressing plant. The closure will lead to increased efficiencies as we move dressing production to those plants where we have expanded capacity and invested in new lines over the last two years.”

Looking ahead to the remainder of fiscal 2012, Mr. Reed said TreeHouse expects full-year sales to be approximately $2.2 billion, which would represent growth of nearly 8% over fiscal 2011. Lower soup expectations led the company to revise its full-year earnings per share to a range of $2.75 to $2.90, down from $3 to $3.15.

“We remain resolute in our commitment to private label and continue to believe that we will generate superior shareholder returns through our dual agenda of internal improvements and external expansion,” Mr. Reed said. “Our growth will be driven by innovation and acquisition, coupled with our passion for consumer value, customer brands and financial performance.”

For the six months ended June 30 net income was $41,585,000, or $1.15 per share, up 22% from $34,153,000, or 96c per share, in the same period of fiscal 2011. Net sales were $1,051,232,000, up 7% from $986,133,000.

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