Granola bars,  TreeHouse Foods
TreeHouse's better-for-you and premium segment of its portfolio was up 15% in the quarter.

OAK BROOK, ILL. — When TreeHouse Foods, Inc. finalized its acquisition of ConAgra Foods’ Private Brands business this past February, management said the investment community would not see meaningful results from the new business until later in the year. The company’s second-quarter results show the company’s integration of the ConAgra business is making progress, but executives are targeting the fourth quarter of fiscal 2016 before the company begins to see the benefits.

For the quarter ended June 30, TreeHouse Foods saw its net income slip to $15,648,000, equal to 28c per share on the common stock, and a decline compared with the same period of the previous year when earnings were $31,362,000, or 73c per share.

The new acquisition dramatically affected sales for the quarter as they rose to $1,541,389,000, which compared with sales of $759,208,000 during the previous year.

Dennis  Riordan, TreeHouse Foods
Dennis Riordan,c.f.o. of TreeHouse

“In looking at the Private Brands business, sales are soft, but this was expected,” said Dennis Riordan, chief financial officer, in a conference call with financial analysts on Aug. 3. “We’ve said many times over the years that it takes a couple of years to realize the benefits of consolidated sales approach and this will be no different for Private Brands. However, we can control things like product costs, customer service, and operational efficiency more directly.”

Mr. Riordan added that Private Brands sales are more skewed to “fourth-quarter seasonal items” than the legacy TreeHouse product categories.

“And those sales tend to have higher average margins than the rest of our business,” he said. “This will lead to an increased percentage of both sales and profits shifting to our fourth quarter. As a result of these dynamics, we expect third-quarter adjusted earnings per share to be in the range of 75c to 80c, which leaves our fourth-quarter earnings estimate to be in the range of $1.23 to $1.28.”

Coffee pods,  TreeHouse Foods
TreeHouse's single-serve coffee business performed well during the quarter.

The company’s single-serve coffee business performed well during the quarter, said Chris Sliva, chief operating officer.

Chris Sliva, TreeHouse Foods
Chris Sliva,c.o.o. of TreeHouse

“We now estimate that we have regained roughly half the share we lost in the aforementioned period,” he said. “And with more new and returning customers in the commercialization pipeline, we can now turn our attention to returning our share to our mid-2014 levels, albeit at a lower margin structure. As a result, we continue to believe single-serve beverages will be a growth avenue for TreeHouse in the foreseeable future.

“Equally important to that belief was the fact that brewer sales grew in the second quarter at a rate of 2.6% on a year-over-year basis. This dynamic continues to be driven by the less-than-$100 machine segment. Lastly, private label continued to show relative strength within single-serve, growing 43% in the quarter, which was 36 points above the category rate. This growth means that, for the first time, private label as a whole has taken over unit share leadership in the category and now represents 20% of unit sales.”

TreeHouse also saw significant growth in the sale of better-for-you and premium products.

“The better-for-you and premium segment of our portfolio was up 15% in the quarter, and the natural and organic subset of these products were up a robust 50%,” Mr. Sliva said. “Our growing understanding of the private label shopper landscape allows us to support our retail partners’ choices as they assess whether to utilize their vast resources in building the array of niche brands that frequently trade in this space, or to invest in driving their own store brand equities.

“This premise led to the launch of a new cold brew coffee line with a number of our retail partners. The product is produced on the asset base we picked up in the Protenergy Natural Foods acquisition, and it is an example of how private label shopper insights can extend our reach and our retail partners’ equities into new spaces.”

Cold brew coffee, TreeHouse Foods
TreeHouse recently launched a new cold brew coffee line with a number of its retail partners.

For the first six months of fiscal 2016, TreeHouse net income totaled $12,302,000, or 22c per share, down from the first six months of fiscal 2015 when net income was $49,214,000, or $1.13 per share.

Sales for the period were $2,811,562,000, compared with $1,542,353,000 the previous year.

“Our work continues as we advance on both strategic and structural fronts within the organization, while improving operating results,” said Sam K. Reed, chairman, president and chief executive officer. “With a breadth and scope that is unmatched in the industry, we have a competitive advantage in our ability to support our customers and their efforts to build their corporate brands, while offering consumers choice and value. Our outreach to strategic customers is ongoing, as we convey the TreeHouse promise of private label and establish standard companywide go-to-market practices.”