OAK BROOK, ILL. — The private label snack business of Flagstone Foods has not performed as expected for TreeHouse Foods, Inc.
TreeHouse Foods recorded a non-cash charge of $352.2 million in the fourth quarter ended Dec. 31, 2016, related to impairment of goodwill and other intangible assets primarily associated with the North American Retail Grocery – Flagstone reporting unit.
The charge had an effect as TreeHouse Foods reported a net loss of $281,823,000 in the fourth quarter, which compared with net income of $37,255,000, or 86c per share on the common stock, in the previous year’s fourth quarter. The net loss for the fiscal year was $228,594,000, which compared with net income of $114,910,000, or $2.67 per share on the common stock, in the previous fiscal year.
“In two full years since acquisition, this business has experienced unforeseen challenges including, but not limited to, pricing declines from competitive pressure, unfavorable almond commodity costs, cashew supplier issues and costs associated with the sunflower seed recall,” TreeHouse Foods said of Flagstone Foods when giving financial results Feb. 9.
TreeHouse Foods completed the acquisition of Flagstone Foods in July 2014, paying Gryphon Investors and other shareholders $860 million in cash.
“At the time, the business (had) a track record of double-digit growth, and we expected Flagstone to continue in its growth trajectory and deliver $750 million in annual revenue, albeit with thinner margins than our corporate average given the input cost structure of the nut business,” said Matthew Foulston, executive vice-president and chief financial officer of TreeHouse Foods, in a Feb. 9 earnings call. “Since that time, Flagstone’s performance has not delivered as we originally hoped.
“Sequentially the snack nuts category has endured a series of headwinds over the course of the last two years. If you recall, the category endured dramatic almond input cost increases in 2014 as a result of the California drought conditions. Cost increases passed through to our consumers created an imbalance in retail pricing for snack nuts, which resulted in volume declines and decreased promotion and display.”
The snack nuts category has recovered from a drought impact, he said. TreeHouse Foods said it remained optimistic about the snacks category given the healthy, on-the-go nature of snacks and the ability to have facings in both the perimeter and the center of the grocery store.
Overall, TreeHouse Foods posted net sales of $6,175,088,000 for the fiscal year, up 93% from $3,206,405,000 in the previous fiscal year. Net sales for the fourth quarter increased 105% to $1,776,676,000 from $865,414,000 due to the acquisition of the private brands operations from ConAgra Foods, Inc., now Conagra Brands, and favorable volume/mix, primarily in the North American Retail Grocery segment. Lower pricing partially offset the sales increase.
The company’s North American Retail Grocery segment had net sales of $5,092,930,000 in the fiscal year, more than double net sales of $2,437,768,000 in the previous fiscal year. Net sales were $546,665,000 in Food Away From Home, up from $370,360,000 in the previous fiscal year, and $545,425,000 in Industrial and Export, up from $398,277,000
In providing guidance for 2017, TreeHouse Foods expects net income between $200 million and $220 million. The company expects net sales in 2017 to be between $6.4 billion and $6.6 billion, driven by an increase in volume and an additional month of sales from acquiring the private brands business.TreeHouse Foods early in 2017 reorganized into five divisions: baked goods with sales of $1.3 billion to $1.5 billion, condiments with sales of $1.3 billion to $1.5 billion, meals with sales of $1.2 billion to $1.4 billion, snacks with sales of $1.2 billion to $1.4 billion, and beverages with sales of $900 million to $1.1 billion.