OAK BROOK, ILL. — Steven T. Oakland, the new president and chief executive officer of TreeHouse Foods, Inc., has been on the job for six weeks. In that time, he has reviewed the company’s strategy, visited with employees and met with some of the company’s largest customers. Now he must execute a plan that will return the private label manufacturer to profitability.
When asked by an analyst during a May 3 conference call to discuss first-quarter results what changes he might make, Mr. Oakland was succinct when he said, “ … I would say everything’s on the table as an option.”
The challenges facing Mr. Oakland and his management team are significant. TreeHouse Foods is in the midst of a radical transformation, reducing its data analytics programs from 13 different platforms to three, streamlining its supply chain footprint to achieve greater efficiencies, and undertaking a widespread stock-keeping unit (s.k.u.) rationalization program.
“We will take the necessary steps to turn TreeHouse around not only from a process, cost structure and organizational standpoint, but also in terms of restoring top line growth,” Mr. Oakland said. “I’m very conscious of the investor disappointment over the last couple of years and the urgency to restore confidence in the company and the management.”
During the first quarter ended March 31, TreeHouse Foods incurred a loss of $34.1 million. The result compared unfavorably to the same period of the previous year when the company earned $28.2 million, equal to 50c per share on the common stock.
Sales fell to $1,481.2 million from $1,536.2 million during the first quarter of fiscal 2017. Key items of comparability affecting first-quarter sales was the divestiture of the company’s Soup and Infant Feeding business to Riverbend Foods L.L.C. in 2017 and the impact of the s.k.u. rationalization program.
Freight costs also weighed on the quarterly results.
“Not only do freight costs continue to increase with no sign of short-term relief, but we've also seen our carrier acceptance rates decline about 25% over the last year,” said Matthew J. Foulston, chief financial officer. “Declining acceptance rates force us into the spot market, so it is critical that we become the customer of choice for our carrier partners. One of the ways we manage this is by stabilizing our manufacturing and shipping schedules. So, you can see why centralizing our manufacturing and locking down schedules will be critical elements of our improvements.”
Baked Goods, the company’s largest business unit by sales, saw sales rise to $346 million during the most recent quarter from $341.1 million in 2017. Operating income fell to $28 million from $41.9 million the year prior.
Favorable pricing and improved volume/mix from increased distribution in the cracker and cookie categories benefited the business unit during the quarter. Higher commodity costs related to packaging, wheat, oils, eggs and freight impacted performance.
“Baked Goods, Condiments and Snacks all delivered improvement over last year, driven by some early flow-through of pricing,” Mr. Foulston said. Meals was down slightly, excluding Soup and Infant Feeding. And Beverages was impacted by the loss of some coffee business that we talked about last quarter as well as the Pecatonica, Ill., strike.”
Mr. Foulston added that the strike at the company’s plant in Pecatonica, which manufactures non-dairy creamer, was resolved after five months.
The company is forecasting second quarter sales in the range of $1.3 billion and $1.4 billion, and adjusted earnings per share in the range of 20c to 30c.
“As we compare our Q2 outlook to the prior year, volume and mix will be down due to the continued impact of s.k.u. rationalization,” Mr. Foulston said. “Pricing will come close to covering freight and commodities, and we will have some operational drag as we get Pecatonica back up and running, estimated to impact e.p.s. by 6c per share in Q2. On the positive side, we anticipate continued SG&A savings and benefits from amortization and tax.”
Mr. Oakland emphasized that TreeHouse Foods is making progress in transforming the company’s structure, but more work is to be done before management can declare success.
“When you double in size in a transaction and you buy a business that was integrated, it’s a totally different organizational structure,” he said. “You need SAP. You need all these processes. You need these things.“So, the opportunity for me to come in, in a category that’s growing in the industry that I, frankly, have worked in for 35 years and I enjoy and to step out of the turmoil of trying to figure out where the brands are growing was a neat opportunity. We need to get the fundamentals … right so that we can start to look at where are the future opportunities. Once we build process and once we fully implement SAP, we have a platform for bolt-on acquisition that drives synergy. So, I think we also have a different proposition than the previous TreeHouse.”