BOSTON — TreeHouse Foods, Inc.’s management is adopting an integrated business planning model to improve operations and generate better financial results.
“The next step in the sophistication of TreeHouse is to bring the visibility to our business that many of the big national branded players have had for years,” said Steven T. Oakland, president and chief executive officer, during a presentation Sept. 4 at the Barclays Global Consumer Staples Conference in Boston. “It gives us an opportunity to use data to bring together the opportunity, both for better forecasting (and) better inventory control.”
He added the results will appear in TreeHouse’s profit and loss statement as free cash, result in better service for customers and improve capacity utilization.
For fiscal 2019, the company is projecting sales in the range of $4.3 billion to $4.5 billion, adjusted earnings before interest and taxes between $275 million to $300 million and adjusted diluted earnings per share of $2.33 to $2.63. In fiscal 2018, ended Dec. 31, 2018, TreeHouse Foods had sales of $5.8 billion and recorded a loss of $61.4 million.
Since taking the helm of TreeHouse Foods two years ago, Mr. Oakland has focused on taking what was a fragmented business and streamlining it into a more integrated organization. Divestment of its Snacks business unit and the future divestment of the ready-to-eat cereal business will both aid in simplifying the company’s structure.
“We go from around $6 billion (in sales) to about $4.4 billion,” he said. “We have significantly improved the operating structure of the business. We’ve significantly improved our margins, and we’ve organized the way our customers are organized.
“We went from five divisions to three; we went from five sales forces to one; and we see businesses that are segmented the way the customer would segment them — the Beverage business, the Baked Goods business and the Meal Solutions business.”
Results from the efforts are beginning to produce positive results, said Matthew J. Foulston, chief financial officer. While the first two quarters of fiscal 2019 were down, results improved in the third quarter and management is guiding a pivot to growth in the fourth quarter, he said.
Both the Baked Goods and Meal Solutions business units have improved sequentially. But what is different is the Beverages business is also starting to show growth.
“This is primarily driven by much better seasonal execution in our broth business where we partner much more effectively with our customers to attack the season,” Mr. Foulston said. “We went out of Q2 with a little bit more inventory than in the past, and we think that will enable us to improve our shipments in the back half and better serve the season.
“And, frankly, I think you’ll see this carry over into improved execution as we go into Q1 because people do not stop buying broth after Christmas. So, we think there’s an opportunity here (during the) back half of this year and also as we go into Q1 of next.”
Adding to management’s Beverage business unit optimism is the company’s improved ready-to-drink coffee manufacturing capabilities. Mr. Oakland estimated the size of the R.-T.-D. coffee category to be approximately $3 billion, but with less than 2% private label penetration.
“There’s going to be more private label than we have capacity, I think, over time,” he said. “Two years ago, we wanted to enter this business and we couldn’t find the capacity to co-pack.
“We did it right. We invested quite a bit of capital in it, and we also invested in some people, some developmental work, the right product development people. So, we think we’re positioned well.”
Mr. Oakland iterated that the private label market is changing from a focus on value to a broad range of product capabilities, including premium and experiential. But, he added, he is probably one of the few c.e.o.s who goes home at night and dreams about a recession.
“Historically, private label has done really well in recession,” he said. “There are those who project we may enter that in the near term. So, I think that’s an important dynamic because it may hurt other businesses.
“But I think, quite frankly, the demographics and the retailer challenge will be the longer-term benefits to private label. A little recession on the back end just might get us there just a bit faster.”