OAK BROOK, ILL. — TreeHouse Foods’ acquisition of Riviana Foods’ regional pasta brands will give the company leverage in terms of geographic reach and increased volumes. TreeHouse’s pasta businesses are located in the western and eastern portions of the US. The acquired businesses will fill a large swath of the country.

“Pasta is an important and profitable category for TreeHouse within our Meal Prep division, and the addition of the Riviana portfolio will enhance our ability to serve a broad set of customers and improves our profitability and cash flow through greater operating leverage,” said Steven T. Oakland, president and chief executive officer, during a Nov. 5 conference call to discuss third-quarter results.

Earlier in the day, TreeHouse Foods said it planned to acquire several regional pasta brands from Riviana Foods, a business unit of Ebro Foods, Madrid, Spain, for $242.5 million. The acquisition will include a manufacturing plant in St. Louis, Mo.

TreeHouse pasta regions

“At TreeHouse, pasta is one of the largest categories in our portfolio with 2019 revenue of over $300 million,” Mr. Oakland said. “Roughly 80% of our pasta business is private label, but 20% of our current business is strong regional brands such as Mueller's, Golden Grain, Anthony's and Ronco. Regional pasta brands like these hold brand equity with shoppers and retailers. They play a key role in offering value and selection to consumers in their markets.”

Brands to be included in the acquisition are Skinner, No Yolks, American Beauty, Creamette, San Giorgio, Prince and Light 'n Fluffy, Mrs. Weiss', Wacky Mac, P&R Procino-Rossi and New Mill. Together, they generated approximately $200 million in sales during the 12-month period ended June 30.

“For those who have followed TreeHouse, you'll recall that the American Italian Pasta Company became part of our portfolio with the (Conagra) Private Brands acquisition,” Mr. Oakland said. “And today, we operate some of the most efficient pasta manufacturing plants in the country.

“Our plants were operating at 70% to 80% capacity utilization pre-COVID. Pasta has been one of the categories experiencing strong volume lift from at-home consumption. This has driven our utilization to over 100%. So, pasta has contributed significantly to our overall margin expansion and cash flow this year.

“It's against this backdrop that we believe the acquisition of the majority  of Ebro's Riviana regional pasta businesses will dovetail with our strengths and allow us to drive even greater operating leverage not only as we navigate the pandemic, but as we look to the future.”

TreeHouse Foods has a contract services agreement with Riviana Foods to manufacture pasta and get the company through any surges in demand.

“We've done this acquisition based on what we think the run model is long term …,” Mr. Oakland said. “But in the interim, we have plenty of access to their current capacity.”

For the third quarter ended Sept. 30, TreeHouse Foods earned $12.1 million, equal to 20¢ per share on the common stock. The results compared to the same period of the previous year when the company recorded a loss of $178 million.

Sales for the quarter dipped slightly to $1.05 billion from $1.06 billion a year earlier.

“We continue to focus on top-line improvement,” Mr. Oakland said. “This quarter's revenue of $1.05 billion grew 70 basis points on an organic basis and was within our guidance range. From a division perspective, Snacking & Beverage delivered excellent top-line growth while Meal Prep posted solid profit performance despite the ongoing weakness in the foodservice channel.”

Meal Preparation sales fell to $642.7 million from $656.5 million the year prior. The decline in sales was caused by unfavorable volume/mix as a result of the impact of carryover distribution losses and decreased food-away-from-home demand, which outpaced distribution gains, according to the company. Unfavorable pricing was primarily due to carryover pricing actions that continue to impact single-serve beverages. Organic net sales in the Meal Preparation segment decreased by 2% year-over-year.

“In the quarter, we did see demand for at-home food moderate,” said William J. Kelley, chief financial officer. “However, we continued to see inconsistency in customer forecasts versus order patterns. This, in turn, has some impact on our ability to ensure that we have the right products in production to meet our customers' needs.

“As an example, in one instance, we have a customer forecast their needs for a category nearly 50% above prior-year levels, but their order came in another 5% higher than that. This is just one example, but when multiplied by many customers you get a sense of the level of complexity that this can create.”

Snacking & Beverages sales rose $2.2 million during the quarter to $403 million. Favorable volume/mix from increased distribution gains and innovation contributed to the sales growth.

“Beverages and drink mixes grew 13% led by innovation, in particular, ready-to-drink coffee, new broth flavors and new distribution wins,” Mr. Kelley said. “On a reported basis, growth in sweet and savory snacks was masked by the sale of the two in-store bakery facilities earlier this year. When you peel that back, you can see that, on an organic basis, revenue is up 2%.

“We are seeing gains in areas like cookies and crackers. In one key customer, their launch generated revenue that is nearly double its original projection. On the other hand, sweet and savory also includes bars, which has been weak this year as remote work and school arrangements have slowed on-the-go consumption.”

Management is guiding that fiscal 2020 sales will fall in a range between $4.2 billion and $4.4 billion, with $1.11 billion to $1.17 billion coming in the fourth quarter. Adjusted earnings per diluted share are forecast to be between $2.65 and $2.75.

“Today, our retail customers are very focused on being prepared for the winter season and the holidays, and we have seen some order acceleration in certain categories,” Mr. Kelley said. “At the top end of the range, our guidance assumes that at-home food demand continues to be elevated. The holiday season is strong, and we are able to service our demand well.

“Given the difficulty of predicting whether the states implement stay-at-home orders again and the potential for sharp demand increases for food, our guidance has not assumed a pantry-stocking event like we experienced in March. Should that occur, we do believe there is potential for us to over-deliver.”