OAK BROOK, ILL. — The interconnectedness of the food and beverage supply chain was apparent in TreeHouse Foods, Inc.’s third-quarter financial results. With on-time deliveries from vendors in the low-70s on an aggregate basis, the company is struggling to achieve service levels in the low 90s.
“Service continues to improve sequentially, but it’s still not back to where we need it to be for us to take advantage of the full opportunity,” said Steven T. Oakland, president and chief executive officer, during a Nov. 7 conference call with securities analysts. “We continue to make progress in our efforts to mitigate the disruption and anticipate that service will continue to improve over the next few quarters. But we do face the challenges in the operating environment, which are impacting our industry.”
Adding to the pressure has been the ongoing difficulty of attracting and retaining labor. Processing plants that are fully staffed with a stable workforce are better able to improve service levels and focus on continuous improvement, said Patrick M. O’Donnell, vice president and controller at the company.
The supply chain issues during the quarter hindered the company’s ability to take advantage of consumer demand for lower-price private label products. For the quarter ended Sept. 30, TreeHouse Foods recorded a loss of $90.5 million. During the same quarter of the previous year, quarterly net income was $6.7 million, equal to 12¢ per share on the common stock.
Sales for the quarter rose to $875 million from $752 million the year before. Raising prices contributed 21% to the sales increase while volume/mix fell 4%. Gross profit as a percentage of net sales was 14.8% during the third quarter of fiscal 2022 compared with 16.7% during the previous year. The decrease primarily was due to incremental costs related to labor and supply chain disruption due to the macro environment as well as warehouse capacity challenges, according to the company.
TreeHouse Foods completed the divestment of a significant portion of its meal preparation business on Oct. 3.
“Today, we are a simpler business, having divested 11 categories and 14 plants,” Mr. Oakland said. “Our portfolio is now more focused around snacking and beverages.
“We operate across attractive growing categories, fueled by strong consumer demand trends. We have positioned ourselves to capture the continued momentum in private label and improve the consistency of our execution to drive more profitable growth.”
Mr. O’Donnell said the divestment will help the company improve its service levels.
“The divestiture significantly reduced our complexity in terms of the number of plants and categories, which is better enabling us to focus on service,” he said. “On average, this year, we’ve seen a 50 to 100 basis point improvement in service each quarter. During the third quarter, service averaged 93%, posting improvement each month, and … our service in October was 96%.”
Looking ahead to fiscal 2023, TreeHouse Foods’ management team expects private label demand to continue to be strong.“During historical downturns, as consumers look to stretch their dollars, private label has benefited,” Mr. Oakland said. “… We have a faster-growing, higher-margin portfolio. Pre-pandemic, these categories grew between 3% and 5% per year. And although we're not ready to provide formal 2023 guidance, given next year's wrap of pricing to recover inflation as well as healthy demand, we would expect revenue growth to be very strong.”