OAK BROOK, ILL. — TreeHouse Foods Inc. took a hit to its fiscal 2024 third-quarter results and lowered its full-year guidance after an October recall of private-label frozen waffles and pancakes that impacted a spate of large grocery retailers.

For the quarterly and year-to-date periods ended Sept. 30, TreeHouse said it recognized charges of $27.1 million from the recall. The total includes $15.3 million in estimated product returns, $8 million in noncash inventory write-offs and $3.8 million in estimated logistics costs. At the top line, product returns from the recall pared net sales by 1.4% for the quarter and by 0.6% for the nine months, according to the company.

On Oct. 18, TreeHouse recalled more than 600 frozen waffle products after testing at its Brantford, Ont., manufacturing plant showed potential Listeria contamination. Then, on Oct. 22, TreeHouse expanded the recall to all products made at the Brantford facility that were still within their shelf life. The expansion added more than 200 frozen toaster waffle and Belgian waffle products and over 30 pancake products to the initial recall.

“TreeHouse Foods initiated the recall of products made in our Branford, Ont., facility out of a commitment to food safety and quality,” Steven Oakland, president and chief executive officer, told analysts in a Nov. 12 conference call on third-quarter results. “The recall was initiated as a result of routine quality assurance testing of our products made at the facility.

“We have temporarily closed the facility to conduct a deep cleaning, sanitation and hygienic restoration,” he said. “Our entire organization is committed to food safety, and we are extremely disappointed to have this event occur in our system. But it recommits all of us to be relentless when it comes to food safety. We expect the facility to resume manufacturing in the first quarter of 2025.”

The recall, in part, led TreeHouse to project a 1% to 2% decline in adjusted net sales to between $3.37 billion and $3.4 billion for fiscal 2024, compared with its previous outlook of flat to 2% growth to between $3.43 billion and $3.5 billion. The company also trimmed its forecast for adjusted EBITDA to $335 million to $345 million, down from $360 million to $380 million previously.

“We are updating our full-year adjusted net sales to minus 2% to minus 1% year-over-year, or $3.37 billion to $3.4 billion, which reflects our expectations that consumer trends will remain below recent quarters as well as the impact of our recent recall,” chief financial officer Patrick O’Donnell said in the call. “Additionally, we have updated our adjusted EBITDA guidance range to $335 million to $345 million. This update reflects our expectations that slowing consumption and consumer-driven mix trends we’ve experienced throughout the year continue in the fourth quarter, creating further deleveraging of our supply base during peak season. It also reflects the impact related to our critical recall.”

In the third quarter, TreeHouse posted a net loss of $3.4 million, compared with net income of $7.1 million, equal to 13¢ per diluted share on the common stock, a year earlier. The company said the loss primarily reflects the impact of product recalls and related costs – including from TreeHouse’s broth facility restoration and the griddle products recall – and mark-to-market investment adjustments.

Adjusted net earnings were $38.7 million, or 74¢ per diluted share, up from $32.4 million, or 57¢ per diluted share, a year ago. The adjusted earnings-per-share result was in line with analysts’ average forecast of 74¢.

Third-quarter net sales fell 2.8% to $839.1 million from $863.3 million a year ago. Organic net sales were down 2.7% to $854.4 million, reflecting declines of 0.5% in pricing and 0.8% in volume/mix. TreeHouse attributed the lower top line mainly to the frozen griddle product recall but also to negative impacts from targeted commodity-driven pricing adjustments in certain categories and to distribution disruptions in the Southeast from Hurricane Helene.

“Our performance was impacted by weakening consumer trends across our industry and, specifically, our categories as the third quarter progressed,” Oakland said. “Additionally, Hurricane Helene caused some delays in shipping volume out of our North Carolina distribution center in the final days of the quarter, which we estimate was an impact of between $5 million and $10 million of our top line.”

Supply chain optimization efforts yielded a $20 million savings in the quarter, which drove a 160-basis-point increase in adjusted gross profit that fueled a 14% rise in adjusted EBITDA. TreeHouse previously projected a $50 million gross cost savings in the 2024 second half from supply chain initiatives.

“Despite these sales results, we still recorded adjusted EBITDA of $103 million, which was at the midpoint of our guidance range,” he said. “This was driven by our strong adjusted gross profit, a result of the savings associated with our supply chain initiatives. We executed well against the savings initiatives in our supply chain, securing anticipated procurement savings, which provided the benefits expected this quarter. Importantly, the progress we are making on these initiatives should lead to positive momentum for next year.”

CEO: Long-term trends outshine near-term challenges

In the product categories in which TreeHouse operates, private label unit growth has declined steadily in recent months, from 4% in July, 3% in August and 1% in September to negative 1% in October, the company reported.

“While private brand unit sales were positive in the quarter, we did see a significant deceleration as the quarter progressed,” Oakland said. “This slowdown was a result of continued pressure on the consumer that impacted the broader market. This trend persisted through October, and we assume that it likely continues in the near term.”

Still, Oakland pointed to positive trends for private label in his company’s categories, including unit share growth brands above 2023 and pre-pandemic levels, a price gap versus national brands above 2023 and pre-pandemic levels, and national-brand promotional activity that remains below pre-pandemic levels.

“Overall private-brand industry dynamics remain favorable when compared to historic levels,” he said. “Price gaps are healthy, and private brands continue to take share. But given the lower consumption environment, the share gains are coming from a smaller pie. As it relates to promotional levels, we have seen a traditional pattern of gradual increases as the calendar year has progressed. While we do expect the typical seasonal ramp in the fourth quarter, we would note that promotions are still below the historic levels seen prior to the pandemic.

“Private brands have been consistently gaining share over the last two decades, which we believe will continue over the long term. TreeHouse remains attractively positioned at the intersection of two incredibly powerful long-term consumer trends: the growth of private brand groceries in North America and a consumer shift towards snacking.”

Oakland also cited ongoing private-label expansion by grocery retail giants such as Walmart, Costco Wholesale, Albertsons Cos. and Aldi.