Q1 2025 TreeHouse Foods Inc Earnings Call
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Speaker Change: Welcome to the TreeHouse Foods' first quarter 2025 conference call. All participants are in a listen-only mode.
Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star in the number one.
Speaker Change: Please note this call is being recorded. At this time, I would like to turn the call over to TreeHouse Foods for the reading of the safe, Harper Statement.
Speaker Change: Good morning, and thank you for joining us today. Earlier this morning, we issued our first quarter earnings release and posted our earnings deck. These items are available within the Invest Relations section of our website at treehousefoods.com.
Speaker Change: These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our four-level statements. Information concerning those risks is contained in the company's filings with the SEC.
Speaker Change: A reconciliation of non-GAAP measures to their most direct comparable GAAP measures can be found in the release and in appendix tables of today's earnings deck. With that, let me now turn the call over to our chairman, CEO and president that's received Oakland.
Thank you, Matt, and good morning everyone.
Speaker Change: Today, Pat and I will discuss our first quarter financial results and provide an update on our operations and our outlook for the remainder of the year.
Our results are outlined on slide 4.
Speaker Change: I'm pleased to report we achieved adjusted net sales within our guidance range.
Speaker Change: and Adjusted EBITDA that came in above the upper end of our guidance range.
Speaker Change: Note that adjusted EVTA saw benefit of approximately $6 million.
Speaker Change: a planned expenses that shifted from the first quarter to the second quarter.
Speaker Change: Reflecting early returns on the execution of the Margin Improvement Plan we've previously discussed with you.
while we are in the early stages.
Speaker Change: We are confident that the plan will meaningfully benefit results in the current year and beyond.
Speaker Change: The operating environment is clearly much more dynamic than we or anyone anticipated when we last spoke in February .
But we are focused on controlling what we can control.
Speaker Change: and executing against our plans to drive profits and cash flow regardless of the economic
That will provide more detail on these results later.
Next, a few operational updates.
Speaker Change: First, the team at our Grandford Ontario Frozen Grittle Facility is making great progress.
Speaker Change: As of today, all of our lines are running and we are in the process of filling the customer pipeline.
Speaker Change: We are on plan to have this business in place to positively impact the second half of the year.
Speaker Change: Second, some comments regarding public policy changes that tariffs and food ingredients.
Speaker Change: As for tariffs, our manufacturing footprint consists of 22 plants in the United States and five in Canada.
Speaker Change: All of the products made in Canada, their shipped into the United States, do so duty-free as they qualify for the U.S. MC arena.
Speaker Change: That said, we do ship a limited subset of Finnish goods into Canada that are subject to tariffs.
Speaker Change: and we buy some raw materials and packaging from international sources.
With respect to the public policy changes regarding food ingredients,
We have been working on reformulation for some time [inaudible]
and in some cases are already meeting the future standards.
Speaker Change: We do applaud the efforts of the FDA to establish one national standard.
Speaker Change: Shifting Gears will take a closer look at the consumer trends we experienced during the first quarter, in the categories in which we operate, which are detailed on slide five.
Speaker Change: For context, the Easter holiday was later this year and negatively impacted the March trends.
which were the weakest in the period.
Private brand unit sales were slightly negative in the quarter.
Speaker Change: which came in as a result of continued pressure on the consumer that impacted the broader market in addition to the Easter shift.
We have seen the category bounce back somewhat in April .
This progression unfolded largely as we expected.
Speaker Change: Specifically, price gaps are healthy and private brands continue to take share in this lower consumption environment.
as it relates to promotion levels
Speaker Change: What we've experienced thus far in 2025 is similar to what we experienced a year ago.
Speaker Change: As you can see on slide 7, private brands have been consistently gaining share over the last two decades.
Which we believe will continue over the long-term
Speaker Change: TreeHouse remains attractively positioned at the intersection of two incredibly powerful, long-term returns.
Speaker Change: The growth of private brand groceries in North America and the consumer shipped towards snacking.
Speaker Change: Continuing with the discussion of the long-term opportunity on Slide 8, it's clear that many grocery retailers also seek further runway for growth in private brands and are making their own strategic investments accordingly.
Speaker Change: Aldi continues its store-based expansion across the U.S. with an assortment that is focused almost exclusively on private brands.
Wal-Mart, recently launched Better Goods.
Speaker Change: A private brand which makes quality, trend forward, and chef-inspired food, approachable and affordable.
Speaker Change: These are just two of many examples that underscore the opportunity available to TreeHouse to partner with our retail customers, GameShare, and create value over the long-term.
Speaker Change: I will conclude by providing some additional perspective on how we are managing the business in the near term.
Speaker Change: We will continue to focus on the performance of our supply chain and our cost structure.
While we've made significant progress in both of these areas.
Speaker Change: We still have opportunities to impact our results in both 2025 and beyond.
Speaker Change: The foundation we built with our supply chain initiatives remains strong, and we are focused on executing what you see outlined on Slide 9.
Speaker Change: We have visibility to delivering our commitment of $250 million of gross supply chain savings through 2027, with significant recent success across procurement as an example.
Speaker Change: In this economic environment, we think it is prudent to focus on profitability and cash flow.
Speaker Change: We continue to strengthen our margin management function, allowing us to enhance our profitability by allocating our capacity.
Speaker Change: to the most attractive mix of businesses that drives profitability for both TreeHouse and our customers.
Speaker Change: This quarters resolves, for an example, of making deliberate choices on bidding or not bidding on pieces of business that do not meet our margin hurdles.
Speaker Change: While this is impacting volumes, it is aligned with our strategy to focus on margin and cash flow.
Speaker Change: and the impact can be seen in our strong Adjusted EVTA.
Speaker Change: Finally, we're also focused on our cost structure, and have undertaken some longer-tailed projects on this front.
Speaker Change: Consistent with a low growth environment, we made some appropriate decisions to streamline our cost structure.
Speaker Change: We reduced some layers of management as well as consolidated our operating divisions.
Speaker Change: to empower our organization to make faster decisions and to better serve the complex needs of our customers.
Speaker Change: An example of this is our choice to close our New Hampton facility which produces non-dairy cream
Speaker Change: In most of our categories, we have multiple production locations which allows us to move production to gain efficiency depending on the needs of the business.
Speaker Change: I believe these types of strategic decisions improve our competitive positioning and also allow us to be more flexible with capital, focusing on our investments in areas that will provide better margin profiles and growth potential.
Speaker Change: All in an effort to drive improved profit and cash flow.
Speaker Change: I will now turn the call over to Pat for further detail on our first quarter results and our outlook.
and Matthew O'Donnell. Thank you. Thank you.
Thanks, Steve, and good morning everyone.
Speaker Change: I'd like to start by thanking the team for their commitment to execution this quarter.
Speaker Change: Our adjusted net sales were down approximately 3% year-over-year.
We delivered strong, adjusted EBIDA of 57.5 million.
which was up 25% year-over-year [inaudible]
Speaker Change: Our adjusted EBITDA margin was 7.2%, which was up 160 basis points compared to last year.
Speaker Change: On Slide 11, we had provided further detail on the drivers of our year-over-year adjusted net sales.
Speaker Change: The decline in volume and mix reflects planned margin management actions.
Speaker Change: Service impacts due to the restoration of our griddle facility, and some slower takeaway later in the quarter.
Speaker Change: Our acquisition of Harris T was a benefit of almost 5 percent.
and was in line with our expectations.
primarily in our coffee business.
Speaker Change: Additionally, net sales were negatively impacted by the direct griddle recall-related returns.
are ready to drink business exit.
Speaker Change: Moving on to slide 12, I'll take you through our Adjusted Heba to Drivers.
Speaker Change: Volume and Mix, including absorption, we're up a combined 2.2 million driven by better product mix in the quarter, some of which was driven by Harris T and our margin management actions.
Speaker Change: Peanock, pricing net of commodities, was up 1.3 million year over year and was driven by pricing to recover commodity inflation.
Speaker Change: Operations and Supply Chain delivered an $8 million benefit versus the prior year.
driven by supply chain cost savings as well as improved service.
Speaker Change: Lastly, Estina and other had no significant impact in the period versus the prior year.
Speaker Change: As mentioned earlier, operations, SGNA and other each saw a partial benefit due to the $6 million timing shift of expense from Q1 into Q2.
Speaker Change: Moving on to our Capital Elecation Strategy, which is outlined on slide 13.
Speaker Change: The board and management continue to be focused on deploying capital in a manner that enhances returns for shareholders.
Speaker Change: Our first priority remains investing in our business, which we do organically through Capac.
and intergrannically by strategically adding depth and capability
as we did with our recent acquisition of Harris T.
Speaker Change: We will maintain our balance sheet, which currently involves building cash throughout the year to drive our net debt to adjusted EBITDA ratio closer to our desired range.
Speaker Change: We will continue to be disciplined and look at all capital deployment decisions by evaluating risk-adjusted returns.
Moving to our Outlook on Slide 14
Speaker Change: We are reiterating our full year adjusted net sales of negative 1% to growth of 1% year over year for 3.34 billion to 3.4 billion.
Speaker Change: Company volume and mix are expected to climb approximately 1% year over year driven by an expected 1% decline in organic volume and mix.
Speaker Change: The Harris T. volume benefit is expected to be offset by our previously announced decision to exit the ready-to-drink business.
and other Margin Management Actions [inaudible]
along with the impact of the griddle recall.
Speaker Change: We expect that commodity-related pricing will be an approximately 1% benefit in 2025.
Speaker Change: We are reiterating our adjusted ebina guidance range of 345 to 375 million.
Speaker Change: We are also reiterating our free cash flow expectations of at least 130 million.
Speaker Change: Our guidance for net interest expense remains 80 to 90 million.
In capital expenditures of approximately 125 million remain unchanged.
Speaker Change: Based on the current environment, our guidance contemplates what is in place as it relates to the care of policies as of today.
Speaker Change: As it relates to the second quarter, we expect adjusted net sales to be in the range of 785 to 800 million, representing approximately flat growth at the midpoint.
Speaker Change: Organic volume and mix are expected to decline mid-single digits driven primarily by continued margin management actions and the griddle product recall.
pricing is expected to provide an approximately 1% benefit [inaudible]
Speaker Change: Our second quarter adjusted EBITDA, as expected to be in the range, of 61 to 71 million, which reflects the shift of 6 million of expenses from Q1 to Q2.
Speaker Change: In the first half of the year, in terms of both adjusted net sales and adjusted EBITDA.
continues to trend in line with our expectation.
Steve Oakland: with that. I'll turn it back over to Steve for closing remarks. Steve?
Thanks Pat.
Steve Oakland: As we continue to navigate this backdrop in 2020, we are focused on further strengthening the foundation of our supply chain.
Martin Management Initiatives
Steve Oakland: Restoring production levels in key categories and pursuing profitable new business opportunities.
Steve Oakland: With that, I'll turn the call over to the operator to open the line through your questions.
and Matthew O'Donnell. Thank you. Thank you.
Speaker Change: Thank you. We will now begin the question and answer session. I would like to remind everyone in order to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again star in the number one.
Speaker Change: Our first question comes from the line of Jon Andersen with William Blair. Your line is now open.
Thank you.
Morning, Jon, are you on mute?
John Anderson: I'm sorry. Can you hear me? Gotcha, Jon. Thank you. Good morning.
John Anderson: You know, that we're experiencing and how that's being expressed in
John Anderson: Maybe consumer demand, particularly for private label. You noted on slide five that, you know, March was kind of a trough in unit trends in your categories, with some recovery in April . [inaudible]
John Anderson: How are you thinking about the consumption trends as you move forward from here, is this private label position to perhaps benefit from some of those additional?
John Anderson: You know, external pressure that the consumer may be feeling and where are your kind of assumptions related to that is the incorporated into the full your outlook. Thanks.
John Anderson: We do see an environment where the consumer is searching for value.
John Anderson: and Private Label when it comes to quality assortment and price gap are probably the best they've ever been. So...
John Anderson: If that trend comes our way, it's going to be upside, but we've just taken a really conservative stance in our in our sales guidance and we feel very comfortable with what we see in front of us and the order pattern that we see that we can deliver that. But we wouldn't be surprised if we saw some upside there.
John Anderson: Great, can I do a quick follow-up? The margin management activity, I think with about a 3%, 3% headwind in the first quarter, is that the level that we should expect through the balance of the year? Thanks for that.
John Anderson: Yeah, I'd say Jon on the full year, there's probably just a little bit of timing of when we exited some of that. I think for the full year we still see
John Anderson: ready to drink business exit and the critical recall, and then pricing you'll see probably about a 1% pickup.
That's how we think about the top line.
John Anderson: Yeah, and Jon, I would just say that when we made that pivot, really, we knew about it in the fourth quarter last year, so we wanted to get on that quickly to get the full year benefit of some of those exits, and so that's what you see early in the year.
Makes sense. Thanks so much.
Thank you. Thank you. Thank you.
John Anderson: Thank you. The next question comes from the line of Jim Salera with Stevens Incorporated. Your line is now open.
Thank you very much. Thanks for taking our question.
Jim Salera: I wanted to actually ask a little bit about some of the bid you guys are talking about in the decisions to not pursue business, it doesn't need certain margin targets. Have you found that?
Jim Salera: As retailers are trying to mitigate some potential tariff impacts, that they're being more aggressive in the numbers that they're putting out and what they expect private-level suppliers to
Um...
Jim Salera: That has allowed us to run our plants much more efficiently.
Jim Salera: and literally take the whole category off allocation. So what we've done is we've narrowed our mix, we've exited some what I would call great products but really complex and difficult to make.
Jim Salera: And that has allowed us to unleash a lot more capacity and fill those customers' demand on our core items, the chocolate and vanilla sandwich cream cookie, right? So...
Jim Salera: I think in some cases it's been literally that simple, in categories where capacity is really tight, let's streamline the assortment, let's pick those right places where we can serve the customer, and where we can run our plants incredibly efficiently. [inaudible]
Jim Salera: So, I would say it's less the customer pushing us for price and more us just trying to get our absolute capacity aligned with the opportunity to serve the customer the best.
Speaker Change: Got it and you've got to answer the question, but maybe just to put a five point on that so
Jim Salera: In these instances where you opt not to pursue certain business of business.
It's usually the case that that just gets removed. [inaudible]
Speaker Change: from the assortment, not that it goes to a competitor. Is that a fair way to frame it?
Jim Salera: You know, though those seasons may go to a smaller competitor, quite frankly, I think it's more about us being much more disciplined on aligning what we do really well with what the customer needs.
Jim Salera: and maybe not trying to do everything for him. Sometimes when we try to do everything
Jim Salera: We end up just being inefficient and that impact rolls downhill in our facilities.
Jim Salera: I think it's really about us aligning what we do best with what they need and what they appreciate it, right? They appreciate the fact that we can take those other categories off allocation. We can fill their needs in full.
Jim Salera: So I think it's a great relationship with a customer and in some cases a smaller vendor may get that specialty item and that's great. I think that's fine.
Okay, perfect. I appreciate the call.
Speaker Change: Thank you. Our next question comes from the line of Scott Marks with Jeffries. Your line is now open.
Thank you.
Speaker Change: Hey, good morning guys. Thanks so much for taking our questions.
Speaker Change: What I wanted to ask about is we've heard from a number of branded peers around the food space about some pressure on the snacking categories that was notable in Q1, so if you can kind of share some of your thoughts around that and what you're saying.
Speaker Change: Yeah, I think we've seen a little bit, I think some of our beverage categories I think we've seen do really well.
Speaker Change: I think some of our snacking categories in the first half of last year had some really good quarters and so you're having some top comparisons early on in the year so we still see
Speaker Change: We still see those as good categories for the consumer, but obviously not where they were last year when you're laughing, some of those tougher comparisons. It still seems to us, and the data we've looked at, that consumers are snacking and it's just a question of what categories they've been in here.
Speaker Change: Got it. And then, if I heard you correct, you were talking about organic vial mix for the year down about 1%, which I believe implies a pretty material improvement in H2, given Q1 results and the guide for kind of down mid single digit Q2. So just wondering if you can kind of share maybe some thoughts around what gives you that conviction for the back half of the year. Thanks.
Speaker Change: Yeah, and I would look at that as sort of net after a couple of things, right? So I would say...
Speaker Change: The organic ball makes down about 1% is net of Harris T and then Harris T is upset a bit by some of the hard-to-management actions, the ready-to-drink business exit, and then the...
Speaker Change: Frozen Griddle Recall. We do expect some acceleration in the back half of the air. Some of that is just normal seasonality for us and some of it is the recovery of the griddle plant that we have been restoring over the first half of the year. So that's how we think a little bit about the complexion of that cell.
Speaker Change: Yeah, Grittle will be a nice positive lap in the fourth quarter
Understood. Thanks so much, I'll pass on.
Thank you.
Speaker Change: Thank you. Just as a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad.
Speaker Change: The next question comes from the line of William Reuter with Think of America. Your line is now open.
Speaker Change: Good morning. My first question on the refill of your griddle pipeline. How has that gone so far? Where are you at with regard to capacity utilization versus prior to having the recall?
Speaker Change: Sure, you know, I give that team a lot of credit. We're up and running. We're running all of our lines. It'll take us a few months to get the customer pipe wine and all the inventories filled back up.
Speaker Change: That's why we say it'll probably the benefit of that will come in the back half of the year not the front half of the year, but we're in good shape. So I would look at the the brothry calls an example. The brothry call today we have a larger broth business than we did before that incident happened.
O'Donnell, Matthew Siler, Steven Oakland
Speaker Change: Got it, but that's helpful. And then when you were discussing capital allocation, you talked about trying to move closer to your leverage goals. I think your target is three to three and a half times and you're only very slightly above that.
Speaker Change: Did that indicate that they're focusing on a lower target than you previously had? Do you want to be at the low end of the range? And I guess how does that impact your interest in cherry purchases this year?
Speaker Change: Yeah, no, I don't think we're changing the target, so we still want to be in that three-to-three-and-a-half range to your point. We are just above that in the first quarter and likely will be for a couple quarters while we rebuild our cash position. So I think the way to think about that is...
Speaker Change: You know, we will rebuild that cast position as we begin into the second half of the year and maybe the fourth quarter in particular will reevaluate what options make sense at that point. So I would say you'll see us just think about it that way over the next couple quarters.
Great, that's all for me. Thank you.
Thank you. Thank you. Thank you.
Steve Oakland: Thank you. At this time, there are no further questions, so that concludes our question-and-answer session, so I'd like to now turn the conference back over to Mr. Oakland for closing remarks.
Speaker Change: Sure, I just like to thank everyone for being with us today. I know it's a busy day for you all as well as for us, so we'll look forward to being together with you shortly. Have a great day.
Speaker Change: Thank you. This concludes today's conference call. You may now disconnect.
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