Q2 2025 TreeHouse Foods Inc Earnings Call
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 press the pound key.
Please note this event is being recorded.
At this time I would like to turn the call over to Treehouse foods for the reading of the Safe Harbor statement.
Good morning, and thank you for joining us today earlier. This morning, we issued our second quarter earnings release and posted our earnings deck. These items are available within the Investor Relations section of our website at Treehouse Foods Dot com before we begin I would like to advise you that all forward looking statements made on today's call are intended to fall within the safe Harbor provisions of the.
Private Securities Litigation Reform Act of 1095 these.
These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward looking statements.
Information concerning these risks is contained in the Companys filings with the SEC a reconciliation of non-GAAP measures to their most direct comparable GAAP measures can be found in the release and the appendix tables of today's earnings deck with that let me now turn the call over to our chairman CEO and President Mr. Steve Oakland.
Thank you, Matt and good morning, everyone.
Today, Pat and I will discuss our second 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 four.
I am pleased to report we achieved adjusted net sales and adjusted EBITDA results that exceeded the upper end of our guidance ranges.
This performance further demonstrates the execution of our margin improvement plan, we discussed with you earlier this year.
We are confident the plan will meaningfully benefit results for the remainder of this year and beyond.
The operating environment remains dynamic.
But we are focused on controlling what we can control and executing against our plans to drive profits and cash flow regardless of the macro headwinds.
Our comments today will reflect efforts to reduce structural costs and to better align our business with what we're experiencing in the near term.
While we position the business to create value over the longer term.
Additionally, we are focused on execution.
Maintaining our improved service levels and our griddle business is now in a place to positively impact our results in the second half of the year.
Shifting gears, let's take a look at the consumer trends, we experienced during the second quarter in the categories in which we operate.
Which are detailed on slide five.
Progression on volume this quarter unfolded largely as we expected.
We began our margin management activities as early as the fourth quarter of last year bleeding.
Leading to some deliberate pricing and distribution choices to make our manufacturing network more efficient.
In some cases, we now serve a narrow set of customer needs, but do that more efficiently.
This combined with softer ongoing consumer trends, which were felt across the broader market.
Put pressure on units during the quarter.
Pricing more than offset the unit volumes driving growth for the quarter.
We expect these volumes and pricing dynamics to continue in the third quarter.
With unit volumes, improving in the fourth quarter.
At a macro level the private brand industry dynamics remain favorable relative to national brands as you can see on slide six.
Specifically price gaps are healthy and private brands continue to either take or maintain share despite the lower consumption environment.
As it relates to promotion levels, what we have experienced thus far in 2025 is.
As similar to what we experienced a year ago.
With that said you have probably heard plenty of commentary about promotions from others in our industry.
So we thought it would be helpful to spend some time on historical levels of National brand promotion within our categories.
On slide seven you can see a 10 year view of National brand promotion levels as a percent of total sales within our categories.
The current level of promotion remains well below the levels seen prior to the pandemic.
Now looking ahead, we do anticipate some increase in promotional intensity in some of our categories, which is reflected in our guidance today.
As you move to slide eight youll notice that private brands have consistently gained share over the last two decades, which we believe will continue over the longer term.
This gradual share growth occurred despite higher levels of promotion and a variety of promotional strategies over this period of time.
Continuing with the discussion of the long term private brand opportunity on slide nine.
It's clear that many grocery retailers also see further runway for growth in private brands and.
And are making their own strategic investments accordingly.
Private brands provide an opportunity to deliver higher margins at a time when retailers across the industry are dealing with cost pressures, whether it be labor input cost inflation tariffs.
Some examples of these retailers include Aldi, which continues its store base expansion across the U S. With an assortment that is focused almost exclusively on private brands.
Walmart is focused on growing better goods, our private brand, which makes quality trend forward and chef inspired food approachable and affordable.
These are two of many examples that underscore the opportunity available to treehouse to partner with our retail customers gained share.
Right value over the long term.
I'd like to conclude by providing some perspective on how we continue to manage the business to align with the near term realities of slower category growth.
The foundation, we built with our supply chain initiatives remains strong and we're focused on executing what you see outlined on slide 10.
We're taking actions to deliver our commitment of $250 million of gross supply chain savings through 2027.
In the current environment, we think it's prudent to focus on profitability and cash flow.
We have strengthened our margin management function, allowing us to enhance our profitability by allocating our capacity to the most attractive mix of businesses.
The best drives benefits for both our customers and Treehouse.
This quarter's results are another example of our disciplined approach.
While this is impacting our volumes it aligns with our strategic focus on margin and cash flow.
Ultimately the impact will be seen in our adjusted EBITDA.
Finally, we are also focused on our cost structure.
We are empowering our organization to make faster decisions to better serve the complex needs of our customers.
We are focused on running a lean organization and driving synergies through a broader utilization of shared services.
We also have an opportunity to optimize our plants and their capacity.
And most of our categories, we have multiple production locations.
This allows us to move production to gain efficiency, depending on the needs of the business as we discussed last quarter within our non dairy creamer business.
Furthering this effort. We recently made the decision to close two plants to right size, our network within our pickles and cookies businesses.
We believe these strategic decisions improve our competitive positioning and also allow us to be more flexible with capital focusing our investments in areas that will provide better margin profiles and growth potential.
All in an effort to drive improved profit and cash flow.
I'll now turn the call over to Pat for further detail on our second quarter results and our outlook.
<unk>.
Thanks, Steve and good morning, everyone.
I'd like to start by thanking the team for their commitment to execution again this quarter.
You can see a summary of our second quarter results on slide 11.
Our adjusted net sales were up one 4% year over year.
We delivered strong adjusted EBITDA of $73 3 million, which was up about 4% year over year.
Our adjusted EBITDA margin Rose 20 basis points to nine 1%.
On slide 12.
Provided further detail on the drivers of our year over year adjusted net sales.
The decline in volume and mix reflects planned margin management actions.
Slower takeaway in the quarter and service impacts due to the restoration of our credit facility.
All of which were in line with our expectations.
Our acquisition of <unk> was a benefit of almost 5% as expected.
Pricing was a benefit of approximately 4% due to commodity related pricing adjustments, primarily within our coffee business.
Additionally, net sales were negatively impacted by <unk> recall related returns our ready to drink business exit last year, and a modest foreign exchange drag which in total resulted in a decline of just over 1%.
Moving on to Slide 13, I'll take you through our adjusted EBIT of drivers.
Volume and mix provided a drag of $1 1 million driven by lower volumes, including the impact of our margin management actions, which were largely offset by Harris <unk> volume.
Peanut pricing net of commodities was a drag up $9 $7 million year over year and was driven by higher cost due to commodity inflation.
Operations and supply chain delivered a $10 $6 million benefit versus the prior year.
Driven by supply chain cost savings and improved operational execution.
Lastly, SG&A and other delivered a $2 9 million benefit versus the prior year, driven primarily by cost reduction efforts.
Moving onto our capital allocation strategy, which is outlined on slide 14.
The board and management continue to be focused on deploying capital in a manner that enhances returns for shareholders.
Our first priority remains investing in our business, which we do organically through Capex and.
And inorganically by strategically, adding depth and capabilities as we did with our acquisition of Harris Teeter earlier this year.
We will maintain our balance sheet, which currently involves building cash throughout the year to drive our net debt to adjusted EBITDA ratio to our desired range by year end.
We will continue to be disciplined and look at all capital deployment decisions by evaluating risk adjusted returns.
Moving on to our outlook on slide 15.
We are anticipating our full year adjusted net sales will grow between negative five and 1% year over year or in a range of $3 36 billion to $3 415 billion.
Company volume and mix are still expected to decline approximately 1% year over year.
Driven by an expected 1% decline in base volume and banks.
The Harris Teeter volume benefit is still expected to be offset by our previously announced decision to exit the ready to drink business.
In other margin management actions, along with the impact of the gradual recovery.
We now expect that commodity related pricing will be a low single digit benefit in 2025.
Driven by pricing to offset commodity inflation.
We are reiterating our adjusted EBITDA guidance range of 345 to 375 billion.
We are also reiterating our free cash flow expectations of at least $130 million.
Our guidance for net interest expense and capital expenditures remain unchanged.
Additionally, our current guidance contemplates what is in place as it relates to tariff policies as of today.
With that said.
We will continue to monitor and evaluate any potential additional impacts as new information becomes now.
As it relates to the third quarter, we expect adjusted net sales to be in the range of $840 million to $870 million, representing approximately flat growth at the midpoint.
Organic volume and mix are expected to decline high single digits as a result of margin management actions.
Pricing is expected to provide an approximate 4% benefit.
Our third quarter adjusted EBITDA is expected to be in the range of $90 million to $110 million.
With that I'll turn it back over to Steve for closing remarks, Steve.
Thanks Pat.
We continue to navigate the consumer backdrop in 2025, we are keenly focused on further strengthening the foundation of our supply chain and margin management initiatives.
Leveraging our improved service levels in key categories ahead of our peak seasonal period.
And pursuing profitable new business opportunities.
With that I'll now turn the call over to the operator to open the line for your questions.
We will now begin the question and answer session I would like to remind everyone in order to ask a question follow up is number one on your telephone keypad.
We grow your question press the pound key.
We remind everyone to limit yourself to one question and one follow up.
The first question comes from Andrew Lazar of Barclays. Your line is open.
Great. Thanks, Good morning, Steve Pat and Matt Good morning, Andrew Good morning.
Steve I guess first off based on some of the charts in your slides the percent price gaps right between branded and private label still above historical levels.
It looks like they've been narrowing a bit relative to last year.
Private label has taken some more pricing in the second quarter. Maybe then did some of the branded players.
As a result, it looks like in the second quarter.
<unk> actually saw better volume performance in your categories relative to private label.
Just hoping you could provide maybe a bit more color on how the competitive environment played out in the quarter I guess relative to your expectations and how you see that dynamic playing out through the balance of the year.
Sure sure first of all let me touch on the pricing piece as you know most of the pricing that went through was commodity a little bit of tariff pricing.
And usually those are the same on a unit basis right. So if if a private label unit as 20 cents of commodity increase our branded unit will have 20.
So when you look at a chart that's within a couple of tenths of a percent right for I apologize for the scale for one to $3 nine looks pretty dramatic.
But it's really the same thing and when you think that brands are 25% more expensive because they have trade and marketing in their price and their price list right.
So.
We've actually moved our prices at the same or maybe even a penny or two less when it comes to shelf price. So that that commodity increase is pretty much the same and I think that's why you've seen the gaps hold up so well right.
So I think we've taken a higher percentage price increase but we've taken basically the same penny per unit.
So thats why the shelf prices.
I've changed about the same.
Thanks.
So so that's one thing I would also say that the second quarter for us is a quarter where is our smallest sequential quarter typically.
We look at our top five categories, and then <unk> and <unk>.
Four of our top five categories, we performed at or above.
The private label share right. So we've held or gained share.
And.
And the one that we didn't know quite frankly, its a customer mix and maybe Pat you can speak to the customer issue here.
I think looking at the IRI data is helpful. It is.
Directional from a private label because we we don't have all the distribution that shows up on the IRI by customer and so depending on what distribution, we have by customer in each category that will vary a little bit. So I don't think we see that as too disconnected yeah, we don't align exactly with the total universe of private label.
So I guess I guess, we look at the second quarter as our biggest businesses did pretty well.
There is some margin management involved here, which we expected and we guided to.
And the forecast from the customers for the third and fourth quarters are two biggest quarters are pretty solid.
So we think the year is going to unfold pretty much how we how we thought.
There is some promotional noise, we know in the back half and we've accounted for that we think so.
We think the year will fold out just about as we expected.
Got it got it. Thank you and then just a quick follow up I know you guys have been pretty disciplined about.
The types of assets that you've been willing to sort of pick up.
If you looked at maybe and capabilities in certain categories, where you wanted to go deeper.
Our vertically integrate more like what you've done in coffee or tea or what have you.
Has the environment.
Along those lines in terms of maybe availability of interesting assets that might fit.
In terms of improving your depth of capabilities in certain categories increased at all just given how difficult growth has been to come by in the industry and I'm curious if there's a T shirt that perspective as well.
No Andrew that's a great catch.
This year 25, we looked at as a year to reset our cost structure right and we talked about margin management, we've talked about some plant consolidations now that are public.
We've done some organizational streamlining those kinds of things, but investing in our hot beverage business coffee and tea. If you look at within private label coffee and tea over the last few years have done really well right and so we think thats a place to position ourselves the.
The same thing we've done we've done it more organically and are cookies and crackers business that's been investments in our plants.
So we're trying to be really disciplined on our capital allocation.
The opportunities when we get them to do it inorganically just make it faster quite frankly things like the Harris team got us to a place we wanted to be much quicker, but that investment will be in those categories that we think are performing the best we like all of our categories, but several of them. We think have the have a little more momentum in them for the near term and the long.
Term and Thats, where the where the capital allocation is going if we can.
Thank you.
Thanks Sandra.
The next question comes from James Carbonara of Stephens. Your line is open.
Hey, good morning, guys. Thanks for taking my question good morning, Steve.
To ask a question regarding innovation, we've heard a lot of companies that have reported talk about innovation as a way to kind of stand out.
Engage with the consumer, particularly in kind of a softer macro backdrop.
Tom.
Flow through in your position and do we see private label kind of riding on the coattails and some of that innovation and trying to have.
Innovation alongside branded or do we find that if branded innovation picks up that could maybe.
Fulsome attention away from private label, just any thoughts on kind of the push pull there sure.
The nice thing about private label from an innovation standpoint, as we're fast followers right.
And if you look at our investments in things like Pretzels right. We have a we have a seasoned pretzel business that is really a result of the innovation in the industry right and the dots phenomenon all of those things so.
We see branded innovation in categories is really important.
<unk> for US is trying to determine when it really becomes a trend right. We got to make sure. It's not a fad it's a trend.
We have tried to get into early in the past and that has not been successful we have to.
Remember private labels, maybe 20% of a great category less than that of a lot of categories. So we need that innovation to get moving so that that 20% of that is meaningful for us.
So there's a lag between branded innovation and private label follow.
But we're excited about it we havent in coffee with with Cold Brew, we have it grew over rice all of those things, we haven't principles with season that Phil.
And we have it in other categories, we have and in broth with phone.
Those things so we see innovation is positive for the whole industry in the categories and the key for private label is picking those those places to invest.
So that we can follow up quickly.
Great.
Maybe thinking about Optum.
Optimizing your supply chain relative to.
Other suppliers.
Some of the private label partnership do you feel that your capabilities on innovation.
Or much more.
Where are you in a structural advantage relative to peers such that you can be a much quicker.
It's time to catch on.
You see something established as a trend, but not a bad sure sure I think our balance sheet helps us a lot their REIT our size and scale gives us some opportunity there I think we've been able to move faster on things like pretzels, we've actually made acquisitions in that in those spaces. When we see the opportunity right to get us there faster.
I think the work we've done in the coffee business, what youll start to see that over the next couple of years I think we've put not just great assets in place, but great people and great capability. So I think.
I think thats, where our balance sheet helps us right, especially in a higher cost capital environment.
Might have had a time a couple of years ago.
When capital was much cheaper than it was a little easier for some of the smaller guys to do it but I think our size and our balance sheet gives us some advantage today.
Okay No I appreciate the thoughts I'll hop back in the queue.
Yep. Thank you.
The next question comes from Robert Moskow of TD, Colin Your line is open.
I see good to talk to you interrupt yeah, you too.
I wanted to see if you could drill down a little bit into a couple of categories.
You bought the North Lake facility and expanded your coffee capabilities significantly.
And you can see in the tracking data some pretty extraordinarily good demand for ground coffee, even without license being higher the category volume is still really high and I wanted to know if youre seeing that in your results also is that segment of your business performing well and.
And what do you think is going to happen in August when all of these brands start raising prices.
Yeah.
That's a great question, yes, we see demand for and we see opportunity in ground coffee right now.
And we packed ground coffee for both retailers and some large foodservice institutions and so.
That's a great new business for us I talked about investment we made.
Farmer brothers.
Built a in fill a wonderful asset there, but we felt it needed to be fully built out that work is just finishing as we speak right now so it's giving us capability, we're literally bidding on projects that we could have never been on before right for next year. So we're encouraged by that.
We have the Brazilian.
Tariffs coming in place.
Thats 40, some percent of the largest coffee many of.
Or coffee growing country in the world.
Hopefully most of us have a little bit of that hedged and are in a good place for that.
I think we'll see what happens over the next few months there are formulation alternatives. Our team has worked on all of those but we will probably see assuming those tariffs stay in place Big assumption, Brian as you know what the volatility of tariffs event, but I think you know.
Ground coffee on a per serving basis is still really reasonable compared to every other way to consume coffee.
So I think the consumer will be frugal I think private label will have a nice opportunity.
Because of our price gaps.
But I think the category will hold up I don't think will change.
If you think about.
A 50% price tariff on 40% of the input cost I don't think that will change the per serving price enough to change the consumer dynamics, but I do think it's an opportunity for private label, because we will have lower price points on the shelf.
Okay and a follow up is on broth I didn't hear much mention of it.
Where are you at in terms of regaining market share.
In broth.
After the.
The plant issues that you had do you expect to be more competitive in.
Coming soup season.
Yes, I think I think thank you.
Nice start to talk about it.
<unk> frankly.
We've had fantastic service like the word virtually weeks of 100% service in broth.
Over the last month or two.
So it's really nice to see that team delivering.
Literally there were conversations as recently as yesterday with some of our largest partners on the <unk> forecast and getting it exactly right for.
November December October November December, let's call it and so we feel that business that business was one of our fastest growing pre pandemic and we feel like it's on the verge to coming back to that.
So.
Okay. Thank you.
Okay.
Your next question comes from Matt Smith of Stifel. Your line is open.
Hey, good morning, Steve just not in the first question would be regarding the private.
The underlying volume decline you called out for the year around 1% can you talk about the expectations in the second half I think volumes on an underlying basis theyre down a little over two 5% year to date, you have some tailwind like griddle and broad, but what are you embedding for the underlying category performance for private labor.
And the outlook.
Sure.
Matt I'll take that one I think we're embedding I would say more of the same.
I do think <unk> got some tailwind that you highlighted in terms of getting all the broth production online incredible production online that it'll be tailwind for us from that perspective, but from a if you're asking about kind of underlying consumer trends, we're not expecting anything.
Significantly different from what we saw in the first couple of quarters. This year.
Yeah, really it's us lapping those supply chain issues and holding steady.
With where we are today from a consumer standpoint, if a consumer comes back to us a bit that would all be on top of what we've guided but if not we feel really good about what we've got it.
Thanks, and as a follow up you mentioned beginning to lap some of the margin management activity that you pursued in the fourth quarter. Now you have a couple of quarters of experience and the benefit that's flowing through the P&L or are you looking at a broader.
Range across the business for opportunities for more margin management activity and how would you scale that opportunity relative to the actions that you've taken over the last couple of quarters.
Yeah.
Hopefully in the prepared remarks, we got started early we got started in the fourth quarter of last year I think we will see most of that behind us and we look at 25 is that.
Reset the cost structure get those things behind us and then that cost structure. We think is going to make us much more competitive in a couple of targeted categories. So we see 26 is the startup of growth Youre not out another margin management here. So we think we've targeted the vast majority of the opportunity there and it's gone really well.
Well I think you can see in our dollar sales numbers.
There are places, where we priced for some complexity and came to a nice agreement with a customer and other places where we worked with the customer to get that product out of our system. So.
We had both both things happen, there, which were which we hoped would happen and it did but we hope to get it behind us. So I think we'll be on a normal growth trajectory coming at 26.
That's very helpful. Steve. Thank you I'll pass it on thanks.
The next question comes from Scott marks with Jefferies. Your line is open.
Hey, good morning, guys. Thanks, so much for taking the questions.
One I wanted to ask you about was just the Q3 guide there were some comments in the release about expectations for organic.
Mix to be down high single digit percentages, which I think was a little bit less than what maybe some folks were expecting so wondering if you can just kind of break that down for us a bit in terms of how you see the different components and Bath mat.
Yes from a from a Q3 standpoint.
We will have a couple of things coming towards us I think.
We're expecting consumer trend to be more or less the same you are starting to see a credible recovery from a bottleneck standpoint start to play through.
And then you've got the margin management activities that are starting to.
We've taken that will impact that number as well.
So hopefully that helps.
Yeah understood I mean, if there is there maybe a step up in the margin management activities, just just trying to under understand kind of wide down a high single digit as opposed to let's say mid single digit if if some of the griddle recovery starting to play out.
Especially.
Yes.
Yes, and you've got you've got pricing up.
And then that's impacting the volume as well so.
I think.
I'm not sure we're implying anything significantly different from a from a third quarter standpoint compared to no.
And what I tried to say in the end.
The prepared remarks, there is a sales cycle here right. When we go to a customer and we decided to exit something together.
There is usually 90 days of packaging that kind of stuff. So that's why that really hit in the second quarter.
So that'll be in the third quarter, but the griddle, primarily hits in the fourth quarter right and we actually had returns in the fourth quarter right product. We took back. So there is a significant bump up from <unk> in the fourth quarter. So that's why we say third will be similar and fourth will be.
It's significantly different.
Okay got it thanks for that and then just a quick follow up.
Some of the pricing actions that will be taken.
Assume it's related to coffee and cocoa needs, mostly but wondering if you can just provide a little commentary on where some of those pricing actions.
Thanks.
Yes coffee is the largest part.
There was probably a tiny bit of cocoa, that's not our biggest commodity I think we've seen a few of the oil complex also move a little bit.
Those would be the biggest areas and then we've had a very small amount of tariff pricing that we've had to push there as well.
Understood. Thanks, so much ethanol.
Once again, if you have a question it is Darwin on your telephone keypad.
Yeah.
Yeah.
Yeah.
Our last question today comes from the line of John Baumgartner with Mizuho. Your line is open.
Good morning, Thanks for the question John.
Maybe first off Steve and Tim.
Nathan for increased promotion and <unk> that you mentioned.
You see that playing out or are you anticipating the balance of that promo between you know between price versus non price.
I mean do you think brand increased resources allocated to feature and display how do you see that impacting visibility for store brands pattern thinking about potential that retailers, maybe deemphasize some store brand programs in H two in light of the branded activity.
Yeah.
I think the.
Retailers enjoy the the margins from branded promotion and the cost that they charge for branded promotion.
But I think the message we're getting from the retailer and the forecast we have from the retailers suggest that theyre going to support private label as well. So we don't see a big difference in that this year.
In fact, like I say that the conversations right now are really confirming supply availability are confirming quantities are confirming all of those things, which would suggest that the the.
The merchandising the support for private label is solid so.
<unk>.
I do think there'll be branded spend.
We all hear about it we've listened to the other calls.
I understand what's going on.
You can read that chart, one a couple of ways with price gaps if that spending is going on in the percentage of volume on promotion isn't going up.
You know, it's about efficiency of that promotional spend right, it's not driving the kind of units that.
I think we all thought are all feared would happen. So I think the retailer has committed to vote is a long way of saying that.
Okay. Thanks for that and then looking at gross margin I'm a bit of pressure.
Here in Q2, presumably that ties back to the PDR drag how are you.
Are you thinking about gross margin evolution from here on a year on year basis, given all the moving parts between efficiency. Good oil recovery the margin management versus deleverage I mean, assuming peanuts looks back positive is it is it too ambitious to believe that gross margin grows bleach. So at this point.
I think you'd see it sort of flattish through the third quarter and then you'll start to see it improve over the fourth quarter I.
I think some of the there's probably a little bit of peanuts drag into Q3 and here you are getting some of those efficiencies in supply chain cost savings that are coming through that through the latter part of the year.
Yeah.
Yes, it looked like it turned the corner last quarter in Q1, and you saw pricing accelerate here in Q2 has anything changed the margin are there are there other inputs as opposed to quality at this point that incrementally something worse for you.
No I don't think so again, we take 30 to 60 to 90 days generally to pass through as commodities go up and I think what we're seeing is maybe just slightly elevated compared to what we estimated so I think we're getting it all in the year I, just think youre seeing a little bit of the timing shift in terms of there was a little bit more so we had to get the pricing through.
Okay. Thanks, Pat Thanks, Steve Thank you.
This concludes the question and answer session I would like to turn the conference back over to Steve Oakland for closing remarks.
Yes, I'd like to thank you all for being with US today, and we look forward to the opportunity to talk to you individually and in person soon have a great day.
Uh huh.
This concludes today's conference call you may now disconnect.