Analysts Weigh in On TreeHouse Foods (THS) as Shares Fall on Third Cut to FY11 Guidance
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Price: $24.43 --0%
Rating Summary:
11 Buy, 13 Hold, 0 Sell
Rating Trend:
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Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
Rating Summary:
11 Buy, 13 Hold, 0 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 5 | New: 26
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Shares of TreeHouse Foods Inc. (NYSE: THS) are trading down 12.9 percent on the day after announcing weak fourth quarter volumes.
The company reported its sees fourth quarter earnings falling between $0.84 and $0.87 per share, well below the Street’s consensus of $1.07 per share, as December sales volumes were lower than previously expected.
The Company's fourth quarter retail channel volumes decreased 4 percent, mainly due to an 8 percent decline in December volumes, well below historical levels. As a result, the Company's 2011 full year adjusted earnings are now expected to be between $2.70 and $2.73 per fully diluted share compared to the Company's previously-issued guidance of $2.90 to $3.00 per fully diluted share. The Street was calling for earnings of $2.94 per share for the fiscal year.
The Company believes the volume decline was driven by three main factors: 1) Reduction in consumer food purchases, 2) Sales shift away from traditional grocery customers toward alternate channel retailers, 3) Negative effect of warm weather in the Midwest and Northeast on seasonal sales.
“Given our solid top line growth earlier in the year, we were surprised by the sudden decrease in December volumes. Although our sales teams did an outstanding job in 2011 recovering pricing and bringing in new business in line with our expectations, the combination of consumer purchase behavior, retail channel shifts and abnormal seasonality adversely affected our results in the quarter," said Sam K. Reed, Chairman, President and CEO of TreeHouse Foods.
"All of us at TreeHouse remain firmly committed to generating long-term shareholder value," Mr. Reed said. "The marketplace continues to validate our strategy of organic growth and accretive acquisitions in private label foods, where customer brands offer consumers unequaled value, quality and convenience. Our strong balance sheet and cash flow allow us to pursue strategic expansion of our portfolio through acquisitions. Our business model of growth categories, product innovation and operational synergies provides us with a sustainable strategic advantage."
"Our most immediate tasks are to assess current industry trends, establish a new base for the year ahead, and to communicate those plans and our outlook to investors on our year-end earnings call three weeks hence, on February 10th," Mr. Reed concluded.
Analyst Comments:
Wells Fargo is not buying the industry wide factors as a result of the weaker guidance. An analyst at the firm comments, “While TreeHouse blamed the overall volume decline on broad-based industry factors such as weak consumer food trends, channel shift away from traditional grocery, and weak weather sales, we believe the shortfall was in large part company-specific, exacerbated by TreeHouse's category exposure.”
Wells Fargo is reaffirming its Market Perform rating and $59-$61 valuation range while stating investors have already priced in the weaker results. To reflect weaker margins ahead, the firm is lowering its FY12 EPS estimate from $3.50 to $3.15.
KeyBanc highlights this is the third time management has cut its fiscal 2011 guidance, which is now 14 percent lower than its original guidance. The firm anticipates the company will offer more detailed comments regarding the quarter during its conference call to discuss 4Q11 results on February 10th. The company should also provide further details on its fiscal 2012 outlook.
The company reported its sees fourth quarter earnings falling between $0.84 and $0.87 per share, well below the Street’s consensus of $1.07 per share, as December sales volumes were lower than previously expected.
The Company's fourth quarter retail channel volumes decreased 4 percent, mainly due to an 8 percent decline in December volumes, well below historical levels. As a result, the Company's 2011 full year adjusted earnings are now expected to be between $2.70 and $2.73 per fully diluted share compared to the Company's previously-issued guidance of $2.90 to $3.00 per fully diluted share. The Street was calling for earnings of $2.94 per share for the fiscal year.
The Company believes the volume decline was driven by three main factors: 1) Reduction in consumer food purchases, 2) Sales shift away from traditional grocery customers toward alternate channel retailers, 3) Negative effect of warm weather in the Midwest and Northeast on seasonal sales.
“Given our solid top line growth earlier in the year, we were surprised by the sudden decrease in December volumes. Although our sales teams did an outstanding job in 2011 recovering pricing and bringing in new business in line with our expectations, the combination of consumer purchase behavior, retail channel shifts and abnormal seasonality adversely affected our results in the quarter," said Sam K. Reed, Chairman, President and CEO of TreeHouse Foods.
"All of us at TreeHouse remain firmly committed to generating long-term shareholder value," Mr. Reed said. "The marketplace continues to validate our strategy of organic growth and accretive acquisitions in private label foods, where customer brands offer consumers unequaled value, quality and convenience. Our strong balance sheet and cash flow allow us to pursue strategic expansion of our portfolio through acquisitions. Our business model of growth categories, product innovation and operational synergies provides us with a sustainable strategic advantage."
"Our most immediate tasks are to assess current industry trends, establish a new base for the year ahead, and to communicate those plans and our outlook to investors on our year-end earnings call three weeks hence, on February 10th," Mr. Reed concluded.
Analyst Comments:
Wells Fargo is not buying the industry wide factors as a result of the weaker guidance. An analyst at the firm comments, “While TreeHouse blamed the overall volume decline on broad-based industry factors such as weak consumer food trends, channel shift away from traditional grocery, and weak weather sales, we believe the shortfall was in large part company-specific, exacerbated by TreeHouse's category exposure.”
Wells Fargo is reaffirming its Market Perform rating and $59-$61 valuation range while stating investors have already priced in the weaker results. To reflect weaker margins ahead, the firm is lowering its FY12 EPS estimate from $3.50 to $3.15.
KeyBanc highlights this is the third time management has cut its fiscal 2011 guidance, which is now 14 percent lower than its original guidance. The firm anticipates the company will offer more detailed comments regarding the quarter during its conference call to discuss 4Q11 results on February 10th. The company should also provide further details on its fiscal 2012 outlook.
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