TreeHouse Foods, Inc. Reports Fourth Quarter 2015 Results And Provides 2016 Outlook
OAK BROOK, Ill., Feb. 11, 2016 /PRNewswire/ -- TreeHouse Foods, Inc. today reported fourth quarter earnings of$0.85 per fully diluted share compared to $0.78 per fully diluted share reported for the fourth quarter of last year. The Company reported adjusted earnings per share in the fourth quarter of $1.08 compared to $0.99 in the fourth quarter of the prior year, excluding the items described below.
The Company's 2015 fourth quarter results included three items noted below that, in management's judgment, affect the assessment of earnings. The first item was a $0.11 per share expense for acquisition, integration and related costs. The second item was a$0.06 per share loss on the foreign currency re-measurement of intercompany notes. The final item was a $0.06 per share loss on restructurings and facility consolidation costs.
"We finished the year strong, and our employees deserve a great deal of credit for continuing to focus on improving our operations and driving excellent margin progress," said Sam K. Reed, Chairman, President and Chief Executive Officer. "While overall market conditions remained soft and weakness in the Canadian dollar persisted, both of which weighed on our top line, we are very proud to have delivered margin expansion of 150 basis points in the fourth quarter."
Adjusted earnings before interest, taxes, depreciation, amortization, and non-cash stock based compensation, or Adjusted EBITDA (a reconciliation to net income, the most directly comparable GAAP (generally accepted accounting principles in the United States) measure, appears on the attached schedule), was $120.2 million in the fourth quarter of 2015, a 2.3% increase compared to the same period in the prior year. Adjusted EBITDA was higher this quarter due to improved margins across our business from strong operating performance and favorable commodity costs, more than offsetting the impact of lower sales and unfavorable Canadian foreign exchange.
Net sales for the fourth quarter totaled $865.4 million compared to $903.5 million last year, a decrease of 4.2%, due to unfavorable Canadian foreign exchange, reduced volume/mix across most categories, and pricing concessions. Compared to the fourth quarter of last year, sales in the fourth quarter of 2015 for the North American Retail Grocery segment decreased 2.3%; sales for the Food Away From Home segment decreased 6.1%; and sales for the Industrial and Export segment decreased 13.5%.
Reported gross margins were 21.0% in the fourth quarter of 2015 compared to 19.9% in the fourth quarter of the prior year. The increase in gross margin was due to improved operating performance and favorable input costs, partially offset by the unfavorable impact of Canadian foreign exchange. In the fourth quarter of 2014, cost of sales included $0.8 million of acquisition, integration and related costs. In the fourth quarter of 2015, cost of sales included $3.0 million of restructuring and facility consolidation costs.
Selling, distribution, general and administrative expenses increased $3.5 million in the fourth quarter of 2015, or 4.0%, to $89.4 million. As a percentage of net sales, these costs increased from 9.5% in the fourth quarter of 2014, to 10.3% in the fourth quarter of 2015. Included in selling, distribution, general and administrative expenses are approximately $6.3 million and $1.1 million of acquisition and integration costs for the fourth quarter of 2015 and 2014, respectively. After considering the impact of acquisition and integration costs in each year, selling, distribution, general and administrative expenses as a percent of net sales increased marginally to 9.6% of net sales, compared to 9.4% in the fourth quarter of 2014.
Amortization expense decreased to $14.8 million in the fourth quarter of 2015, compared to $17.1 million in 2014, as a number of intangible assets were fully amortized during 2015.
Other expense was $18.9 million for the fourth quarter of 2015, a decrease of $4.4 million from $23.3 million in the same period last year. Net interest expense decreased in the fourth quarter of 2015 versus the prior year, as the Company paid down debt. Loss on foreign currency exchange increased due to changes in U.S. and Canadian exchange rates. Additionally, other expense (income), net decreased due to non-cash mark-to-market gains on derivative contracts in the fourth quarter of 2015 compared to losses in the fourth quarter of 2014, and lower acquisition costs in the fourth quarter of 2015 versus 2014.
Income tax expense increased in the fourth quarter to $20.1 million. The Company's fourth quarter effective income tax rate increased to 35.1% from the 2014 fourth quarter rate of 34.8% due to a state tax ruling late in the fourth quarter of 2015.
Net income for the fourth quarter of 2015 totaled $37.3 million compared to $33.9 million in the previous year.
Fully diluted shares outstanding for the fourth quarter of 2015 increased to approximately 43.8 million shares compared to 43.4 million shares in the fourth quarter of 2014.
SEGMENT RESULTS
The Company has three reportable segments:
- North American Retail Grocery – This segment sells branded and private label products to customers within the United States andCanada. These products include non-dairy powdered creamers; sweeteners; condensed, ready to serve and powdered soups, broths and gravies; refrigerated and shelf stable salad dressings and sauces; pickles and related products; Mexican and other sauces; jams and pie fillings; aseptic products; liquid non-dairy creamer; powdered drinks; single serve hot beverages; specialty teas; hot and cold cereals; baking and mix powders; macaroni and cheese; skillet dinners; and snack nuts, trail mixes, dried fruit and other wholesome snacks.
- Food Away From Home – This segment sells non-dairy powdered creamers; sweeteners; pickles and related products; Mexican and other sauces; refrigerated and shelf stable dressings; aseptic products; hot cereals; powdered drinks; and single serve hot beverages to foodservice customers, including restaurant chains and food distribution companies, within the United States andCanada.
- Industrial and Export – This segment includes the Company's co-pack business and sales to industrial customers for use in industrial applications, including products for repackaging in portion control packages and for use as ingredients by other food manufacturers. This segment sells non-dairy powdered creamer; baking and mix powders; pickles and related products; refrigerated and shelf stable salad dressings; Mexican sauces; aseptic products; soup and infant feeding products; hot cereals; powdered drinks; single serve hot beverages; specialty teas; and nuts. Export sales are primarily to industrial customers outside of North America.
The direct operating income for the Company's segments is determined by deducting manufacturing costs from net sales and also deducting direct operating costs, such as freight to customers, commissions, and direct selling and marketing expenses. Indirect sales and administrative expenses, including restructuring charges and other corporate costs, are not allocated to the business segments as these costs are managed at the corporate level.
North American Retail Grocery net sales for the fourth quarter of 2015 decreased 2.3% to $668.8 million from $684.4 million during the same quarter of the previous year, driven by a 1.0% decrease in volume/mix, a 0.9% unfavorable impact from foreign exchange, and reduced pricing. During the fourth quarter, the Company experienced lower volumes from competitive pressures in a majority of its categories, with the exception of single serve hot beverages and snacks, which posted positive volume growth versus the fourth quarter of 2014. Direct operating income margin in the fourth quarter increased to 15.9% in 2015 from 14.0% in 2014. This 190 basis point increase in margins was due to operational efficiencies and commodity price favorability, partially offset by continued competitive pressures, primarily on single serve hot beverage margins, and the impact of unfavorable foreign exchange.
Food Away From Home net sales for the fourth quarter of 2015 decreased 6.1% to $89.6 million from $95.4 million during the same quarter of the previous year, primarily due to volume/mix decreases of 3.6%, a 1.8% unfavorable impact from foreign exchange, and reduced pricing. The Company posted a volume increase in the quarter in the cereals category that was more than offset by reduced volumes in the pickles and other sauces categories. Direct operating income margin in the fourth quarter increased to 14.1% in 2015 from 13.9% in 2014, primarily due to favorable input costs.
Industrial and Export net sales for the fourth quarter of 2015 decreased 13.5% to $107.0 million from $123.7 million during the same quarter of the prior year, largely driven by an 8.1% decrease in volume/mix, a 2.7% unfavorable impact from foreign exchange, and reduced pricing. The volume/mix decrease was primarily driven by the soup, single serve hot beverages, dressings, and beverage enhancers categories, partially offset by increases in the pickles category. Direct operating income margin in the fourth quarter increased to 19.0% in 2015, from 18.2% in 2014. This 80 basis points improvement in direct operating income margin was primarily due to commodity price favorability and a favorable shift in sales mix. Full report.
