OAK BROOK, Ill., May 5, 2016 /PRNewswire/ -- TreeHouse Foods, Inc. reported a first quarter GAAP loss of$0.06 per fully diluted share compared to earnings of $0.41 per fully diluted share reported for the first quarter of last year. The Company reported adjusted earnings per share in the first quarter of $0.48 compared to $0.59 in the first quarter of the prior year, excluding the items described below.
The Company's 2016 first quarter results included four items noted below that, in management's judgment, affect the assessment of earnings. The first item was a $0.51 per share expense for acquisition, integration, and related costs. The second item was a $0.06 per share expense for mark-to-market adjustments. The third item was a $0.05 per share expense for restructuring and facility consolidation costs. The final item was a $0.08 per share gain on the foreign currency re-measurement of intercompany notes.
"We delivered sequential progress in the first quarter and are off to a solid start, despite the ongoing challenges of a stagnant retail landscape," said Sam K. Reed, Chairman, President and Chief Executive Officer. "In the first quarter, growth in retail single-serve coffee and broad gains in snacks led our combined Bay Valley Foods and TreeHouse Private Brands organization, while our cold season products such as non-dairy creamers, hot cereal, and soup were negatively affected by the unseasonably warm weather."
"I am very pleased with the progress our teams are making integrating the Private Brands business, and our sense of functional unity is growing," continued Mr. Reed. "Our Private Brands team is already making great progress in customer service improvements and is starting to regain lost distribution that resulted from past service issues. Our integration activities are on track and on budget as a result of the strong collaboration of our teams during the transition."
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 $125.2 million in the first quarter of 2016, a 48.2% increase compared to the same period in the prior year. The increase in Adjusted EBITDA this quarter was driven by the inclusion of operating income from the acquisition of the private brands operations ("Private Brands") of ConAgra Foods, Inc., operating efficiencies, and favorable commodity costs, partially offset by unfavorable Canadian foreign exchange and lower legacy volumes.
Net sales for the first quarter totaled $1,270.2 million compared to $783.1 million last year, an increase of 62.2%, due to the inclusion of business from the Private Brands acquisition, partially offset by lower volume/mix, primarily in the Industrial and Export segment, and unfavorable Canadian foreign exchange. Compared to the first quarter of last year, sales in the first quarter of 2016 for the North American Retail Grocery segment increased 72.1%; sales for the Food Away From Home segment increased 27.5%; and sales for the Industrial and Export segment increased 35.0%.
Reported gross margins were 17.7% in the first quarter of 2016 compared to 19.5% in the first quarter of the prior year. The decrease in gross margin as a percent of net sales was primarily due to lower margin business from the Private Brands acquisition, which contributed 130 bps toward the decline. The remaining decline was primarily due to the unfavorable impact of Canadian foreign exchange partially offset by operational efficiencies and favorable input costs.
Selling, distribution, general and administrative expenses increased $89.9 million in the first quarter of 2016, or 99.7%, to $180.1 million. As a percentage of net sales, these costs increased from 11.5% in the first quarter of 2015 to 14.2% in the first quarter of 2016. Included in selling, distribution, general and administrative expenses are approximately $33.0 million and $0.7 million of acquisition and integration costs for the first quarters of 2016 and 2015, 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 11.6% of net sales in the first quarter of 2016, compared to 11.4% in the first quarter of 2015, due to duplicative operating costs associated with the Private Brands acquisition and general growth of the business.
Amortization expense increased to $23.8 million in the first quarter of 2016, compared to $15.3 million in 2015, due entirely to the Private Brands acquisition.
Other operating expense increased by $1.5 million in the first quarter of 2016, compared to 2015. The increase was due to higher costs associated with restructurings, as the Company announced the closure of the City of Industry, California facility in the fourth quarter of 2015 and began to incur charges related to the closure.
Other expense was $23.7 million for the first quarter of 2016, an increase of $2.8 million from $20.9 million in the same period last year. Net interest expense increased in the first quarter of 2016 versus the prior year due to higher debt levels and higher average interest rates resulting from financing the Private Brands acquisition. The Company recorded a gain on foreign currency exchange of $4.1 million in the first quarter of 2016 compared to a loss on foreign currency exchange of $11.4 million in the prior year due to changes in Canadian exchange rates. Additionally, the change in other expense (income), net was primarily due to non-cash mark-to-market losses on derivative contracts in the first quarter of 2016 compared to gains in the first quarter of 2015.
Income taxes were recorded at an effective rate of 30.0% and 30.8% for the three months ended March 31, 2016 and 2015, respectively. The Company's effective tax rate may change from period to period based on recurring and non-recurring factors including the jurisdictional mix of earnings, enacted tax legislation, state income taxes, settlement of tax audits, and the expiration of the statute of limitations in relation to unrecognized tax benefits.
Net loss for the first quarter of 2016 totaled $3.3 million compared to net income of $17.9 million in the previous year.
Fully diluted shares outstanding for the first quarter of 2016 increased to approximately 52.7 million shares compared to 43.6 million shares in the first quarter of 2015. The increase is due to the weighted average impact of 13.3 million shares issued onJanuary 26, 2016 in a public offering of the Company's common stock, with the net proceeds of such offering used to partially fund the Private Brands acquisition.
Food Away From Home net sales for the first quarter of 2016 increased 27.5% to $112.6 million from $88.3 million during the same quarter of the previous year, driven primarily by a 27.1% increase due to the Private Brands acquisition. Volume/mix contributed 0.3% to the improvement of net sales as volume/mix increases in the aseptic and hot cereals categories were partially offset by decreases in the pickles and other sauces categories. Direct operating income margin in the first quarter increased to 14.1% in 2016 from 13.6% in 2015, primarily due to favorable input costs and operating efficiencies, partially offset by unfavorable Canadian foreign exchange. The addition of the business from the Private Brands acquisition did not significantly impact direct operating income margin.
Industrial and Export net sales for the first quarter of 2016 increased 35.0% to $138.3 million from $102.5 million during the same quarter of the prior year, primarily driven by a 45.9% increase from the Private Brands acquisition, partially offset by unfavorable volume/mix and pricing. Volume/mix was lower due to competitive pressures primarily in the single serve beverages and soup and infant feeding categories, partially offset by an increase in pickles and non-dairy creamer. Direct operating income margin in the first quarter decreased to 15.3% in 2016, from 21.0% in 2015. The inclusion of lower margin business from the Private Brands acquisition contributed 210 bps to this decline with the remainder of the decrease primarily driven by competitive pressures in the single serve beverages and soup and infant feeding categories. Full report.
