TreeHouse Foods, Inc. Reports Fourth Quarter 2017 Results, Provides 2018 Guidance

OAK BROOK, Ill., Feb. 15, 2018 /PRNewswire/ -- TreeHouse Foods, Inc. reported fourth quarter GAAP loss per fully diluted share of $(5.40) compared to GAAP loss of $(4.96) reported for the fourth quarter of 2016. The Company reported adjusted earnings per fully diluted share1 for the fourth quarter of $1.02 compared to adjusted earnings of $1.14 for the fourth quarter of 2016. 

"Our cash flow delivery continues to be robust, and although our fourth quarter earnings were in line with our expectations, our operational results were disappointing," said Sam K. Reed, Chairman, Chief Executive Officer, and President. "We are well positioned within the private label marketplace; however, it is imperative that we build a more effective and efficient foundation for private label customer engagement. Our infrastructure is unrivaled in our sector, and we continue to see opportunity to, over time, achieve consistent organic growth and margin expansion in parallel." 

"We are on track and committed to our TreeHouse 2020 restructuring program, whereby simplification continues to be the fundamental tenet in our recovery process. As we realign the Company to meet the demands of today's evolving food and beverage landscape, we must narrow our strategic focus to those categories and customers that value organic growth, market segmentation, product differentiation, service capability, and economies of scale," Mr. Reed concluded. 

Matthew Foulston, Chief Financial Officer of TreeHouse, continued, "Sales growth in the quarter was solid, up 2.4% excluding the impact of the divestiture of the Soup and Infant Feeding business, and driven by favorable volume/mix and pricing. Segment direct operating income, however, was once again disappointing, and we relied on SG&A expense control and tax favorability to offset these shortfalls. That said, we are pleased to have generated strong free cash flow2 of $320 million in 2017." 

The Company recorded a $549.7 million impairment of goodwill and intangible assets in the fourth quarter of 2017 related entirely to the Snacks segment. This segment did not achieve the forecasted results for the year and as a result, future revenue and profitability expectations were reduced. The Company recorded impairment losses of $276.4 millionrelated to the Snacks segment's goodwill, which brings the allocated goodwill balance of this segment to zero. Additionally, in the fourth quarter, the Company determined the carrying value of certain long-lived assets may not be recoverable due to the decline in forecasted future cash flows in the Snacks segment resulting in a $273.3 millionimpairment of the Snacks customer lists. No other segments had impairment charges. 

The Company's previously announced share repurchase program launched in the fourth quarter with repurchases totaling $28.7 million, or 0.6 million shares. The Company may continue to repurchase shares throughout 2018 in accordance with the approved plan with a total annual cap of $150 million. The extent to which the Company repurchases shares and the timing of such repurchases will depend on market conditions and other factors. 

UPDATE ON TREEHOUSE 2020 AND SG&A INITIATIVE 

TreeHouse 2020 is a comprehensive strategic blueprint that consists of aggressive actions to manage the Company's category and customer portfolio and optimize its manufacturing and supply chain. It is a multi-year plan designed to improve TreeHouse's operating margin structure by approximately 300 basis points by the end of 2020 by fully integrating its business and reducing its cost structure in order to invest in market-differentiated capabilities that will serve the rapidly evolving needs of its customers that are strategically focused and highly committed to their corporate brands. 

Phase 1 of the TreeHouse 2020 restructuring program achieved the following milestones in 2017: 

• Closed the Plymouth, Indiana and Brooklyn Park, Minnesota plants; 
• 19 production lines permanently shuttered; and 
• 27% of SKUs eliminated, slightly ahead of the Company's previously communicated 25% goal. 

The Company outlined the following TreeHouse 2020 action steps for calendar year 2018: 

• the partial closure of Dothan, Alabama expected in the second quarter of 2018; 
• the final phase of closure of the Battle Creek, Michigan facility announced on January 31, 2018; 
• the closure of the Visalia, California facility which is targeted for closure by the end of first quarter 2019; 
• at least 15 production lines permanently shuttered; and 
• the full roll-out of the TreeHouse Management Operating System (TMOS) to 12 plants in 2018. 

In addition to TreeHouse 2020, TreeHouse has completed a comprehensive review of SG&A and related expenses in partnership with a major global consulting firm to provide an independent perspective of improvement potential across all of its functions, business units, and geographies based on industry benchmarks. As such, the Company plans to reduce salaried headcount across the organization by mid-year 2018. TreeHouse expects savings in calendar 2018 to total approximately $30 million, with a run rate impact of $55 million exiting 2018. 

OUTLOOK 

"2018 will be a transition year," said Mr. Reed. "Although the retail grocery landscape continues to evolve, private label absolutely continues to be the right place to be within food and beverage. It will take some time for our TreeHouse 2020 initiatives to manifest themselves in our results. However, we are well on our way to simplifying, reshaping, and optimizing our manufacturing and distribution footprint so that we can be a more efficient and effective operating company going forward." 

In 2018, the Company believes the overall food and beverage industry will further evolve, as the marketplace for customer brands continues to transform, both through traditional brick and mortar channels and through the growth of e-commerce channels. TreeHouse remains committed to growing the top line over time, improving its operating margins through the TreeHouse 2020 restructuring program and delivering strong free cash flow. 

TreeHouse net sales are expected to decrease in 2018 to approximately $5.9 to $6.1 billion, driven by the sale of the Soup and Infant Feeding business in May 2017 and the Company's planned SKU reduction initiatives. Additionally, in 2018, the Company will be lapping the adverse effects of bid pricing concessions from 2017 and cycling through business that has been lost. 

Earnings before interest and taxes ("EBIT") is expected to be between $265 to $305 million, or approximately 4.5% to 5.0% of sales, representing a decline in comparison to 2017. 

Net interest expense is expected to be between $118 and $120 million and assumes a rising interest rate environment as the year progresses. 

The effective tax rate is expected to decrease to a range of 25% to 26%, primarily due to tax reform. 

The Company's earnings per fully diluted share guidance is between $2.00 and $2.40 in 2018.  The Company also anticipates diluted weighted average shares outstanding will average in a range of 56 to 57 million shares in 2018, including anticipated share repurchases.  

In regard to the first quarter of 2018, the Company expects earnings in the range of $0.10 to $0.20 per fully diluted share.  The expected decrease compared to the first quarter of 2017 is due to lower volumes, the timing of higher commodity and freight costs versus pricing actions that will take effect in later quarters and operational inefficiencies. 

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