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Treehouse Foods, Inc. Reports Third Quarter 2015 Results HIGHLIGHTS

The following excerpt is from the company's SEC filing.

TreeHouse delivers third quarter adjusted earnings per share of $0.86

Net sales increased to $798.6 million

Third quarter adjusted EBITDA decreased 3.6% from 2014 due to competitive pressures

TreeHouse reaffirms full year earnings per share guidance of $3.00-$3.15

Oak Brook, IL, November 5, 2015 TreeHouse Foods, Inc. (NYSE: THS) today reported third quarter earnings of $0.65 per fully diluted share compared to $0.47 per fully diluted share reported for the third quarter of last year. The Company reported adjusted earnings per share in the third quarter of $0.86 compared to $0.89 i n the third quarter of the prior year, excluding the items described below.

The Companys 2015 third quarter results included three items noted below that, in managements judgment, affect the assessment of earnings. The first item is a $0.13 per share loss on the foreign currency re-measurement of intercompany notes. The second item is a $0.05 per share expense for acquisition, integration and related costs. The final item is a $0.03 per share loss on non-cash mark-to-market adjustments.


Three Months Ended

Nine Months Ended

September 30




Diluted EPS as reported

Foreign currency loss on re-measurement of intercompany notes

Acquisition, integration and related costs

Mark-to-market adjustments

Restructuring/facility consolidation costs

Debt refinancing costs

Adjusted EPS

Third quarter volume/mix declined 4.3% on an organic basis, driven by lower volumes in most categories. Once again, we faced a difficult comparison to 2014 when we posted organic volume/mix growth in last years third quarter of approximately 4%. We continue to be encouraged by the margin progression we are seeing in our legacy product categories. Excluding coffee, we delivered year-over-year margin expansion of 70 basis points, as we carry out our internal efficiency initiatives and maintain focus on our cost structure, said Sam K. Reed, Chairman, President and Chief Executive Officer.

We made excellent progress at Flagstone Foods in the quarter and are encouraged by the outlook for the remainder of the year. Additionally, while challenges in single serve beverages continue, the category appears to have stabilized. Despite the difficult third quarter, we are seeing some very positive developments as we head into the fourth quarter. In particular, we are continuing to land new customers and we are now seeing nice volume growth, continued Mr. Reed.

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 $99.8 million in the third quarter of 2015, a 3.6% decrease compared to the prior year. Adjusted EBITDA was lower this quarter due to competitive pressures in most categories (led by single serve hot beverages) and unfavorable foreign exchange.

Net sales for the third quarter totaled $798.6 million compared to $795.7 million last year, an increase of 0.4%, due to sales from acquisitions as an additional month of Flagstone results were in the third quarter of 2015 and not in 2014. Partially offsetting the increase in net sales was unfavorable volume/mix, foreign exchange and lower pricing. Compared to the third quarter of last year, sales in the third quarter of 2015 for the North American Retail Grocery segment increased 0.9%, sales for the Food Away From Home segment decreased 4.1% and sales for the Industrial and Export segment increased 1.5%.

Reported gross margins were flat at 19.9% in the third quarter this year compared to the third quarter of last year. In the third quarter of 2014, cost of sales included $9.6 million of acquisition and integration related costs. These costs were insignificant in the third quarter of 2015. After considering these items, gross margins decreased 120 basis points year-over-year due to the impact of a shift in legacy sales mix to lower margin products, reduced profitability associated with single serve hot beverages, unfavorable exchange rates on raw material purchases by the Companys Canadian operations, lower margin sales from recent acquisitions and reduced pricing. These items more than offset gains from operational efficiencies and favorable input costs.

Selling, distribution, general and administrative expenses decreased $14.1 million in the third quarter of 2015, or 14.7%, to $81.4 million. As a percentage of net sales, these costs decreased from 12.0% in the third quarter of 2014, to 10.2% in the third quarter of 2015. Included in selling, distribution, general and administrative expenses are approximately $3.0 million and $8.9 million of acquisition and integration costs for the third quarter of 2015 and 2014, respectively. After considering the net decrease of acquisition and integration costs, selling, distribution, general and administrative expenses as a percent of net sales decreased 110 basis points from last year, due to reduced incentive compensation and other cost saving initiatives.

Amortization expense decreased slightly to $14.9 million in the third quarter of 2015, compared to $15.0 million in 2014, as the impact of a full quarter of amortization in 2015 from the Flagstone acquisition was offset by other intangible assets being fully amortized.

Other expense was $22.0 million for the third quarter of 2015, an increase of $4.8 million from $17.2 million in the same period last year. Net interest expense increased in the third quarter of 2015 resulting from an increase in average interest rates compared to the prior year. Loss on foreign currency exchange increased due to changes in U.S. and Canadian exchange rates. Additionally, other expense (income), net...