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Factors Likely to Impact TreeHouse Foods' (THS) Q3 Earnings

TreeHouse Foods, Inc THS is slated to report third-quarter 2017 results on Nov 2, before the market opens.

The company’s performance is expected to be negatively impacted by divestitures, stiff competition and rising commodity costs. However, its cost saving and business-restructuring initiatives, with enhanced focus on organic food products are expected to yield positive results.

The company’s earnings missed the Zacks Consensus Estimate in two of the past four quarters, leading to an average negative surprise of 1.4%.

Let’s now look into the factors likely to impact the upcoming quarterly results.

What to Expect This Quarter?

The Zacks Consensus Estimate for earnings in the third quarter has remained stable in the past thirty days at 76 cents per share, which is at the lower end of management’s guidance of 75-83 cents. Nonetheless, the estimate depicts a year-on-year increase of 8.5%.

However, analysts polled by Zacks expect revenues of $1,525 million for the said quarter, depicting a 3.9% decline from the prior-year sales.

Treehouse Foods, Inc. Price, Consensus and EPS Surprise

Factors Impacting the Quarter

Commodity cost inflation is expected to continue affecting TreeHouse Foods’ bottom line. The costs of selected commodities like oils, nuts and coffee has been increasing lately. While the company expects pricing actions to offset the increasing costs of commodities, the process is expected to take a slow trajectory.

Moreover, a tough retail environment combined with operating inefficiencies has led TreeHouse Foods to resort to divestitures, which is expected to negatively impact the company’s sales volumes in the forthcoming periods. Further, the company’s performance remains exposed to headwinds such as changing consumer tastes and shift toward healthier food products.

Also, Amazon.com’s AMZN expansion into the grocery space and it initiatives to lower prices, creates stiff competition for TreeHouse Foods. Big-wigs like The Kroger Co KR and Wal-Mart Stores, Inc WMT are also bearing the brunt of Amazon’s growing dominance.

Owing to such unfavorable market conditions, shares of the company have underperformed the industry in the past year. Treehouse Foods’ shares have plunged 24% compared with the industry’s decline 10.9%.

Nevertheless, we remain hopeful regarding TreeHouse Foods’ 2020 Initiative, designed to restructure and realign the business. Alongside cost savings, the initiative is expected to improve the company’s supply chain. TreeHouse Foods is also expected to gain from its enhanced focus on organic food items. Lately, the company has been witnessing a positive sales trend in its food-away-from-home outlets, which mainly focuses on clean ingredients. We believe that this should help drive the company’s top line.

What Does the Zacks Model Unveil?

Our proven model shows that TreeHouse Foods is likely to beat earnings estimates this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You may uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

TreeHouse Foods has an Earnings ESP of +2.25% and carries a Zacks Rank #3, which makes us reasonably confident of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.

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