2008-08-04 15:01:00
TreeHouse Foods, Inc. Reports Second Quarter Results
HIGHLIGHTS
- Net sales grow 43.5% year-over-year
- Reported earnings per share of $0.26; $0.31 on an adjusted basis
- Adjusted EBITDA grows 17.5% to $35.1 million
- SG&A as percentage of revenue down from 13.1% to 12.2%
WESTCHESTER, Ill., Aug. 4 /EMWNews/ -- TreeHouse Foods,
Inc. (NYSE: THS) today reported a 43.5% increase in second quarter net
sales to $367.4 million compared to last year, including a 6.6% increase in
sales before acquisitions. Net income per fully diluted share was $0.26
compared to $0.30 last year. Adjusted earnings per share excluding unusual
items of $0.31 per fully diluted share increased from $0.29 last year as
increased sales and lower interest and tax rates offset lower gross margins
associated with rapidly rising input costs.
"Our top line performance was very good as many of our key products
showed strong year-over-year growth in both dollars and units. As expected,
our margins were negatively affected by rising commodity and energy costs,
but pricing plans put into place during the second quarter will help to
drive margin growth over the second half of the year. We were especially
pleased with the results from our new E.D. Smith acquisition, where sales
volume grew by 7.0% from last year," commented Chairman of the Board and
Chief Executive Officer, Mr. Sam K. Reed.
Reported net income was $8.3 million or $0.26 per share compared to net
income of $9.4 million or $0.30 per share for the same quarter last year.
The decline was due to costs associated with the previously announced
closing of the Portland, Oregon pickle plant, integration costs associated
with the E.D. Smith acquisition and a non-cash adjustment to the value of a
license. Last year's results included a one-time gain from the sale of
assets at a closed facility. Excluding these unusual items, earnings per
share would have been $0.31, a 6.9% increase over last year's adjusted
earnings of $0.29. The following table reconciles the reported earnings per
share to adjusted earnings per share excluding unusual items.
ITEMS AFFECTING DILUTED EPS COMPARABILITY:
Three Months Ended Six Months Ended
June 30 June 30
2008 2007 2008 2007
(unaudited) (unaudited)
EPS as reported $0.26 $0.30 $0.33 $0.54
Plant closing costs 0.02 - 0.26 -
Integration costs 0.01 - 0.01 -
Loss on currency translation - - 0.03 -
Non-cash adjustment to value of
license and other 0.02 (0.01) 0.02 (0.01)
Adjusted EPS $0.31 $0.29 $0.65 $0.53
Adjusted operating earnings before interest, taxes, depreciation,
amortization and unusual items (Adjusted EBITDA, reconciled to net income,
the most directly comparable GAAP measure, on the attached schedule)
increased 17.5% to $35.1 million in the second quarter compared to $29.9
million in the same period last year. The increase is due primarily to the
addition of the San Antonio Farms and E.D. Smith acquisitions. The adjusted
EBITDA growth of 17.5% lagged the 43.5% year-over-year growth in total
revenues due to the mix of lower margin new businesses acquired last year,
lower margins resulting from higher raw material input costs and energy
costs that negatively affected total distribution expenses.
Net sales for the quarter totaled $367.4 million, an increase of 43.5%
over the second quarter of 2007 due primarily to the acquisitions of San
Antonio Farms, E.D. Smith and DeGraffenreid. Excluding acquisitions, sales
improved 6.6% due to a combination of increased prices and retail volume
gains in soup and non-dairy powdered creamer. Gross margins for the quarter
decreased from 20.9% to 18.7% due to higher input costs and energy-related
costs that were not fully recovered in the quarter.
Selling, distribution, general and administrative expenses were $44.7
million for the quarter, an increase from $33.6 million in the second
quarter of 2007. The increase was due to the growth of the Company from new
acquisitions in 2007. Selling, general and administrative expenses as a
percent of sales improved to 12.2% in the second quarter of 2008 compared
to 13.1% last year as we continue to realize synergies from acquired
companies.
Other operating expense includes $0.9 million in the quarter for costs
associated with the previously announced closure of the Portland, Oregon
pickle plant. The plant closure should be completed before the end of the
third quarter of 2008. Amortization expense includes the costs of
trademarks, trade names and other amortizable intangible costs. The
increase in amortization expense for the quarter of $2.3 million was due
principally to the E.D. Smith acquisition.
Interest expense in the quarter was $7.6 million compared to $4.0
million last year due to higher bank debt used to fund the E.D. Smith and
San Antonio Farms acquisitions and a non-cash adjustment to the value of a
license. The effective income tax rate of 30.2% in the second quarter was
significantly lower than last year's rate of 38.2%. The lower effective tax
rate is due to the financing structure established for the E.D. Smith
Canadian and U.S. businesses.
SEGMENT RESULTS
The Company has identified three reportable segments:
1. North American Retail Grocery -- This segment sells branded and
private label products to customers within the United States and Canada.
These products include pickles, peppers, relishes, condensed and ready to
serve soup, broths, gravies, jams, jellies, salad dressings, sauces,
non-dairy powdered creamer, salsa, aseptic products and baby food.
2. Food Away From Home -- This segment sells to foodservice customers,
including restaurant chains and food distribution companies, within the
United States and Canada.
3. Industrial and Export -- This segment includes the Company's co-pack
business and non-dairy powdered creamer sales to industrial customers for
use in industrial applications, including for repackaging in portion
control packages and for use as an ingredient by other food manufacturers.
Export sales are primarily to industrial customers.
The direct operating income for our segments is determined by deducting
manufacturing costs from net sales and deducting direct operating costs
such as freight to customers, commissions, brokerage fees as well as direct
selling and marketing expenses. General sales and administrative expenses,
including restructuring charges, are not allocated to our business segments
as these costs are managed at the corporate level.
North American Retail Grocery net sales for the second quarter
increased by 61.3% from $138.2 million to $222.9 million compared to the
same quarter last year primarily due to the acquisitions of San Antonio
Farms and E.D. Smith. Excluding these acquisitions, net sales increased
only 1.7% due to lower sales of branded baby food and dropping unprofitable
pickle customers. Offsetting these decreases were increased sales of soup
and better than expected sales of non-dairy powdered creamer. Direct
operating income as a percent of sales declined from 12.8% to 11.2% due to
cost increases which were not fully offset by pricing in the quarter.
Food Away From Home segment sales increased by 19.7% from $64.0 million
to $76.6 million compared to the same quarter last year due to the addition
of the foodservice businesses of San Antonio Farms and DeGraffenreid.
Excluding acquisitions, sales grew 2.7% as increased pricing offset the
loss of several lower margin customers. Overall direct operating income
dropped slightly to 11.2% of revenue from 11.5% last year due to higher
than expected distribution costs resulting from higher fuel costs.
Industrial and Export segment sales increased 26.1% from $53.8 million
last year to $67.8 million this year due to a combination of increased
volume of co-packed products and higher prices. Although pricing was taken
in all areas, the sales mix shift to lower margin co-pack sales combined
with higher fuel costs caused direct operating income to decrease to 10.0%
of net sales from 13.4% last year.
OUTLOOK FOR THE REMAINDER OF 2008
"Although we saw margin erosion in the second quarter, this was due to
the timing of our price increases and the sudden surge in the energy costs
during the second quarter," said Reed. "We will see more pricing
materialize in the third and fourth quarters as we ship our winter season
products like soup and non-dairy creamer. We expect third quarter earnings
excluding unusual items to be in the range of $0.37 to $0.40, and are
reaffirming our guidance for full year adjusted earnings per share of $1.50
to $1.55 before unusual items."
COMPARISON OF ADJUSTED INFORMATION TO GAAP INFORMATION
The adjusted financial results contained in this press release are from
continuing operations and are adjusted to eliminate the net expense or net
gain related to items identified below. This information is provided in
order to allow investors to make meaningful comparisons of the Company's
operating performance between periods and to view the Company's business
from the same perspective as Company management. Because the Company cannot
predict the timing and amount of charges associated with non-recurring
items or facility closings and reorganizations, management does not
consider these costs when evaluating the Company's performance, when making
decisions regarding the allocation of resources, in determining incentive
compensation for management, or in determining earnings estimates. These
costs are not recorded in any of the Company's operating segments. Adjusted
EBITDA represents net income before interest expense, income tax expense,
depreciation and amortization expense, and non-recurring items. Adjusted
EBITDA is a performance measure and liquidity measure used by our
management, and we believe is commonly reported and widely used by
investors and other interested parties, as a measure of a company's
operating performance and ability to incur and service debt. This non-GAAP
financial information is provided as additional information for investors
and is not in accordance with or an alternative to GAAP. These non-GAAP
measures may be different from similar measures used by other companies. A
full reconciliation table between earnings for the three and six month
periods ended June 30, 2008 and June 30, 2007 calculated according to GAAP
and Adjusted EBITDA is attached.
CONFERENCE CALL WEBCAST
A webcast to discuss the Company's financial results will be held at
5:00 p.m. (Eastern Time) today and may be accessed by visiting the
"Investor Overview" page through the "Investor Relations" menu of the
Company's website at http://www.treehousefoods.com.
ABOUT TREEHOUSE FOODS
TreeHouse is a food manufacturer servicing primarily the retail grocery
and foodservice channels. Its products include non-dairy powdered coffee
creamer; canned soup, salad dressings and sauces; salsa and Mexican sauces;
jams, jellies and pie fillings under the E.D. Smith brand name; pickles and
related products; infant feeding products; and other food products
including aseptic sauces, refrigerated salad dressings, and liquid
non-dairy creamer. TreeHouse believes it is the largest manufacturer of
pickles and non-dairy powdered creamer in the United States and the largest
manufacturer of private label salad dressings in the United States and
Canada based on sales volume.
FORWARD LOOKING STATEMENTS
This press release contains "forward-looking statements."
Forward-looking statements include all statements that do not relate solely
to historical or current facts, and can generally be identified by the use
of words such as "may," "should," "could," "expects," "seek to,"
"anticipates," "plans," "believes," "estimates," "intends," "predicts,"
"projects," "potential" or "continue" or the negative of such terms and
other comparable terminology. These statements are only predictions. The
outcome of the events described in these forward-looking statements is
subject to known and unknown risks, uncertainties and other factors that
may cause the Company or its industry's actual results, levels of activity,
performance or achievements to be materially different from any future
results, levels of activity, performance or achievement expressed or
implied by these forward-looking statements. TreeHouse's Form 10-K for the
year ended December 31, 2007 and its subsequent quarterly reports discuss
some of the factors that could contribute to these differences. You are
cautioned not to unduly rely on such forward-looking statements, which
speak only as of the date made, when evaluating the information presented
in this presentation. The Company expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward-looking
statement contained herein, to reflect any change in its expectations with
regard thereto, or any other change in events, conditions or circumstances
on which any statement is based.
FINANCIAL INFORMATION
TREEHOUSE FOODS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
2008 2007 2008 2007
(unaudited) (unaudited)
Net sales $367,369 $256,031 $727,992 $515,015
Cost of sales 298,740 202,424 588,974 409,319
Gross profit 68,629 53,607 139,018 105,696
Operating expenses:
Selling and distribution 28,948 21,483 57,612 42,949
General and administrative 15,760 12,096 31,002 25,622
Other operating (income) expense
- net 928 (365) 11,850 (311)
Amortization expense 3,528 1,244 7,015 2,310
Total operating expenses 49,164 34,458 107,479 70,570
Operating income 19,465 19,149 31,539 35,126
Other expense:
Interest expense 7,561 3,982 15,292 7,852
Interest income (87) (5) (107) (51)
Loss (gain) on foreign currency
exchange (5) - 1,855 -
Other 113 - (181) -
Total other expense 7,582 3,977 16,859 7,801
Income from continuing operations
before income taxes 11,883 15,172 14,680 27,325
Income taxes 3,591 5,789 4,327 10,519
Income from continuing operations 8,292 9,383 10,353 16,806
Loss from discontinued operations,
net of tax - (21) - (30)
Net income $8,292 $9,362 $10,353 $16,776
Weighted average common shares:
Basic 31,209 31,202 31,207 31,202
Diluted 31,341 31,311 31,325 31,312
Basic earnings per common share:
Income from continuing
operations $0.27 $0.30 $0.33 $0.54
Loss from discontinued
operations, net of tax - - - -
Net income $0.27 $0.30 $0.33 $0.54
Diluted earnings per common share:
Income from continuing
operations $0.26 $0.30 $0.33 $0.54
Loss from discontinued
operations, net of tax - - - -
Net income $0.26 $0.30 $0.33 $0.54
Supplemental Information:
Depreciation and Amortization 11,959 8,036 23,932 15,853
Expense under FAS123R, before tax 2,600 3,077 5,381 6,789
Segment Information:
North American Retail
Net Sales 222,880 138,211 442,520 284,799
Direct Operating Income 25,053 17,727 50,545 36,332
Direct Operating Income Percent 11.2% 12.8% 11.4% 12.8%
Food Away From Home
Net Sales 76,641 64,013 147,567 119,204
Direct Operating Income 8,567 7,330 16,135 13,277
Direct Operating Income Percent 11.2% 11.5% 10.9% 11.1%
Industrial and Export
Net Sales 67,848 53,807 137,905 111,012
Direct Operating Income 6,810 7,199 16,413 13,687
Direct Operating Income Percent 10.0% 13.4% 11.9% 12.3%
The following table reconciles our net income to adjusted EBITDA for
the months ended June 30, 2008 and 2007:
TREEHOUSE FOODS, INC.
RECONCILIATION OF REPORTED INCOME TO ADJUSTED EBITDA
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
2008 2007 2008 2007
(unaudited) (unaudited)
Net income as reported $8,292 $9,362 $10,353 $16,776
Interest expense 7,561 3,982 15,292 7,852
Interest income (87) (5) (107) (51)
Income taxes 3,591 5,789 4,327 10,519
Discontinued operations - 21 - 30
Depreciation and amortization 11,959 8,036 23,932 15,853
Stock option expense 2,600 3,077 5,381 6,789
Loss on currency translation and other 108 - 1,649 -
Acquisition integration and accounting
adjustments 191 - 274 -
Plant shut-down costs, asset sales and
purchase accounting 928 (356) 11,364 (277)
Adjusted EBITDA $35,143 $29,906 $72,465 $57,491
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