TreeHouse Foods (THS) Gains on Coronavirus-Induced Demand


TreeHouse Foods, Inc. THS is in solid shape, courtesy of rising demand stemming from increased at-home consumption amid the coronavirus outbreak. Apart from this, the company is benefiting from its focus on refining the portfolio and enhancing organic foods offering. Notably, this Zacks Rank #1 (Strong Buy) stock has rallied 19.1% in the past six months compared with the industry’s growth of 12%.

Let’s dive deeper.

Coronavirus-Led Demand & Impressive Outlook

Burgeoning demand amid coronavirus pandemic bolstered the company’s second-quarter 2020 results with the top and the bottom lines advancing year over year and the latter beat the Zacks Consensus Estimate. TreeHouse Foods’ retail business catered well to the unexpected rise in demand amid the pandemic. This compensated for softness in the food-away-from-home business and distribution losses. Further, adjusted EBITDA from continuing operations rose 13.1% on productivity gains and improved channel mix.

 

Management is pleased with its second-quarter performance amid the coronavirus crisis. This along with expectations of continued rise in demand conditions and prudent reorganization actions prompted the company to raise its guidance for 2020. Revenues are now expected toward the upper end of its previous guidance of $4.10-$4.40 billion. Additionally, adjusted earnings from continuing operations are expected in the range of $2.55-$2.75 per share compared with $2.40-$2.65 forecasted earlier.

Analysts seem optimistic regarding the stock’s performance. Incidentally, the Zacks Consensus Estimate for 2020 earnings has moved up 3.5% to $2.67 in the past 30 days.

Other Growth Drivers

TreeHouse Foods has always been focused on expanding its product offerings through acquisitions. In February 2016, the company acquired Private Brands business for $2.7 billion. The Private Brands Business is a leading manufacturer of private label refrigerated and shelf stable products in the bars, bakery, cereal, condiments, pasta, and snacks categories. The addition of Private Brands boosted revenues and helped the company lower debt. TreeHouse Foods’ other acquisitions include Flagstone Foods, PFF Capital Group, Inc. (“Protenergy”), Cains Foods, L.P., Associated Brands, and Naturally Fresh, Inc.

On the flip side, the company is committed toward exiting underperforming businesses and shifting focus toward areas with high growth potential. To this end, it completed the divestiture of the Snack business to Atlas Holdings on Aug 1, 2019. Further, TreeHouse Foods inked a deal to offload two of its in-store bakery facilities to Rich Products Corporation, which is likely to help the former focus on core growth areas.

The company also focuses on organic foods, as consumers appear to be more interested in foods described as being “better for you,” which include fresh or freshly-prepared foods and natural, organic, or specialty foods. TreeHouse Foods expects sustained growth in these areas and continues to focus on consumer’s needs by developing new formulations, packaging, and sizes.

All these upsides are likely to help TreeHouse Foods remain in investors’ good books.

3 Solid Food Stocks

Campbell Soup CPB has a long-term earnings growth rate of 8.3% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

McCormick MKC has a long-term earnings growth rate of 5.8% and a Zacks Rank #2.

B&G Foods BGS, with a Zacks Rank #2, has a trailing four-quarter earnings surprise of 6.9%, on average.

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