Treehouse turnaround derailed by sudden drop in volume
In a profit warning issued Friday, the firm said group sales were up 5% to $535m in the fourth quarter, but retail channel volumes decreased 4%, mainly due to an 8% decline in December volumes.
And while price increases offset higher input costs, Q4 gross margins still declined (around 22%, compared with 24.8% in the fourth quarter of 2010) due to a shift in the product mix towards lower margin items.
As a result, Treehouse Foods’ 2011 full year adjusted earnings are now expected to be between $2.70 and $2.73 per fully diluted share compared to previously-issued guidance of $2.90 to $3.00.
CEO: ‘We were surprised by the sudden decrease in December volumes’
Chief executive Sam Reed said: "Given our solid top line growth earlier in the year, we were surprised by the sudden decrease in December volumes.
“Our turnaround was derailed by a sudden drop in volume that affected TreeHouse and the whole of the packaged foods industry, as consumer purchases of shelf stable dry groceries for the fourth quarter showed their sharpest decline in six years.
"We are disappointed in our finish to the year, especially after engineering a mid-year recovery in our private label revenues and margins.
But the outlook remained positive, with trends already improving, he added: “Having struggled throughout 2011, we believe that we will overcome this setback and resume steady growth in the year ahead.
“To this end, we are off to a promising start at mid-month with retail grocery private label shipments and orders up approaching double digits over January of last year."
Still on the acquisition trail
Meanwhile, bosses were still on the look-out for acquisition opportunities in private label foods, he said.
“Our strong balance sheet and cash flow allow us to pursue strategic expansion of our portfolio through acquisitions.”
The rise and rise of private label
Speaking at the Barclays Capital Back to School conference in Boston in September, Reed said US retailers were increasingly recognizing that private label could help them boost profitability, differentiate themselves and improve consumer loyalty.
“Private label generates retailer gross margins that are more than 20% higher than those of comparable brands.”
Treehouse has leading positions in the private label market in nine categories including macaroni cheese, salad dressings, pickles, soup, and hot cereals.
According to market researcher Packaged Facts, sales of private label products in US food retailing are set to grow from $92bn in 2010 to $113bn in 2014, while their market share is predicted to rise from 19.1% to 23% over the same period.
Treehouse will hold its year-end earnings call on February 10.
