TreeHouse Foods sales lift on price hikes without compromising volume, price gaps
Unlike some other companies executing similar plays in today’s trying environment, TreeHouse Foods pulled off this trifecta without sacrificing significant volume.
Rather, the company reported in the fourth quarter ending Dec. 31, 2022, its retail unit increased 3.4% -- outpacing the 0.1% unit growth of private label overall and the 5% drop in the national brands’ unit growth from the prior year.
These unit gains are especially notable considering the company pushed through a significant 24.6% price increase in the quarter to help recover inflation – a jump that likely was less notable given CEO Steve Oakland’s estimate that pricing was up about 17% across the entire retail landscape as other players also contended with higher input costs.
Higher prices are not compromising price gaps
The higher prices and volume also helped TreeHouse Foods close the gap on its net loss in the fourth quarter, which came in at $23.4m or 41 cents per share compared to a loss of $29.1m or 52 cents per share in the same period last year.
Even with significant price increases, the company maintained a larger price gap compared to national brands than in prior years. In October, it reported a gap of about 28%. This fell to about 25% in December. Pre-pandemic, the gap in October was about 25% and dropped closer to 21% in 2019.
This price gap expansion from 2019 to 2022 reflects in part national brands’ decision to pause promotions during the pandemic to ease strain on already stressed supply chains, said Oakland. He also noted the tightening each December is expected and factored into the company’s predictions as most consumers lean into the holidays and are more willing to splurge on national brands while entertaining.
“So, we performed as we expected … over the holidays and had a good solid fourth quarter. And I would suggest that our volume trends … are not slowing down based on price gap,” he explained.
More price hikes could be on the horizon
This also means the company has a little more wiggle room to push through additional pricing as need, said Oakland. Although he was quick to add that most of the planned increases have already gone through and any additional bumps will be “surgical in nature.”
Any additional price increases would hinge on specific pockets of ongoing inflation, which chief accounting officer Pat O’Donnell suggested is more likely to come from the company’s non-tradable cost basket, where TreeHouse Foods sees “meaningful inflation” rather than commodities, which are beginning to come down.
He added some of the inflation from non-traded inputs, which includes everything from labels and specialty packaging to food chemicals and foil lids, is offsetting deflation in traded commodity.
Overall, he said, “we’re expecting mid-single digit inflation as we think about what we will experience in 2023 – so nothing like what we saw over the last cycle.”
He said he also expects retailers to be open to pricing conversations at this level even though some have begun to push back against additional price hikes and are even asking for manufacturers to roll back prices to ease pressure on cash-strapped consumers.
Supply challenges slowly easing
TreeHouse Foods’ gains could have been higher if not for ongoing supply chain challenges, which the company is going “full court press” to address, Oakland said.
“About half of our categories are back to target levels of service. We continue to face constraints in certain categories like cookies, creamer and single serve beverages. We are working diligently to resolve our supply chain challenges and by the end of this year, we expect most of our categories to be very close to our targeted service level of 98%,” O’Donnell said.
He also noted some of the hits to TreeHouse Foods’ supply chain in the fourth quarter were weather related anomalies that are not ongoing challenges.
