WESTCHESTER, Ill., Feb. 14 /PRNewswire-FirstCall/ -- TreeHouse
Foods, Inc. (NYSE:THS) today reported a substantial increase in
adjusted full year earnings compared to last year, after one-time
items. On an adjusted basis, as described below, fully-diluted
earnings per share improved significantly to $1.32 compared to
$1.06 last year. Income from continuing operations before
adjustments was $1.33 per diluted share for the year ended December
31, 2007, compared to $1.42 per diluted share last year. The
reported results for this year include negative effects of purchase
accounting adjustments from the purchase of the E.D. Smith Income
Trust ("E.D. Smith") totaling approximately $0.09 per share. These
costs were offset by a one-time exchange gain of $0.07 per share
related to a forward currency contract used to hedge the Canadian
dollar purchase price of E.D. Smith and a favorable tax adjustment
related to deferred tax liabilities at E.D. Smith of $0.03 per
share. The reported results for last year benefited from the
curtailment of certain post employment benefit obligations of $0.57
per share, partially offset by trademark write-downs of $0.16 per
share, net costs associated with closed facilities and purchase
accounting adjustments related to the Company's acquisition of the
soup and infant feeding business earlier last year of $0.05 per
share. ITEMS AFFECTING DILUTED EPS COMPARABILITY: Three Months
Ended Twelve Months Ended December 31 December 31 2007 2006 2007
2006 (unaudited) (unaudited) EPS as reported $0.46 $0.70 $1.33
$1.42 Gain on curtailment of post retirement benefits plan (0.57)
(0.57) Gain on foreign currency hedge transaction (0.07) (0.07)
Acquisition integration and accounting adjustments 0.09 0.09 0.03
Plant closing costs 0.01 0.02 Tax benefits from revaluation of
deferred tax liabilities (0.03) (0.03) Write-down of trade names -
0.16 - 0.16 Adjusted EPS $0.45 $0.30 $1.32 $1.06 Excluding these
unusual items in 2007 and 2006, operating results would have been
$1.32 per fully-diluted share in 2007 compared to $1.06 in 2006.
The improvement in results was achieved primarily in our core
business before the 2007 acquisitions as we focused on a
combination of pricing programs to offset commodity cost inflation
and internal efficiencies to improve our operating gross margins.
Commenting on the results, Sam K. Reed, Chairman and CEO, said,
"Our 2007 results indicate that despite a slower than expected
start to the year and input cost inflation that escalated beyond
all food industry expectations, we have shown that strategic
pricing decisions and an aggressive program of internal cost
savings can overcome daunting external influences. We are
especially pleased to finish the year at the high end of our
expectations despite the unprecedented headwinds we faced this
year." 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 to $46.2 million in
the fourth quarter compared to $31.5 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 but also reflects
improved margins in the legacy businesses. Full year Adjusted
EBITDA was $137.6 million compared to $109.3 million last year, an
increase of 25.9%, which exceeds the 23.3% year-over-year growth in
total revenues. Net sales for the fourth quarter totaled $370.9
million, an increase of 31.1% over the fourth quarter of 2006.
Organic sales improved 4.5% while revenues from acquired companies
contributed the balance. Gross margins for the fourth quarter
improved 13 basis points to 20.5% despite significant input cost
increases over the prior year. The improved margins resulted from a
combination of pricing programs designed to recover escalating
input costs, improved plant efficiencies and internal cost savings
programs. Excluding new acquisitions, margins improved to 21.6% in
the fourth quarter from 20.3% last year, reflecting three straight
quarters of gross margin improvement as all of our reporting
segments registered year-over-year margin improvement in the fourth
quarter. Selling, distribution, general and administrative expenses
were $44.8 million for the quarter, an increase from $36.6 million
in the fourth quarter of 2006. The increase was due to the growth
of the Company from new acquisitions in 2007. Excluding
acquisitions, operating expenses would have been lower by $1.4
million due to lower stock option expense of $1.4 million. Selling,
general and administrative expenses as a percent of sales improved
to 12.1% of sales in the fourth quarter of 2007 compared to 13.0%
last year. Other operating expense for the fourth quarter of 2007
was immaterial, compared to a gain of $21.1 million in 2006. During
the fourth quarter of 2006, the Company recorded a curtailment gain
as a result of transferring the post retirement medical benefits of
certain union employees from a company funded plan to a
multiemployer union sponsored plan. The gain totaled $29.4 million
($18.1 million after tax, or $0.57 per share) and represented the
accumulated benefit obligations to be administered by the union
plan and reimbursed by the Company on a "pay as you go" basis in
the future. Partially offsetting the gain on curtailment was a
charge of $8.2 million ($0.16 per share) to write down the value of
the Mocha Mix trademark. Interest expense in the quarter was $9.2
million compared to $4.6 million last year due to higher bank debt
used to fund the San Antonio Farms and E.D. Smith acquisitions. The
Company's fourth quarter effective income tax rate of 35.8% was
lower than the full year run rate of 37.4% due to a positive mix of
lower corporate tax rates in Canada associated with the Ontario
operations of E.D. Smith and a one-time credit to revalue deferred
tax liabilities using new Canadian statutory rates. Net income from
continuing operations for the fourth quarter totaled $14.3 million
compared to $22.4 million last year. Fully-diluted earnings per
share for the quarter were $0.46 per share compared to $0.70 per
share last year. Excluding one-time adjustments of $0.09 to revalue
inventories acquired in the E.D. Smith acquisition, a one-time
foreign currency hedge gain of $0.07 and a favorable tax adjustment
relating to deferred tax liabilities at E.D. Smith of $0.03,
adjusted operating earnings per share would have been $0.45. Last
year's results included a gain on curtailment of $0.57, trademark
write-downs of $0.16 and plant closure costs of $0.01. Excluding
these unusual items in 2007 and 2006, the adjusted earnings per
share of $0.45 compares to $0.30 per share last year, an increase
of 50%. "Our fourth quarter results are the culmination of a year
long campaign to counter the effects of commodity inflation. They
demonstrate our determination to progress under even the most
volatile of market conditions. We showed revenue growth and margin
improvement both sequentially and compared to last year and
maintained our focus on operating cost efficiencies, all while
integrating new businesses into our Bay Valley Foods operating
company," commented Mr. Reed. SEGMENT RESULTS Pickle segment net
sales for the fourth quarter increased by 8.3% or approximately
$6.2 million from the prior year as higher foodservice revenues
from the addition of the DeGraffenreid acquisition and higher
retail pricing drove the increase. Adjusted gross margins improved
as well, finishing at 13.1% in the quarter compared to 12.6% last
year. The combination of pricing and productivity gains contributed
to the improvement. Adjusted gross margin ("AGM") is gross profit
less delivery and commission costs and is TreeHouse's measure of
segment performance. Powder segment sales increased by 20.8%
compared to the same quarter last year as organic growth and
pricing contributed to the gain. Adjusted gross margins also
improved despite the significant increases in non-diary creamer
input costs (casein, palm and coconut oils). AGM in the quarter was
20.2% compared to 19.2% last year. Soup and infant feeding sales
declined from $102.8 million last year to $95.2 million this year
as a result of lower branded baby food sales. In addition, soup
sales were down slightly from a year ago as the entire soup
category experienced lower than expected sales, which we believe
were negatively affected by an unseasonably warm autumn. Adjusted
gross margins for the quarter improved to 14.2% compared to 12.4%
last year as a result of both pricing and internal efficiency
measures. GUIDANCE FOR 2008 We expect that 2008 will not see an
abatement in commodity cost increases, requiring continuing
pressure to drive internal efficiencies while passing along input
costs that we do not control. Our primary focus will be to continue
to grow our businesses organically, push for margin enhancement,
integrate E.D. Smith's Canadian operations and maintain our
strategy of growth through acquisitions. Net sales are expected to
increase by 28% to 29% in 2008 due to having a full 12 months of
the San Antonio Farms and E.D. Smith businesses in our 2008
results. Input costs are expected to continue to increase, possibly
faster than the Company's ability to raise prices. However, by
maintaining focus on productivity programs, we expect to hold our
overall gross margins steady and to increase them where
opportunities exist. We expect net income before one-time items to
be in the range of $1.50 to $1.55 per diluted share. The full year
guidance assumes first quarter earnings per share to be $0.24 to
$0.26 compared to $0.24 last year. The relatively small improvement
over last year's first quarter earnings per share of $0.24 reflects
the lag effect of recent pricing and productivity actions at E.D.
Smith, which are not expected to be fully realized until late in
the second quarter. Yesterday we announced our intention to close
our Portland, Oregon pickle plant in early June 2008. The plant has
88 employees. An adjacent distribution center is not a part of the
pickle plant closure. The Company will record a non-recurring,
pre-tax charge to operating income of approximately $22 million, or
$0.44 per share, in its first fiscal quarter ending March 31, 2008.
Ongoing annual cost savings from the closing are expected to be
$5.7 million. Due to the timing of the closing, cost savings in
2008 are not expected to be significant. The charge will be a
non-recurring item and has not been included in the guidance
information for 2008. Commenting on the outlook for 2008, Sam K.
Reed said, "We performed very well in 2007 despite extraordinary
input cost increases that were approximately four times the level
the food industry expected. Although we can hope for improvement in
commodity prices in 2008, the hard reality is that we fully expect
another year of increases. Despite the continued need to pass these
costs along to customers, our teams have shown their ability to
manage in a very difficult environment and to drive internal
efficiencies. Both the San Antonio Farms and E.D. Smith
acquisitions will open new markets for our portfolio of private
label and foodservice products. We believe that our guided growth
in earnings of 13% to 16% before considering any new acquisitions
in 2008 represents an aggressive target in these market conditions
but one we are confident of achieving." 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 twelve month periods ended December 31, 2007 and December
31, 2006 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 8:00 a.m. (Eastern
Standard 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 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,
2006 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 Twelve Months Ended December 31
December 31 2007 2006 2007 2006 (unaudited) (unaudited) Net sales
$370,936 $282,870 $1,157,902 $939,396 Cost of sales 295,073 225,395
917,611 738,818 Gross profit 75,863 57,475 240,291 200,578
Operating expenses: Selling and distribution 30,228 21,804 94,636
74,884 General and administrative 14,593 14,836 53,931 57,914 Other
operating income, net (106) (21,087) (415) (19,842) Amortization
expense 3,269 993 7,195 3,268 Total operating expenses 47,984
16,546 155,347 116,224 Operating income 27,879 40,929 84,944 84,354
Other (income) expense: Foreign currency hedge income (3,270) -
(3,270) - Interest expense 9,186 4,592 22,036 12,985 Interest
income (54) (147) (112) (665) Other (income), net (235) - (235) -
Total other expense 5,627 4,445 18,419 12,320 Income from
continuing operations before income taxes 22,252 36,484 66,525
72,034 Income taxes 7,974 14,057 24,873 27,333 Income from
continuing operations 14,278 22,427 41,652 44,701 Income (loss)
from discontinued operations, net of tax - 178 (30) 155 Net income
$14,278 $22,605 $41,622 $44,856 Weighted average common shares:
Basic 31,203 31,202 31,203 31,158 Diluted 31,340 31,886 31,351
31,396 Basic earnings per common share: Income from continuing
operations $0.46 $0.72 $1.33 $1.43 Income from discontinued
operations, net of tax - - - 0.01 Net income $0.46 $0.72 $1.33
$1.44 Diluted earnings per common share: Income from continuing
operations $0.46 $0.70 $1.33 $1.42 Income from discontinued
operations, net of tax - 0.01 - 0.01 Net income $0.46 $0.71 $1.33
$1.43 Supplemental Information: Depreciation and Amortization
10,744 6,633 34,983 24,651 Expense under FAS123R, before tax 3,358
4,799 13,580 18,794 Segment Information: Pickle Segment Net Sales
81,575 75,353 329,686 326,313 Adjusted Gross Margin 10,682 9,480
40,463 42,874 Adjusted Gross Margin Percent 13.1% 12.6% 12.3% 13.1%
Powder Segment Net Sales 91,716 75,912 299,191 267,385 Adjusted
Gross Margin 18,492 14,575 57,654 50,822 Adjusted Gross Margin
Percent 20.2% 19.2% 19.3% 19.0% Soup & Infant Feeding Segment
Net Sales 95,200 102,795 322,223 224,189 Adjusted Gross Margin
13,521 12,719 48,107 30,375 Adjusted Gross Margin Percent 14.2%
12.4% 14.9% 13.5% The following table reconciles our net income to
adjusted EBITDA for the three and twelve months ended December 31,
2007 and 2006: TREEHOUSE FOODS, INC. RECONCILIATION OF REPORTED
EARNINGS TO ADJUSTED EBITDA (In thousands, except per share data)
Three Months Ended Twelve Months Ended December 31 December 31 2007
2006 2007 2006 (unaudited) (unaudited) Net income as reported
$14,278 $22,605 $41,622 $44,856 Interest expense 9,186 4,592 22,036
12,985 Interest income (54) (147) (112) (665) Income taxes 7,974
14,057 24,873 27,333 Discontinued operations - (178) 30 (155)
Depreciation and amortization 10,744 6,633 34,983 24,651 Stock
option expense 3,358 4,799 13,580 18,794 Gain on curtailment of
post retirement benefits plan - (29,409) - (29,409) Gain on foreign
currency hedge transaction (3,270) - (3,270) - Acquisition
integration and accounting adjustments 4,012 230 4,170 1,355
Write-down of trade names - 8,200 - 8,200 Plant shut-down costs and
asset sales of closed facilities - 124 (274) 1,370 Adjusted EBITDA
$46,228 $31,506 $137,638 $109,315
http://www.newscom.com/cgi-bin/prnh/20050726/CGTREELOGO
http://photoarchive.ap.org/ DATASOURCE: TreeHouse Foods, Inc.
CONTACT: Investor Relations of TreeHouse Foods, Inc.,
+1-708-483-1300, ext. 1331 Web site: http://www.treehousefoods.com/
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