TreeHouse Cuts Fiscal 2011 Guidance - Analyst Blog
June 28 2011 - 9:15AM
Zacks
TreeHouse Foods
Inc. (THS) recently reduced its fiscal 2011 earnings
outlook to $2.90–$3.00 from $3.00–$3.08 after taking into account
higher freight, transportation, packaging and other related
commodity costs. The guidance includes the second-quarter earnings
projection of 42–44 cents. Following the announcement, Zacks
Consensus estimates for the second quarter and fiscal 2011 declined
28 cents and 15 cents to 43 cents and $2.91, respectively.
TreeHouse had expected to counter
the increased expenses through pricing, which took place after the
company had already incurred the higher costs. The pricing
initiated in the ongoing second quarter will now be realized in the
third and fourth quarters of 2011, resulting in about 6 cents per
share of unrecovered expense in the quarter’s results.
Last month, management noted that
surging export demand for grains and oilseeds as well as a rise in
crude oil prices led to a spike in input costs. While TreeHouse had
hedged the primary ingredients of the cost structure, unhedged
secondary inputs has hit the company badly.
After steady growth in the last six
months in tune with the economic recovery, consumer confidence has
fallen suddenly in the second quarter which forced TreeHouse to
hold up pricing action. Management commented that high gasoline
prices affected consumer spending, even of essentials.
Illinois-based TreeHouse, which
operates as a food manufacturing company serving primarily the
retail grocery and foodservice channels, now estimates strong
organic sales growth of 3.5–4.0% and total net sales of nearly $490
million. However, second-quarter margins are expected to fall short
by 250 basis points year over year to be in the 22–23% range. For
the full year, TreeHouse expects gross margins to be flat to
slightly below last year.
Despite the disappointing
projection for the second quarter, TreeHouse expects to overcome
these temporary difficulties in short order. The company
anticipates rapid margin recovery with the effectiveness of delayed
pricing. Moreover, most of the big win sales will be realized in
the back half of the year from increased distribution of
higher-margin products.
TreeHouse currently retains a Zacks
#4 Rank (short-term Sell recommendation). However, we still have a
long-term Neutral rating on the stock. The company will announce
its second quarter results on August 1. Major competitors of
TreeHouse include Corn Products International Inc.
(CPO) and Omega Protein Corp. (OME).
CORN PROD INTL (CPO): Free Stock Analysis Report
OMEGA PROTEIN (OME): Free Stock Analysis Report
TREEHOUSE FOODS (THS): Free Stock Analysis Report
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