TreeHouse Foods anticipates a broth recall that hit the private-label supplier’s fourth-quarter sales and volumes will spill over into 2024.
The New York-listed business estimates its sales in the first quarter will decline by around 7% from a year earlier at the “midpoint” to about $780m to $810m. They dropped 8% on an organic basis in the final three months of fiscal 2023.
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In reported terms, sales for the completed quarter to 31 December fell 4.8% to $910.8m, while volume/mix decreased by 4.2% when accounting for the disruption caused by the recall and plant revamp. Otherwise, volume/mix was down 3.9%.
TreeHouse initiated the recall last September, affecting major US food retailers. However, it had greater consequences on production than was anticipated in the fourth quarter as the company invests in modernising the facility concerned in Cambridge, Maryland.
“Our ability to grow sales in 2024 will be temporarily constrained by the efforts to restart our broth facility,” chairman, president and CEO Steven Oakland told analysts last week as he discussed the latest results.
“We expect the net sales impact due to our broth facility will be approximately $60 million, which partially mutes the growth contribution from the rest of the business, particularly in the first half of the year.”
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By GlobalDataHe added that adjusted EBITDA will be reduced in the new year by around $20m due to investments related to the restart of the Cambridge plant.
TreeHouse Foods guided to 2024 sales of $3.43bn to $3.5bn, which represents organic growth of zero to 2%, compared to last year’s 2.2% and an end print of $3.4bn. Adjusted EBITDA was set at $360m-$390m.
Adjusted EBITDA for the completed year came in at $365.9m, up 25%, while net income improved to $59m from a $9.2m loss a year earlier.
Oakland said TreeHouse Foods has launched a “full rebuild” of the broths business, along with “its capital, its people [and] its process”, adding that the Cambridge facility will be “world class” and a “driver” for the company when work is finished.
Finance chief Pat O’Donnell said “discrete supply chain disruptions” relating to pretzels and cookies also weighed on fourth-quarter sales and to a lesser degree the exit from some low-margin products.
O’Donnell also talked about future pricing, which increased 0.1% in the fourth quarter and 7.3% for the year as a whole.
“Our pricing was roughly flat as we’ve now lapsed the pricing actions that we’ve taken over the last couple of years primarily to recover from inflationary pressure.
“We’re not seeing significant deflation, perhaps some modest disinflation in a couple of key commodities. But overall, we’re seeing things that still remain relatively elevated to history.”
Oakland, meanwhile, said volume and mix is expected to be “slightly positive” in the new year, while TreeHouse Foods is “planning for a modest decline” in pricing.
Explaining the wider picture, he said: “The macro-environment continues to be challenged by inflationary pressure and general economic concerns among consumers. The net effect of these has resulted in overall lower category volumes.
“While overall food and beverage unit consumption declined year-over-year, the broader private-brand market remained nearly flat, continuing to outperform relative to national brands. These dynamics weighed on our sales volumes.”
However, Oakland added: “Private-brand unit share continues to remain at a quarterly all-time high, above 20%, and was most pronounced during the holiday season. It is also worth noting that private brands have gained unit share for over 100 consecutive weeks.”
O’Donnell suggested 2024 could prove to be another challenging year.
“We believe it is prudent to assume no significant changes to the consumption environment in the near term. Therefore, we are not assuming a return to historical consumption trends in 2024,” he said.
