‘Broad gains’ in snacks and growth in single-serve coffee had benefited the company – although it admitted products such as its non-dairy creamers, hot cereal and soup had been hit by unseasonably warm weather.
"We are off to a solid start, despite the ongoing challenges of a stagnant retail landscape," said Treehouse Foods chairman, president and chief executive officer Sam K Reed.
He added he was “very pleased” with the progress being made in integrating the former ConAgra private label business, which was acquired by Treehouse in February and now operates as Treehouse Private Brands. Integration was on track and on budget, he said.
Customer service improvements
"Our sense of functional unity is growing. Our Private Brands team is already making great progress in customer service improvements and is starting to regain lost distribution,” added Reed.
Inclusion of business from the ConAgra acquisition had pushed net sales up from $783.1m in Q1 last year to $1.27bn this year. The increase had been partially offset by lower volume/mix, primarily in the company’s Industrial and Export segment, and unfavorable Canadian foreign exchange.
This unfavorable exchange contributed to reported gross margins dropping from 19.5% to 17.7% year on year. Another factor was lower margins from the Private Brands business, which contributed 1.3 percentage points of margin loss. Net loss for the first quarter of 2016 totaled $3.3m compared to net income of $17.9m in the previous year.
'Wealth of opportunities'
"As we look to the balance of the year, we continue to believe that we have a wealth of opportunities ahead," said Reed. "We are showing very good progress, but we also recognize that we have a great deal of work to do toward building our Treehouse culture of growth.
“The breadth and scope of our private label platform is extraordinary and unmatched in the industry, and we will continue to support our customers and their efforts to build their corporate brands.”
Treehouse last week recalled dozens of products including snack bars and trail mixes after being alerted by a supplier they contained sunflower seeds they may be contaminated with Listeria monocytogenes.
Treehouse Foods: segment-by-segment performance
Treehouse Foods comprises three segments:
North American Retail Grocery
Sells branded and private label products including cereals, snacks, bars, soups, sauces, beverages and pickles to customers within the US States and Canada. Net sales increased 72.1% to $1.02bn from $592.4m, driven by a 73.5% increase due to the Private Brands acquisition, and partially offset by a 1.3% unfavorable impact from foreign exchange. Higher volume/mix of single-serve beverages, dressings, tea and snacks were offset by lower volume/mix in most other product categories due, in part, to unseasonably warm weather. Direct operating income margin in the first quarter fell 0.5 percentage points to 12.6% in 2016.
Food Away From Home
Sells products including cereals, bakery products, crackers, sauces and beverages to foodservice customers including restaurant chains and food distribution companies in the US and Canada. Net sales increased 27.5% to $112.6m, driven primarily by a 27.1% increase due to the Private Brands acquisition. Direct operating income margin in the first quarter increased to 14.1% in 2016 from 13.6% in 2015, primarily due to favorable input costs and operating efficiencies, partially offset by unfavorable Canadian foreign exchange.
Industrial and Export
This segment includes the company's co-pack business and non-dairy powdered creamer sales to industrial customers for use in industrial applications. Also sells a range of food products primarily to industrial customers outside North America. Net sales for the first quarter increased 35.0% to $138.3m, primarily driven by a 45.9% increase from the Private Brands acquisition, partially offset by unfavorable volume/mix and pricing. Direct operating income margin fell to 15.3% in 2016, from 21.0% in 2015, with the inclusion of lower-margin business from the Private Brands acquisition contributing 2.1 points to this decline and the remainder primarily driven by competitive pressures in single-serve beverages, soup and infant feeding.