HIGHLIGHTS - Net sales grow 43.5% year-over-year
WESTCHESTER, Ill., Aug. 4 /PRNewswire-FirstCall/ -- TreeHouse Foods, Inc.
(NYSE: THS) today reported a 43.5% increase in second quarter net sales to
$367.4 million compared to last year, including a 6.6% increase in sales
before acquisitions. Net income per fully diluted share was $0.26 compared to
$0.30 last year. Adjusted earnings per share excluding unusual items of $0.31
per fully diluted share increased from $0.29 last year as increased sales and
lower interest and tax rates offset lower gross margins associated with
rapidly rising input costs.
"Our top line performance was very good as many of our key products showed
strong year-over-year growth in both dollars and units. As expected, our
margins were negatively affected by rising commodity and energy costs, but
pricing plans put into place during the second quarter will help to drive
margin growth over the second half of the year. We were especially pleased
with the results from our new E.D. Smith acquisition, where sales volume grew
by 7.0% from last year," commented Chairman of the Board and Chief Executive
Officer, Mr. Sam K. Reed.
Reported net income was $8.3 million or $0.26 per share compared to net
income of $9.4 million or $0.30 per share for the same quarter last year. The
decline was due to costs associated with the previously announced closing of
the Portland, Oregon pickle plant, integration costs associated with the E.D.
Smith acquisition and a non-cash adjustment to the value of a license. Last
year's results included a one-time gain from the sale of assets at a closed
facility. Excluding these unusual items, earnings per share would have been
$0.31, a 6.9% increase over last year's adjusted earnings of $0.29. The
following table reconciles the reported earnings per share to adjusted
earnings per share excluding unusual items.
ITEMS AFFECTING DILUTED EPS COMPARABILITY:
Three Months Ended Six Months Ended
June 30 June 30
2008 2007 2008 2007
(unaudited) (unaudited)
EPS as reported $0.26$0.30 $0.33 $0.54
Plant closing costs 0.02 - 0.26 -
Integration costs0.01 - 0.01 -
Loss on currency translation -- 0.03 -
Non-cash adjustment to value of
license and other 0.02(0.01) 0.02 (0.01)
Adjusted EPS$0.31$0.29 $0.65 $0.53
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
17.5% to $35.1 million in the second quarter compared to $29.9 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. The adjusted EBITDA growth of
17.5% lagged the 43.5% year-over-year growth in total revenues due to the mix
of lower margin new businesses acquired last year, lower margins resulting
from higher raw material input costs and energy costs that negatively affected
total distribution expenses.
Net sales for the quarter totaled $367.4 million, an increase of 43.5%
over the second quarter of 2007 due primarily to the acquisitions of San
Antonio Farms, E.D. Smith and DeGraffenreid. Excluding acquisitions, sales
improved 6.6% due to a combination of increased prices and retail volume gains
in soup and non-dairy powdered creamer. Gross margins for the quarter
decreased from 20.9% to 18.7% due to higher input costs and energy-related
costs that were not fully recovered in the quarter.
Selling, distribution, general and administrative expenses were $44.7
million for the quarter, an increase from $33.6 million in the second quarter
of 2007. The increase was due to the growth of the Company from new
acquisitions in 2007. Selling, general and administrative expenses as a
percent of sales improved to 12.2% in the second quarter of 2008 compared to
13.1% last year as we continue to realize synergies from acquired companies.
Other operating expense includes $0.9 million in the quarter for costs
associated with the previously announced closure of the Portland, Oregon
pickle plant. The plant closure should be completed before the end of the
third quarter of 2008. Amortization expense includes the costs of trademarks,
trade names and other amortizable intangible costs. The increase in
amortization expense for the quarter of $2.3 million was due principally to
the E.D. Smith acquisition.
Interest expense in the quarter was $7.6 million compared to $4.0 million
last year due to higher bank debt used to fund the E.D. Smith and San Antonio
Farms acquisitions and a non-cash adjustment to the value of a license. The
effective income tax rate of 30.2% in the second quarter was significantly
lower than last year's rate of 38.2%. The lower effective tax rate is due to
the financing structure established for the E.D. Smith Canadian and U.S.
businesses.
SEGMENT RESULTS
The Company has identified three reportable segments:
1. North American Retail Grocery -- This segment sells branded and private
label products to customers within the United States and Canada. These
products include pickles, peppers, relishes, condensed and ready to serve
soup, broths, gravies, jams, jellies, salad dressings, sauces, non-dairy
powdered creamer, salsa, aseptic products and baby food.
2. Food Away From Home -- This segment sells to foodservice customers,
including restaurant chains and food distribution companies, within the United
States and Canada.
3. 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, including for repackaging in portion control
packages and for use as an ingredient by other food manufacturers. Export
sales are primarily to industrial customers.
The direct operating income for our segments is determined by deducting
manufacturing costs from net sales and deducting direct operating costs such
as freight to customers, commissions, brokerage fees as well as direct selling
and marketing expenses. General sales and administrative expenses, including
restructuring charges, are not allocated to our business segments as these
costs are managed at the corporate level.
North American Retail Grocery net sales for the second quarter increased
by 61.3% from $138.2 million to $222.9 million compared to the same quarter
last year primarily due to the acquisitions of San Antonio Farms and
E.D. Smith. Excluding these acquisitions, net sales increased only 1.7% due
to lower sales of branded baby food and dropping unprofitable pickle
customers. Offsetting these decreases were increased sales of soup and better
than expected sales of non-dairy powdered creamer. Direct operating income as
a percent of sales declined from 12.8% to 11.2% due to cost increases which
were not fully offset by pricing in the quarter.
Food Away From Home segment sales increased by 19.7% from $64.0 million to
$76.6 million compared to the same quarter last year due to the addition of
the foodservice businesses of San Antonio Farms and DeGraffenreid. Excluding
acquisitions, sales grew 2.7% as increased pricing offset the loss of several
lower margin customers. Overall direct operating income dropped slightly to
11.2% of revenue from 11.5% last year due to higher than expected distribution
costs resulting from higher fuel costs.
Industrial and Export segment sales increased 26.1% from $53.8 million
last year to $67.8 million this year due to a combination of increased volume
of co-packed products and higher prices. Although pricing was taken in all
areas, the sales mix shift to lower margin co-pack sales combined with higher
fuel costs caused direct operating income to decrease to 10.0% of net sales
from 13.4% last year.
OUTLOOK FOR THE REMAINDER OF 2008
"Although we saw margin erosion in the second quarter, this was due to the
timing of our price increases and the sudden surge in the energy costs during
the second quarter," said Reed. "We will see more pricing materialize in the
third and fourth quarters as we ship our winter season products like soup and
non-dairy creamer. We expect third quarter earnings excluding unusual items
to be in the range of $0.37 to $0.40, and are reaffirming our guidance for
full year adjusted earnings per share of $1.50 to $1.55 before unusual items."
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 six
month periods ended June 30, 2008 and June 30, 2007 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 5:00
p.m. (Eastern 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 and the largest manufacturer of private
label salad dressings in the United States and Canada 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, 2007 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 Six Months Ended
June 30 June 30
2008 2007 2008 2007
(unaudited) (unaudited)
Net sales $367,369 $256,031 $727,992 $515,015
Cost of sales 298,740 202,424 588,974 409,319
Gross profit 68,62953,607 139,018 105,696
Operating expenses:
Selling and distribution 28,94821,48357,61242,949
General and administrative 15,76012,09631,00225,622
Other operating (income) expense
- net928 (365) 11,850 (311)
Amortization expense3,528 1,244 7,015 2,310
Total operating expenses 49,16434,458 107,47970,570
Operating income 19,46519,14931,53935,126
Other expense:
Interest expense7,561 3,98215,292 7,852
Interest income (87) (5) (107) (51)
Loss (gain) on foreign currency
exchange (5) - 1,855 -
Other 113 -(181) -
Total other expense 7,582 3,97716,859 7,801
Income from continuing operations
before income taxes 11,88315,17214,68027,325
Income taxes 3,591 5,789 4,32710,519
Income from continuing operations 8,292 9,38310,35316,806
Loss from discontinued operations,
net of tax - (21) - (30)
Net income $8,292$9,362 $10,353 $16,776
Weighted average common shares:
Basic 31,20931,20231,20731,202
Diluted31,34131,31131,32531,312
Basic earnings per common share:
Income from continuing
operations $0.27 $0.30 $0.33 $0.54
Loss from discontinued
operations, net of tax - - - -
Net income $0.27 $0.30 $0.33 $0.54
Diluted earnings per common share:
Income from continuing
operations $0.26 $0.30 $0.33 $0.54
Loss from discontinued
operations, net of tax - - - -
Net income $0.26 $0.30 $0.33 $0.54
Supplemental Information:
Depreciation and Amortization11,959 8,03623,93215,853
Expense under FAS123R, before tax 2,600 3,077 5,381 6,789
Segment Information:
North American Retail
Net Sales 222,880 138,211 442,520 284,799
Direct Operating Income 25,05317,72750,54536,332
Direct Operating Income Percent11.2% 12.8% 11.4% 12.8%
Food Away From Home
Net Sales76,64164,013 147,567 119,204
Direct Operating Income 8,567 7,33016,13513,277
Direct Operating Income Percent11.2% 11.5% 10.9% 11.1%
Industrial and Export
Net Sales67,84853,807 137,905 111,012
Direct Operating Income 6,810 7,19916,41313,687
Direct Operating Income Percent10.0% 13.4% 11.9% 12.3%
The following table reconciles our net income to adjusted EBITDA for the
months ended June 30, 2008 and 2007:
TREEHOUSE FOODS, INC.
RECONCILIATION OF REPORTED INCOME TO ADJUSTED EBITDA
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
2008 2007 2008 2007
(unaudited) (unaudited)
Net income as reported $8,292 $9,362 $10,353 $16,776
Interest expense 7,5613,982 15,2927,852
Interest income(87) (5)(107) (51)
Income taxes 3,5915,7894,327 10,519
Discontinued operations- 21 - 30
Depreciation and amortization 11,9598,036 23,932 15,853
Stock option expense 2,6003,0775,3816,789
Loss on currency translation and other 108-1,649-
Acquisition integration and accounting
adjustments 191- 274-
Plant shut-down costs, asset sales and
purchase accounting 928 (356) 11,364 (277)
Adjusted EBITDA$35,143 $29,906 $72,465 $57,491
SOURCE TreeHouse Foods, Inc.
