HIGHLIGHTS
- Q4 net sales grew 7.3% year-over-year; adjusted earnings increase 22.2%
- Full year net sales grew 29.6%; adjusted earnings up 22.7% to $1.62
- Debt reduced $76.1 million or 13.8% in the quarter
WESTCHESTER, Ill., Feb. 12 /PRNewswire-FirstCall/ -- TreeHouse Foods, Inc.
(NYSE: THS) today reported a substantial increase in adjusted quarterly and
full year earnings compared to last year, after one-time items. On an
adjusted basis, as described below, fully-diluted earnings per share from
continuing operations in the fourth quarter improved 22.2% to $0.55 compared
to $0.45 last year. For the full year, adjusted earnings per share from
continuing operations increased 22.7% to $1.62 compared to $1.32 last year.
The 22.7% improvement in results was due primarily to having a full year of
E.D. Smith sales and profits in 2008 compared to only 75 days in 2007. On a
reported basis, income from continuing operations was $0.22 per diluted share
for the quarter ended December 31, 2008, compared to $0.46 per diluted share
last year, reflecting unusual one-time items. For the full year, reported
earnings per share from continuing operations were $0.91 compared to $1.33
last year including unusual one-time items.
The reported results for the fourth quarter and full year included two
large mark to market items, both of which were non-cash and non-operating.
The first was the adjustment of an intercompany loan with the Company's E.D.
Smith subsidiary to reflect current currency rates and the second was the mark
to market adjustment of an interest rate swap agreement to current LIBOR
rates. The interest rate adjustment will reverse over the remaining life of
the 32 month agreement as a non-cash, non-operating gain. In addition, the
Company reported non-recurring costs of $0.01 per share associated with the
Company's closed Portland, Oregon pickle plant and $0.05 per share in costs
associated with unfavorable factory variances resulting from the Company's
third quarter inventory reduction programs. The reported results for last year
include the net effect of adjustments from the acquisition of the E.D. Smith
Income Trust ("E.D. Smith") totaling approximately $0.01 per share.
ITEMS AFFECTING DILUTED EPS COMPARABILITY:
Three Months Ended Twelve Months Ended
December 31 December 31
2008 2007 2008 2007
(unaudited) (unaudited)
EPS from continuing
operations as reported $0.22 $0.46 $0.91 $1.33
Plant closing costs 0.01 0.29
Loss on intercompany
note translation 0.13 0.21
Mark to market adjustment
on interest rate swap 0.14 0.14
One time factory costs
from inventory reduction
program 0.05 0.05
E.D. Smith acquisition-
related costs (0.01) 0.01 (0.01)
Non-cash adjustment to
value of license and other - - 0.01 -
Adjusted EPS $0.55 $0.45 $1.62 $1.32
Commenting on the results, Sam K. Reed, Chairman and CEO, said, "The past
year was the most challenging the packaged foods industry has faced in
decades, yet we overcame the extreme inflation and volatility of input costs
through targeted pricing actions and internal cost controls. We generated
top-line growth in key product categories including soup, salsa, salad
dressing and non-dairy creamer and also expanded distribution of our E.D.
Smith and San Antonio Farms acquisitions. Despite the challenges, we exceeded
our original expectations and outperformed the food industry."
Adjusted operating earnings before interest, taxes, depreciation,
amortization and unusual items (Adjusted EBITDA, reconciled to net income, the
most directly comparable GAAP measure, appears on the attached schedule)
decreased slightly to $44.8 million in the fourth quarter compared to $46.2
million in the same period last year. The small decrease in the quarter
reflected the negative effect of Canadian currency rates on E.D. Smith cross
border transactions. Full year Adjusted EBITDA was $157.0 million compared to
$137.6 million last year, an increase of 14.1%.
Net sales for the fourth quarter totaled $398.1 million, an increase of
7.3% over the fourth quarter of 2007, with 3.6% coming from legacy sales and
the balance from having a full quarter of E.D. Smith sales in 2008. Reported
gross margins for the fourth quarter decreased 40 basis points to 20.1%, but
this includes the negative effect of under-absorbed factory costs of $2.5
million associated with our now completed inventory reduction programs.
Excluding those one-time fourth quarter costs, gross margins would have been
slightly above last year's 20.5% gross margins. After experiencing
significant margin erosion early in the year due to very high input costs, we
have now seen two quarters of margin improvement, and have returned to last
year's fourth quarter gross profit margins.
Selling, distribution, general and administrative expenses were $43.8
million for the quarter, a decrease of 2.2% from $44.8 million in the fourth
quarter of 2007. The decrease was due to lower distribution expenses as
energy costs dropped significantly in the quarter, partially offset by higher
administrative costs associated with the growth of the Company from last year.
Selling, distribution, general and administrative expenses as a percent of
sales improved to 11.0% of sales in the fourth quarter of 2008 compared to
12.1% last year due principally to higher average selling prices and synergies
from the E.D. Smith acquisition.
Other operating expense for the fourth quarter of 2008 was $1.3 million
and primarily reflects the ongoing maintenance costs associated with the
Company's closed Portland, Oregon pickle plant. The previously announced
plant closure took place in June, 2008 in order to better balance production
capacity.
Interest expense in the quarter was $5.8 million compared to $9.2 million
last year as lower debt from strong cash flow and lower interest rates
contributed to the decline. The Company ended the quarter with $475.2 million
of long term debt compared to $620.5 million last year, with the significant
reduction coming from operating cash flows and the Company's actions to reduce
working capital during 2008. In addition, the Company received an insurance
reimbursement of $20.0 million in the quarter associated with the previously
announced fire at the Company's New Hampton, Iowa plant in the first quarter.
The Company's fourth quarter effective income tax rate of 20.5% was
significantly lower than last year's tax rate of 35.8% due to the financing
structure established for the E.D. Smith Canadian and U.S. businesses. The
fourth quarter effective tax rate was lower than the full year run rate of
27.6% due to the low level of pre-tax earnings in the quarter resulting from
the mark to market adjustments.
Net income from continuing operations for the fourth quarter totaled $7.1
million compared to $14.3 million last year. Fully-diluted earnings per share
from continuing operations for the quarter were $0.22 per share compared to
$0.46 per share last year. Excluding unusual items, adjusted earnings per
share from continuing operations for the fourth quarter of 2008 would have
been $0.55, compared to last year's fourth quarter adjusted earnings per share
of $0.45.
SEGMENT RESULTS
The Company has 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, spreads, 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 fourth quarter increased
by 8.6% from $232.8 million to $252.8 million compared to the same quarter
last year primarily due to the acquisition of E.D. Smith and higher average
selling prices. Excluding the acquisition, net sales increased 3.1% as
pricing more than offset volume declines resulting from lower sales of branded
baby food and discontinuation of unprofitable pickle volume. Partially
offsetting the pickle and baby food decreases were increased unit sales of
salad dressing, soup, salsa, sauces and jams. Direct operating income as a
percent of sales increased significantly from 12.0% to 13.9% due to the
rationalization of lower margin pickle customers, improved salad dressing
margins and lower transportation costs compared to 2007.
Food Away From Home segment sales were nearly flat to last year at $69.3
million as the full quarter effect of the acquisition of E.D. Smith offset
declines in the USA region. Difficult economic conditions have caused food
consumption away from home to decrease, however, a positive mix of quick
serve, fast food customers and increased sales of salsa mitigated the volume
decrease to only 2.0% excluding volume from E.D. Smith causing an overall
decrease in unit volumes. Overall direct operating income increased slightly
to 11.3% of revenue from 10.6% last year as pricing and lower transportation
costs offset higher overall input costs.
Industrial and Export segment sales increased 11.0% from $68.5 million
last year to $76.1 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 caused direct
operating income to decrease to 11.7% of net sales from 15.3% last year.
GUIDANCE FOR 2009
We expect that 2009 will be a very good year for TreeHouse, with earnings
increasing 11% to 14% to $1.80 to $1.85 per share before one-time items and
before considering potential acquisitions. We do recognize that it will also
be a year of major transition for the packaged foods industry as rampant input
cost inflation and volatility are replaced by recession, credit crisis and
consumer uncertainty. As commodity and energy costs have settled,
inflationary pressures have given way to deflationary pressures to lower
prices, especially in product categories whose costs are largely determined by
agricultural inputs and petroleum. Additionally, grocery and foodservice
customers have already begun one-time adjustments to their purchasing cycles
to reduce their inventories, thereby generating additional cash flow.
With these factors in mind, we expect an increase of 1% in sales revenue
at TreeHouse as a combination of pass through pricing in the industrial
sector, pickle category rationalization and a lower Canadian exchange rate
depress dollar sales. However, unit sales growth driven by our product
portfolio strategy and expanded distribution will more than offset these
revenue pressures, resulting in a small increase in total revenues.
Gross margins are expected to improve 100 basis points or more as product
mix shift, productivity gains and procurement economics outweigh sluggish
pricing and foreign exchange swings. In aggregate, input costs should be flat
as reductions in grains, oils and energy offset increases in steel cans,
fruits and vegetables, and minor ingredients.
This full year guidance assumes first quarter earnings per share to be
$0.35 to $0.37 compared to $0.34 last year. The small improvement over last
year's first quarter earnings per share reflects the timing of forward
purchase contracts, and assumes that most of the benefit of lower input costs
will benefit the back half of the year.
Commenting on the outlook for 2009, Sam K. Reed said, "Over the past year,
we have demonstrated our ability to succeed under the most adverse food
industry conditions. We expect external cost pressures to subside in 2009,
thus allowing us to focus on real growth, expanded distribution and
productivity gains in the new year. These same factors are the key drivers of
our 11% to 14% earnings growth forecast for 2009. We also believe that the
combination of working capital management and funds availability under our
existing line of credit will allow us to pursue further acquisitions while
other buyers are relegated to the sidelines or burdened with higher costs of
capital."
COMPARISON OF ADJUSTED INFORMATION TO GAAP INFORMATION
The adjusted earnings per share data contained in this press release
reflect adjustments to reported earnings per share data to eliminate the net
expense or net gain related to items identified in the above chart. 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 reported income from continuing operations for
the three and twelve month periods ended December 31, 2008 and December 31,
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 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 Twelve Months Ended
December 31 December 31
2008 2007 2008 2007
(unaudited) (unaudited)
Net sales $398,082 $370,936 $1,500,650 $1,157,902
Cost of sales 318,236 295,073 1,208,626 917,611
Gross profit 79,846 75,863 292,024 240,291
Operating expenses:
Selling and distribution 29,058 30,228 115,731 94,636
General and administrative 14,780 14,593 61,741 53,931
Other operating expense
(income), net 1,329 (106) 13,901 (415)
Amortization expense 3,180 3,269 13,526 7,195
Total operating
expenses 48,347 47,984 204,899 155,347
Operating income 31,499 27,879 87,125 84,944
Other (income) expense:
Interest expense 5,838 9,186 27,614 22,036
Interest income - (54) (107) (112)
Loss (gain) on currency
exchange 9,316 (3,270) 13,040 (3,270)
Other, net 7,382 (235) 7,123 (235)
Total other expense 22,536 5,627 47,670 18,419
Income from continuing
operations before income
taxes 8,963 22,252 39,455 66,525
Income taxes 1,836 7,974 10,895 24,873
Income from continuing
operations 7,127 14,278 28,560 41,652
Loss from discontinued
operations, net of tax (336) - (336) (30)
$6,791 $14,278 $28,224 $41,622
Weighted average common
shares:
Basic 31,522 31,203 31,341 31,203
Diluted 31,679 31,340 31,469 31,351
Basic earnings per common
share:
Income from continuing
operations $0.23 $0.46 $0.91 $1.33
Loss from discontinued
operations, net of tax (0.01) - (0.01) -
Net income $0.22 $0.46 $0.90 $1.33
Diluted earnings per common
share:
Income from continuing
operations $0.22 $0.46 $0.91 $1.33
Loss from discontinued
operations, net of tax (0.01) - (0.01) -
Net income $0.21 $0.46 $0.90 $1.33
Supplemental Information:
Depreciation and Amortization 10,346 10,744 45,852 34,983
Expense under FAS123R, before
tax 3,398 3,358 12,193 13,580
Segment Information:
North American Retail Grocery
Net Sales 252,768 232,771 917,102 663,506
Direct Operating Income 35,253 27,873 114,511 85,293
Direct Operating Income
Percent 13.9% 12.0% 12.5% 12.9%
Food Away From Home
Net Sales 69,264 69,640 294,020 254,580
Direct Operating Income 7,798 7,396 32,133 28,320
Direct Operating Income
Percent 11.3% 10.6% 10.9% 11.1%
Industrial and Export
Net Sales 76,050 68,525 289,528 239,816
Direct Operating Income 8,871 10,517 33,473 32,703
Direct Operating Income
Percent 11.7% 15.3% 11.6% 13.6%
The following table reconciles our net income to adjusted EBITDA for the
three and twelve months ended December 31, 2008 and 2007:
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
2008 2007 2008 2007
(unaudited) (unaudited)
Net income as reported $6,791 $14,278 $28,224 $41,622
Interest expense 5,838 9,186 26,980 22,036
Interest income - (54) (107) (112)
Income taxes 1,835 7,974 10,895 24,873
Loss from discontinued operations,
net of tax 336 - 336 30
Depreciation and amortization 10,346 10,744 45,852 34,983
Stock option expense 3,398 3,358 12,193 13,580
Gain on foreign currency hedge
transaction - (3,270) - (3,270)
Acquisition integration and
accounting adjustments - 4,012 508 4,170
One time factory costs associated
with inventory reduction program 2,500 2,500
Revalue license agreement and other - - 634 -
Loss on intercompany note
translation 5,925 - 9,135 -
Swap mark to market 6,981 - 6,981 -
Plant shut-down costs and asset
sales of closed facilities 805 - 12,905 (274)
Adjusted EBITDA $44,755 $46,228 $157,036 $137,638
SOURCE TreeHouse Foods, Inc.
-0- 02/12/2009
/CONTACT: Investor Relations of TreeHouse Foods, Inc., +1-708-483-1300,
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(THS)
CO: TreeHouse Foods, Inc.
ST: Illinois
IN: REA SUP FOD
SU: ERN ERP CCA
PD-KB
-- AQTH070 --
6560 02/12/2009 16:01 EST http://www.prnewswire.com
