Company Spotlight - TreeHouse Foods (THS-NYSE) In a Pickle | | NYSE: THS $22.35 | The Good: Price hikes are sticking without volume decrease.
The Bad: Commodity prices are volatile and major component of costs.
The Beautiful: Stock trading near 52 week low. | P/E: 14 | PSR: 0.6 | ROE: 8.5% | Debt/Eq: 0.5 | Beta: 1.33 |
February 6, 2008 - TreeHouse Foods, Inc. (THS-NYSE) used to be part of Dean Foods. Then, in 2005 Dean combined the businesses of its specialty foods group and its foodservice salad-dressing business to create publicly traded TreeHouse Foods. TreeHouse's main products are private-label and branded pickles (Farmans, Nalley's, Peter Piper, and Steinfeld); non-dairy creamers (Cremora, Mocha Mix); and baby food (Nature's Goodness). The company also manufactures aseptic (shelf-stable) and refrigerated foods, including cheese sauces, puddings, and liquid egg substitute (Second Nature).
This is the one of the largest manufacturers of pickles and non-dairy creamers in the U.S. When it raises prices, and they stick, you can expect more earnings. That's just what happened in the fourth quarter of 2007. Earnings were most likely up 24% for the year, primarily because of price hikes. The comany had no choice. Ingredients were more expensive last year. To make up for that, prices had to go higher. The benefit of those hikes will continue into this year as the company was a little slow to raise prices to cover ingredient costs. Of course, ingredients will continue to be volatile, and if they go higher, it's unknown whether the company can raise prices further without hurting volume. Still, for this quarter and maybe next, the new price levels should improve the bottom line noticeably. Over the next 5 years, look for revenues ($1.165 billion in 2007) to grow, on average, 13% a year while earnings are predicted to increase by 11.5% a year, on average. Earnings for 2007 are forecast to finish at $1.31, up from $1.06 from 2006. Look for $1.55 in 2008. The company will have a fourth quarter Webcast on February 14. Analysts are looking for 44 cents. Other numbers: Return on Equity was 5.8% in 2006 with anticipation of 6.5% in 2007 and 7.5% in 2008. Market cap is $650 million on 31.204 million shares. There is no dividend. Net profit margin is 3.5%. Debt is 34% of the capital structure. Current assets are 3 times current liabilities. TreeHouse has been buying other companies. The most recent acquisition was the salad-dressing entity E.D. Smith. That was on top of San Antonio Farms and DeGraffenreid. All have been integrated into the parent and should contribute significantly to sales volume. THS's stock price has suffered in the last 6 months, meandering down to a 52 week low of $19.24 a couple of weeks ago. It's been as high as $32.59 on April 24 of last year. It recently bounced off the low.
With a P/E of 14, it seems attractive at this level. But remember commodity costs are the unknown factor in this stock. If they continue to rise and price hikes are needed, no one knows if the customer will switch to another brand when or if that happens. - Company Web site: www.treehousefoods.com - Ted Allrich |
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