THS Q1 Earnings Call: Margin Initiatives Offset Volume Declines as TreeHouse Foods Reconfirms 2025 Guidance

Private label food company TreeHouse Foods (NYSE:THS) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 3.6% year on year to $792 million. The company expects next quarter’s revenue to be around $792.5 million, coming in 0.5% above analysts’ estimates. Its non-GAAP profit of $0.03 per share was significantly above analysts’ consensus estimates.

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StockStory’s Take

TreeHouse Foods’ results for the first quarter reflected the impact of planned margin improvement initiatives and operational shifts, as the company continued to navigate a more challenging consumer environment and category headwinds. CEO Steve Oakland explained that volume declines were a byproduct of deliberate decisions to prioritize margin over low-return business, with the company focusing on capacity allocation and streamlining product assortment to optimize profitability. Oakland cited progress in supply chain initiatives and cost management, including consolidating operating divisions and closing underutilized facilities, as key to driving better margins.

Looking ahead, management reiterated its full-year guidance and outlined cautious assumptions for the rest of the year, citing persistent consumer pressure and uncertain economic conditions. Oakland stated, “We’ve just taken a really conservative stance in our sales guidance,” and noted that any further consumer shift to private label would be incremental upside. The company expects margin management efforts, recovery at its frozen griddle facility, and continued supply chain savings to underpin profit and cash flow improvement for the balance of the year.

Key Insights from Management’s Remarks

TreeHouse Foods’ management centered its Q1 discussion on margin management actions, operational streamlining, and category dynamics that influenced recent performance. Management attributed EBITDA gains to improved product mix, supply chain efficiency, and deliberate volume trade-offs to enhance profitability.

• Margin Management Focus: Leadership emphasized deliberate decisions to exit lower-margin or complex product lines, allowing the company to better utilize plant capacity and focus on core, higher-margin items. This strategy was highlighted as a primary driver for improved profitability, despite lower volumes.
• Supply Chain Optimization: TreeHouse Foods reported progress in supply chain cost savings and operational improvements, including the ramp-up of its Brantford frozen griddle facility, which is expected to positively impact results in the second half of the year.
• Private Brand Industry Trends: Management noted that private brands continued to gain share from national brands, benefiting from consumer value-seeking behavior and favorable price gaps, even as overall category consumption remained subdued.
• Product Mix Adjustments: The company continued to prioritize product mix and margin over volume, with exits from certain seasonal and ready-to-drink categories, and a focus on more efficient production of core items like cookies and beverages.
• Cost Structure Restructuring: Actions included reducing management layers, consolidating operating divisions, and closing the New-Hampton non-dairy creamer facility. These steps are aimed at building a leaner organization and freeing capital for higher-margin growth opportunities.

Drivers of Future Performance

TreeHouse Foods’ management is prioritizing profitability, margin enhancement, and operational discipline as the main themes shaping guidance for the upcoming quarters and the full year.

• Sustained Margin Management: The company’s ongoing strategy to exit unprofitable business and focus on higher-margin categories is expected to support adjusted EBITDA margin expansion and more stable cash flow.
• Recovery at Key Facilities: The operational restoration of the frozen griddle facility, with full pipeline replenishment expected later in the year, is anticipated to drive volume recovery and improve the sales mix in the second half.
• Consumer Behavior Uncertainty: Management highlighted persistent consumer caution and macroeconomic pressures as risks, but noted that any acceleration in private label adoption could provide upside to current conservative guidance assumptions.

Top Analyst Questions

• Jon Andersen (William Blair): Asked about consumption trends and whether private label could benefit further from consumer pressure. Management replied that their guidance assumes no incremental trend, so any positive shift to private label would be upside.
• Jon Andersen (William Blair) (follow-up): Queried if the 3% margin management headwind in Q1 would persist. Management said full-year organic volume is expected to decline about 1%, with exits and recalls offset by the Harris Tea acquisition.
• Jim Salera (Stephens, Inc.): Inquired about TreeHouse’s decisions not to pursue certain business and whether these products are lost to competitors. Steve Oakland explained that some specialty items may go to smaller vendors, but the focus is on aligning strengths with customer needs.
• Scott Marks (Jefferies): Sought clarification on Q2 and full-year organic volume improvement despite Q1 declines. Management pointed to normal seasonality and recovery at the griddle plant as drivers for a stronger second half.
• William Reuter (Bank of America): Asked about progress rebuilding the griddle pipeline and leverage targets. Management indicated all lines are running, pipeline fill will take a few months, and no change to leverage targets is planned.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will closely monitor (1) the pace of volume recovery as the frozen griddle facility resumes normalized production, (2) the impact of further margin management actions on sales mix and profitability, and (3) the progression of supply chain savings and cost structure initiatives. We also see upside potential if consumer demand for private label accelerates beyond management’s current conservative assumptions.

TreeHouse Foods currently trades at a forward P/E ratio of 12×. Is the company at an inflection point that warrants a buy or sell? See for yourself in our free research report.

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