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TreeHouse Foods' earnings boosted by acquisition

by Fui Tsikata
Nov 04, 2008


TREHS3Q

TreeHouse Foods Inc.’s profits rose 5 percent in the third quarter after recent acquisitions fueled an increase in sales across all segments of the company.

The Westchester, Il., private-label food manufacturer’s profit rose to $11.1 million, or 35 cents per diluted share, in the period ended Sept. 30, up from $10.6 million, or 34 cents, in the year-ago period.

Currency fluctuations relating to a loan between TreeHouse and its Canadian subsidiary E.D. Smith cost the company 3 cents per diluted share. The closure of a pickle plant in Oregon and the 2007 acquisition of jam and marmalade manufacturer E. D. Smith generated another 3 cents per diluted share in costs.

Without the extra costs, the company’s profits would have been 41 cents per diluted share, beating analysts’ consensus estimate of 40 cents per diluted share, according to Zacks Investment Research.

Revenue rose by 38 percent to $374 million from $272 million.

While the company posted overall strong gains, most of the increase in revenue was a direct result of the acquisition of E.D. Smith. With the acquisition, grocery operations increased sales by 52 percent. Excluding the acquisition, revenues rose 3.3 percent..

“These results speak not only of our financial discipline during turbulent times but also our dedication to a superior go-to market strategy that is right for these times,” said President David Vermylen in a conference call with analysts.

Some analysts disagreed with the company’s assessment of its performance .

“This was a less than stellar quarter for TreeHouse Foods,” said Jonathan Feeney of Wachovia Capital Markets LLC in a research note. Feeney was disappointed that most of the sales growth was due to its recent acquisitions and not to improved sales from its existing business.

But William Chappell of SunTrust Robinson Humphrey Inc. said in his research notes that TreeHouse’s third quarter results were “solid” in part because “consumers increasingly traded down to private label products.”

Chief Financial Officer Dennis Riordan said, “In regard to the balance of the year outlook, we are now in the key soup and non-dairy creamer shipping season, and will see seasonal growth in our top line in the fourth quarter.”

The company estimates current quarter earnings to be between 48 cents per diluted share and 50 cents per diluted share.

Analysts expect earnings of 52 cents per diluted share for the current quarter compared to a 46 cent per diluted share profit in the comparable period last year, according to Zacks.

For the nine months, TreeHouse posted profits of $21.4 million, or 68 cents per diluted share, down 22 percent from $27.3 million, or 87 cents, in the comparable period a year ago.

The company had revenues of $1.1 billion, up 40 percent from $787 million for the nine months.

The stock closed at $28.86, down $1.94 or 6.3 percent.