Struggling during the third quarter of fiscal 2016, Treehouse Foods, Oak Brook, Ill., is reorganizing in efforts to better serve the market for private brands. Treehouse now has a five-division structure – Baked Goods, Beverages, Condiments, Meals and Snacks. The changes position the operating companies into a single, customer-facing approach and will realign sales teams from their present sales channel orientation to a product category basis, according to the company.
TreeHouse cut its profit forecast, and said it will also reorganize its executive staff, close a manufacturing plant and scale back operations at a cereal plant in Battle Creek, Mich., to cope with disappointing sales. Entering 2017, year two of the company's transformation, its long-term strategy, business plans, functional initiatives and financial targets have been formulated to make good on its commitments, says Sam K. Reed, chairman and CEO.
"Following a third quarter where we fell short on both internal and external expectations, we accomplished a great deal in the fourth quarter, and are pleased with where we finished the year," Reed said.
The company delivered volume growth in its base business, he said, with North American retail grocery sales volume/mix up 2.9 percent in the fourth quarter. "Our integration of private brands is progressing well and according to our plan," Reed added. "In fact, private brands' gross margin improved to its highest level since we closed the transaction last February."
Net sales for the fourth quarter totaled $1,776.7 million, compared to $865.4 million in 2016, an increase of 105.3 percent, due to the inclusion of business from the purchase of the private brands operations of ConAgra Foods, Inc. and favorable volume/mix, primarily in the North American Retail Grocery segment, partially offset by lower pricing.
Compared to the fourth quarter of last year, sales for the North American retail grocery segment increased 123.3 percent; sales for the food away from home segment increased 69.5 percent and sales for the industrial and export segment increased 22.8 percent. But profit margins were down, and selling and administrative costs were up, he stated, while fourth-quarter sales also are expected to show a year-over-year decline.
With the purchase of ConAgra's private brands business, TreeHouse became the country’s largest maker of private-label food -- products like cereal, snacks and cookies -- sold under a grocery retailer’s own brand name. While its legacy business is performing well, Reed said the business acquired from ConAgra fell short of expectations. On top of addressing the earnings shortfall, the company also announced Chris Sliva, who took over as president earlier this year, was leaving to pursue another opportunity. Sliva will be preceded by Dennis Riordan, chief financial officer, who will remain as president during the search for a replacement.
Though 2016 was a volatile year, the company is confident its long-term plans for the business are intact, including its original expectations for growth in 2017 and 2018 from the [ConAgra] private brands acquisition. Profits should continue to improve as Treehouse continues integrating the ConAgra business.
