Here's Why TreeHouse Stock Lost More Than 20% Since Earnings

TreeHouse Foods, Inc. (NYSE:THS) has been displaying disappointing performance lately, owing to unfavorable market conditions, evolving consumer buying pattern and operating inefficiencies. These factors had a negative impact upon the company’s recently reported second-quarter 2017 results on Aug 3, post which share price have declined 21.2%. Moreover, shares of the company have plunged 22.8% in the past six months, wider than the industry’s decline of 8.5%.

Let’s now take a deeper look into the factors that have been hindering TreeHouse Foods’ performance for a while now.

Dismal Second-Quarter Results, Slashed Guidance

Although TreeHouse Foods’ second-quarter earnings surpassed the Zacks Consensus Estimate, the same declined year-over-year owing to unfavorable market conditions and pricing lag from commodity cost increases. Operating inefficiencies related to lower-than-anticipated volumes had also affected the company’s performance during the second quarter.

Sales were hurt due to the divestiture of the SIF (Canned Soup and Infant Feeding) business and currency headwinds. Despite the overall improvement in the U.S. economy, consumer spending continues to remain challenged. Specifically, retail food volumes continue to be weak compared with overall consumer spending. Including the divestiture impact and considering a difficult retail landscape, the company lowered its full-year guidance.

Industry Wide Headwinds Impacting Performance

Of late, the grocery industry has been challenged with stiff competition and an aggressive promotional environment. Moreover, the recent approval of Amazon.com’s (NASDAQ:AMZN) buyout of Whole Foods Market (NASDAQ:WFM) has shaken the industry, as it is expected to change the retail landscape. Additionally, Amazon’s move to lower grocery prices is also expected to aggravate pricing pressure and would further squeeze profit margins of smaller industry players like TreeHouse Foods.

TreeHouse Foods has also been incurring higher operating costs due to increased commodity prices of products like oils, nuts and coffee. Acquisitions and additional investments have also raised the company’s expense structure.

Bottom Line

Although the company has been undertaking cost saving and restructuring efforts as part of its ‘TreeHouse 2020 Initiative’, the same includes offloading low-margin businesses that reduces the company’s sales and productivity volumes. Also these initiatives are yet to bear a significant impact upon its performance. Moreover, unfavorable industry conditions, combined with pricing and volume pressures make us less hopeful regarding TreeHouse Foods’ recovery.

Owing to such factors, the stock currently carries a Zacks Rank #5 (Strong Sell) and is therefore not a safe bet for investors.

Done With TreeHouse Foods? Guard Your Portfolio With These Stocks

Investors may consider better-ranked stocks such as Constellation Brands, Inc. (NYSE:STZ) and Nu Skin Enterprises, Inc. (NYSE:NUS) , both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Constellation Brands delivered an average positive earnings surprise of 11.7% in the trailing four quarters. It has a long-term earnings growth rate of 18.2%.

Nu Skin delivered an average positive earnings surprise of 10.8% in the trailing four quarters. It has a long-term earnings growth rate of 8.7%.

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