TreeHouse Foods (THS) Announces Snacks Division Divestiture

In a bid to optimize its portfolio, TreeHouse Foods, Inc. (NYSE:THS) has inked a deal with Atlas Holdings LLC to divest its snacks unit. The move is considered appropriate as the snacks business has been performing poorly for a while. Let’s take a closer look at this latest development and see how it will impact the company.

Terms of the Deal

The agreement is valued at $90 million and is subject to certain customary closing norms. The transaction is expected to close in the third quarter of 2019. Management stated that proceeds from the sale will be used to lower debt burden. Along with second-quarter earnings release, the company plans to update its guidance for 2019 to reflect the divestiture.

Per the deal, Atlas will acquire three plants of TreeHouse Foods’ snacks business. These plants are located in North Carolina, Texas and Alabama. As disclosed previously, the fourth plant located in Minnesota is expected to close by the end of the third quarter. Accordingly, the deal excludes the operations of the Minnesota plant.

Snacks Unit Sales: A Prudent Move

TreeHouse Foods snacks business has been performing poorly. Sales in the segment plunged 30.4% to $176.3 million in the first quarter of 2019 due to soft volume/mix and unfavorable pricing. Weakness in the unit has exerted pressure on TreeHouse Foods’ division direct operating income (DOI) and gross margin, which declined by $9 million.

Such headwinds have compelled management to consider the divestiture. This is likely to enable the company to focus on other profitable businesses.

Wrapping Up

Apart from weaknesses in the snacks business, the company has been struggling against adverse impacts of SKU rationalization of low-margin businesses and the divestiture of McCann's business. Moreover, unfavorable foreign currency rates have been a drag for this Zacks Rank #4 (Sell) company. These downsides have dented investors’ optimism, which is evident from the stock’s 11.8% decline in the past three months against the industry’s rise of 4.5%

Nevertheless, we expect that the company’s well-chalked efforts to restructure portfolio will enhance efficiency. In this context, we note that the company is progressing well with initiatives such as the Structure to Win program and the TreeHouse 2020 strategic plan.

Apart from these, the company also focuses on boosting offerings through innovations, especially in the organic food category. Such moves are likely to enable the company to revive lost sheen and boost investors’ confidence.

Looking for Consumer Staples Stocks? Check These

McCormick & Company (NYSE:MKC) has long-term earnings per share growth rate of 8% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Campbell Soup (NYSE:CPB) , with a Zacks Rank #2, has long-term earnings growth rate of 5%.

Kimberly-Clark (NYSE:KMB) , with an expected long-term earnings growth rate of 5.2%, also carries a Zacks Rank #2.

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