- TreeHouse Foods sales hit $996.2 million — an improvement of 22% over the same period last year — primarily due to price increases, according to its most recent earnings report this week. Volume was down 2.2% compared to a year ago.
- Retail demand for private label products has been up for the last 54 consecutive weeks, CEO Steve Oakland said on the earnings call. Oakland and Vice President and Comptroller Patrick O’Donnell both said supply chain challenges constrained the company’s sales. Oakland added that the company may look to M&A to enhance its capacity for future growth.
- As inflation has raged in the last year, many consumers have migrated to private-label options, increasing demand for offerings made by TreeHouse and other private-label manufacturers.
Looking just at TreeHouse Foods’ numbers, the company has done well in the current environment. But execution has been a pervasive problem as the year has gone on.
O’Donnell said on the earnings call that in the last quarter, TreeHouse saw lingering supply chain and service constraints in about half of its categories. In a presentation with the earnings call, the company indicated expenses increased $35 million compared to the prior year due to supply chain issues.
And while it’s been getting better — volumes were down about 4.2% in the prior quarter and operations costs were up $41 million — it’s still not completely recovered. O’Donnell said TreeHouse expects to be back to normal levels of service in all categories by the end of 2023.
To get there, however, about half of all capital expenditures for the year are anticipated to go toward straightening out supply chain issues, O’Donnell said. These mainly include changes to physical plants — repairs and maintenance, as well as upgrading some equipment to be more reliable — and working on labor issues in some areas.
But acquisitions in tandem with improving the existing supply also could help. In response to a question, Oakland said more manufacturing capacity is what the company is eyeing most closely when it comes to M&A.
“I think acquisition for us would be capability driven, not necessarily new businesses, not adjacencies, those things that we've done in the past,” Oakland said. “It would all be about — we think we're in a great group of categories. We just need to be able to sell more, the demand is there.”
Manufacturing assets have not always been such an important M&A target, but as challenges in the pandemic era have put a squeeze on costs, supplies and labor, they have become invaluable. Many companies are looking to buy manufacturing facilities to add to their capacity, since building them new can be expensive and take years.
With the large numbers of food companies looking for the same thing, however, there may not be many available. Oakland wouldn’t give any details of what he is looking for, but said he didn’t think any acquisitions “would be huge.” However, he said, there may be some opportunities.
Considering that inflation doesn’t seem to be letting up quickly — TreeHouse said it plans more pricing increases this year, with net sales growth of 6% to 8% driven by pricing — private label is likely to continue to be a go-to for consumers. The more TreeHouse can meet demand, the better it can perform.