TreeHouse Foods plans to close its pretzel and cereal snack mix plant in Visalia, California, by the end of the first quarter of 2019, affecting 294 employees. Production will be transferred to other plants, the company said in a release. The closure will cost an estimated $21 million.
TreeHouse announced two weeks ago it would close a ready-to-eat cereal plant with 84 employees in Battle Creek, Michigan, and move production to its other cereal manufacturing facilities. This followed an announcement last summer when the company said it would shut down plants in Brooklyn Park, Minnesota, and Plymouth, Indiana, as part of a multi-year restructuring program. Those two closures were expected to idle 375 employees.
- The Illinois-based CPG manufacturer posted net sales for the fourth quarter of 2017 totaling $1.7 billion, a drop of 4.3% compared to $1.8 billion for the same period last year. Sam Reed, chairman, CEO and president, called the operational results "disappointing" even though he noted earnings were in line with expectations. "We are well positioned within the private label marketplace; however, it is imperative that we build a more effective and efficient foundation for private label customer engagement," Reed said in a statement.
Reed noted that 2018 will be "a transition year" for TreeHouse, which had a rough 2017 with the abrupt departure of former Chairman Robert Aiken in late October after joining the company in July. TreeHouse also lowered its guidance at least twice last year.
"Although the retail grocery landscape continues to evolve, private label absolutely continues to be the right place to be within food and beverage," Reed said this week. "It will take some time for our TreeHouse 2020 initiatives to manifest themselves in our results. However, we are well on our way to simplifying, reshaping, and optimizing our manufacturing and distribution footprint so that we can be a more efficient and effective operating company going forward."
Asking investors to be patient isn't the most palatable message, but that's basically what TreeHouse is saying. The trouble is the company has been saying that for a while now as sales drop, yet the private-label sector, where TreeHouse should be excelling, remains strong amid growing consumer acceptance of these products once seen as inferior to rival name brands. It's uncertain why TreeHouse is having problems, but the company appears to be taking the right steps to bring its operations more in line with demand for its products.
In its latest earnings report Thursday, TreeHouse noted unfavorable pricing pressure due to competition in its baked goods, beverage segments, RTE cereal and meals segments, as well as increasing costs for certain commodities such as cashews, almonds, durum, dairy and soybean oil. Inflating freight costs also continue to be an issue.
Reflecting these continuing problems, the company's share price has plummeted to about $37.50 — the lowest level it's seen in more than five years. At this point, TreeHouse's stock is down 58% from its 52-week high.
Meanwhile, TreeHouse lowered net sales expectations for 2018 to about $5.9 billion to $6.1 billion from approximately $6.3 billion in 2017. The company also anticipates 2018 earnings per fully diluted share between $2 and $2.40 due to volatile commodity pricing and persistent growth-limiting conditions.
The obvious question is why the company is struggling when the demand for both private-label products and some of its clean-label items is increasing. Snacks, along with condiments, were the only two of its five segments that showed sales increases during the fourth quarter. Could the answer lie with inept management, lackluster sales and marketing, inadequate forecasting and planning, plant inefficiency, or some combination of those?
A few clues were found in an earnings call transcript and slide presentation posted by Seeking Alpha in which company executives pinpointed areas where they plan to concentrate on improving performance this year. These include focusing on large and growing customers, using analytics to improve pricing and margin, centralizing sales and order planning, and generally standardizing operating procedures. TreeHouse also is searching for a new CEO.
Reed said on the earnings call that a new TreeHouse will begin to emerge during the coming year resulting from the changes taking place now. "In its essence, this program demands a return to private label fundamentals, which will return TreeHouse to progress, productivity and prosperity as we transition from the past to the future," he said.
TreeHouse has a long road ahead to get on more solid footing. Closing facilities and cutting jobs will only go so far before customers, and even more investors, lose confidence in its ability to deliver.
The current leadership seems aware of what needs to be done, but whether it will be able to do it with a new CEO and different approaches remains to be seen. The next few quarters should fill in the picture and make the company's direction much clearer than it is right now.