Dive Brief:
- TreeHouse Foods is buying a majority stake in U.S. branded pasta maker Riviana Foods for $242.5 million, the company announced. Riviana is a subsidiary of Spanish food giant Ebro Foods.
- Riviana, which had sales of about $200 million in the 12 months ending June 30, has several well-known regional pasta brands. TreeHouse is buying brands including Prince, Creamette, American Beauty, No Yolks and San Giorgio, as well as a St. Louis manufacturing facility that employs about 90 people. The acquisition does not include the Ronzoni brand or factories in Winchester, Virginia, or Fresno, California.
- This is the first acquisition for the private label manufacturer in a while, following years of cost-cutting, office closures, divestments and restructuring in order to better focus its business. Last year, TreeHouse sold its snacks division and came to an agreement to sell its ready-to-eat cereal business. The cereal divestment ultimately was halted by antitrust concerns from the U.S. Federal Trade Commission, but the company has said it is still looking to sell.
Dive Insight:
Following years of poor returns, a big acquisition like this may be showing that good times are coming back for the nation's largest private label manufacturer.
At the very least, it's a significant shift in the business activities of TreeHouse, which is the product of more than 40 mergers. For years, a web of different managers for different segments and a lack of a unified strategy hampered the company from taking advantage of the opportunities in private label, CEO Steve Oakland said in a 2019 interview. Oakland, who took the helm of the company in 2018, has concentrated on streamlining the business, divesting segments that were a drag on earnings, and closing offices and facilities to cut costs.
As the company reorganized earlier this year into two divisions — snacking and beverages and meal preparation — Oakland touted that it would help the company better hone operations to respond to how consumers are buying food. The meal preparation segment, which is where the Riviana brands would fit in, focuses on productivity, efficiency and cash flow, the company said at the time.
In a press release and on the call with investors following Thursday morning's earnings report release, Oakland said the Riviana acquisition was beneficial to the company and fit well with its long-term strategy. TreeHouse already has a significant private label pasta business.
"Our existing private label and regional brand pasta business will be a natural complement to the acquired brands and will enable us to further optimize our production network, improve capacity utilization and deliver greater profitability and free cash flow," he said in the release.
These regional brands will, for the most part, be manufactured in TreeHouse's existing factories, which is why only one factory is included in the transaction, Oakland said on the call. And while consumers are buying more pasta during the pandemic, he said the company is confident the acquisition will quickly deliver positive results that will remain steady when consumer patterns change.
Pasta is a growing segment worldwide. According to statistics from the International Pasta Organization, nine out of 10 people in the U.S. eats pasta, and pasta consumption has increased 40%.
TreeHouse has been seeing its business boom as a recession hits the U.S. economy. Cost-conscious consumers are reaching more for private label brands, which saw a 34% growth spike during the pandemic, according to Daymon. The company's financial figures are also getting better. While its $1.05 billion in sales for the most recent quarter showed a 1.1% decrease compared to the same time last year, the numbers were impacted by lower demand for the company's out-of-home food items and the sale of two in-store bakery facilities earlier in the year. The company exceeded expectations in metrics including earnings per share and EBITDA.
Oakland stressed in the investors' call that the Riviana purchase was strategic, not opportunistic, even though consumers are loading their pantries with dry pasta during the pandemic. If TreeHouse is ready to strategically grow its business, it means the days of fixing old problems are coming to a close, and days of increases in sales and earnings could be coming.