Title

Presentation

TreeHouse Foods, Inc. beats earnings expectations. Reported EPS is $0.03, expectations were $-0.21.

Operator: Welcome to the TreeHouse Foods’ First Quarter 2025 Conference Call. All participants are in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this call is being recorded. At this time, I would like to turn the call over to TreeHouse Foods for the reading of the Safe Harbor statements.

Matt Siler: Good morning and thank you for joining us today. Earlier this morning, we issued our first quarter earnings release and posted our earnings deck. These items are available within the Investor Relations’ section of our website at treehousefoods.com. Before we begin, I would like to advise you that all forward-looking statements made on today’s call are intended to fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward-looking statements. Information concerning those risks is contained in the company’s filings with the SEC.

A reconciliation of non-GAAP measures to their most direct comparable GAAP measures can be found in the release and in appendix tables of today’s earnings deck. With that, let me now turn the call over to our Chairman, CEO and President, Mr. Steve Oakland.

Steven Oakland: Thank you, Matt and good morning everyone. Today, Pat and I will discuss our first quarter financial results and provide an update on our operations and our outlook for the remainder of the year. Our results are outlined on Slide 4. I’m pleased to report we achieved adjusted net sales within our guidance range, and adjusted EBITDA, it came in above the upper end of our guidance range. Note that adjusted EBITDA saw a benefit of approximately $6 million of planned expenses that shifted from the first quarter to the second quarter. Despite this shift, the company was well above the upper end of our range, reflecting early returns on the execution of the margin improvement plan we previously discussed with you. While we are in the early stages, we are confident that the plan will meaningfully benefit results in the current year and beyond.

The operating environment is clearly much more dynamic than we or anyone anticipated when we last spoke in February, but we are focused on controlling what we can control and executing against our plans to drive profits and cash flow regardless of the economic environment. Pat will provide more detail on these results later. Next, a few operational updates. First, the team at our Brantford, Ontario, frozen griddle facility is making great progress. As of today, all of our lines are running, and we are in the process of filling the customer pipeline. We are on plan to have this business in place to positively impact the second half of the year. Second, some comments regarding public policy changes, the tariffs and food ingredients. As for tariffs, our manufacturing footprint consists of 22 plants in the United States and five in Canada.

All of the products made in Canada that are shipped into the United States do so duty-free as they qualify for the USMC agreement. That said, we do ship a limited subset of finished goods into Canada that are subject to tariffs. And we buy some raw materials and packaging from international sources. To mitigate this, we are executing alternative sourcing strategies or pricing to address these costs. With respect to the public policy changes regarding food ingredients, we have been working on reformulation for some time and in some cases, are already meeting the future standards. We do applaud the efforts of the FDA to establish one national standard. Shifting gears, let’s take a closer look at the consumer trends we experienced during the first quarter in the categories in which we operate, which are detailed on Slide 5.

For context, the Easter holiday was later this year and negatively impacted the March trends, which were the weakest in the period. Private brand unit sales were slightly negative in the quarter, which came in as a result of continued pressure on the consumer that impacted the broader market in addition to the Easter shift. We have seen the categories bounce back somewhat in April. This progression unfolded largely as we expected. At a macro level, private brand industry dynamics remained favorable related to national brands. As you can see on Slide 6, specifically, price gaps are healthy and private brands continue to take share in this lower consumption environment. As it relates to promotion levels, what we’ve experienced thus far in 2025 is similar to what we experienced a year ago.

As you can see on Slide 7, private brands have been consistently gaining share over the last two decades, which we believe will continue over the long-term, TreeHouse remains attractively positioned at the intersection of two incredibly powerful long-term trends, the growth of private brand groceries in North America and the consumer shift towards snacking. Continuing with the discussion of the long-term opportunity on Slide 8, it’s clear that many grocery retailers also see further runway for growth in private brands and are making their own strategic investments accordingly. ALDI continues its store base expansion across the U.S. with an assortment that is focused almost exclusively on private brands. Walmart recently launched bettergoods, a private brand, which makes quality, trend-forward and chef-inspired food approachable and affordable.

These are just two of many examples that underscore the opportunity available to TreeHouse to partner with our retail customers, gain share, and create value over the long-term. I will conclude by providing some additional perspective on how we are managing the business in the near term to align with the realities of a slower category growth environment. We will continue to focus on the performance of our supply chain and our cost structure. While we’ve made significant progress in both of these areas, we still have opportunities to impact our results in both 2025 and beyond. The foundation we’ve built with our supply chain initiatives remain strong and we are focused on executing what you see outlined on Slide 9. We have visibility to delivering our commitment of $250 million of gross supply chain savings through 2027, with significant recent success across procurement as an example.

In this economic environment, we think it is prudent to focus on profitability and cash flow. We continue to strengthen our margin management function, allowing us to enhance our profitability by allocating our capacity to the most attractive mix of businesses that drives profitability for both TreeHouse and our customers. This quarter’s results are an example of making deliberate choices on bidding or not bidding on pieces of business that do not meet our margin hurdles. While this is impacting volumes, it is aligned with our strategy to focus on margin and cash flow, and the impact can be seen in our strong adjusted EBITDA. Finally, we are also focused on our cost structure and have undertaken some longer-tail projects on this front. Consistent with a low growth environment, we made some appropriate decisions to streamline our cost structure.

We reduced some layers of management as well as consolidated our operating divisions to empower our organization to make faster decisions and to better serve the complex needs of our customers. We are focused on running a lean organization and driving synergies through a broader utilization of shared services. We also have an opportunity to optimize our plants and their capacity. An example of this is our choice to close our New-Hampton facility, which produces non-dairy creamer. In most of our categories, we have multiple production locations, which allows us to move production to gain efficiency depending on the needs of the business. I believe these types of strategic decisions improve our competitive positioning and also allow us to be more flexible with capital, focusing on our investments in areas that will provide better margin profiles, and growth potential, all in an effort to drive improved profit and cash flow.

I will now turn the call over to Pat for further detail on our first quarter results and our outlook. Pat?

Patrick O’Donnell: Thanks Steve and good morning everyone. I’d like to start by thanking the team for their commitment to execution this quarter. You can see a summary of our first quarter results on Slide 10. Our adjusted net sales were down approximately 3% year-over-year. We delivered strong adjusted EBITDA of $57.5 million, which was up 25% year-over-year. Our adjusted EBITDA margin was 7.2%, which was up 160 basis points compared to last year. On Slide 11, we have provided further detail on the drivers of our year-over-year adjusted net sales. The decline in volume and mix reflects planned margin management actions, service impacts due to the restoration of our griddle facility and some slower takeaway later in the quarter.

Our acquisition of Harris Tea was a benefit of almost 5% and was in line with our expectations. Pricing was a benefit of approximately 1% due to commodity-related pricing adjustments, primarily in our coffee business. Additionally, net sales were negatively impacted by the direct griddle recall-related returns, our ready-to-drink business exit and a modest foreign exchange drag, which in total resulted in a decline of approximately 1%. Moving on to Slide 12. I’ll take you through our adjusted EBITDA drivers. Volume and mix, including absorption were up a combined $2.2 million, driven by better product mix in the quarter, some of which was driven by Harris Tea margin and our margin management actions. PNOC, pricing net of commodities, was up $1.3 million year-over-year and was driven by pricing to recover commodity inflation.

Operations and supply chain delivered an $8 million benefit versus the prior year, driven by supply chain cost savings as well as improved service. Lastly, SG&A and other had no significant impact in the period versus the prior year. As mentioned earlier, operations, SG&A and other, each saw a partial benefit due to the $6 million timing shift of expense from Q1 into Q2. Moving on to our capital allocation strategy, which is outlined on Slide 13. The Board and management continue to be focused on deploying capital in a manner that enhances returns for shareholders. Our first priority remains investing in our business, which we do organically through CapEx and inorganically by strategically adding depth and capabilities as we did with our recent acquisition of Harris Tea.

We will maintain our balance sheet, which currently involves building cash throughout the year to drive our net debt to adjusted EBITDA ratio closer to our desired range. We will continue to be disciplined and look at all capital deployment decisions by evaluating risk-adjusted returns. Moving to our outlook on Slide 14. We are reiterating our full year adjusted net sales of negative 1% to growth of 1% year-over-year or $3.34 billion to $3.4 billion. Company volume and mix are expected to decline approximately 1% year-over-year, driven by an expected 1% decline in organic volume and mix. The Harris Tea volume benefit is expected to be offset by our previously announced decision to exit the ready-to-drink business and other margin management actions, along with the impact of the griddle recall.

We expect that commodity-related pricing will be an approximately 1% benefit in 2025. We are reiterating our adjusted EBITDA guidance range of $345 million to $375 million. We are also reiterating our free cash flow expectations of at least $130 million. Our guidance for net interest expense remains $80 million to $90 million, and capital expenditures of approximately $125 million remain unchanged. Based on the current environment, our guidance contemplates what is in place as it relates to tariff policies as of today. With that said, we will continue to monitor and evaluate any potential additional impacts as new information becomes known. As it relates to the second quarter, we expect adjusted net sales to be in the range of $785 million to $800 million, representing approximately flat growth at the midpoint.

Organic volume and mix are expected to decline mid-single-digits driven primarily by continued margin management actions and the griddle product recall. Pricing is expected to provide an approximately 1% benefit. Our second quarter adjusted EBITDA is expected to be in the range of $61 million to $71 million, which reflects the shift of $6 million of expenses from Q1 to Q2. In the first half of the year, in terms of both adjusted net sales and adjusted EBITDA continues to trend in line with our expectations. With that, I’ll turn it back over to Steve for closing remarks. Steve?

Steven Oakland: Thanks, Pat. As we continue to navigate this backdrop in 2025, we are focused on further strengthening the foundation of our supply chain, margin management initiatives, restoring production levels in key categories and pursuing profitable new business opportunities. With that, I’ll turn the call over to the operator to open the line for your questions.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Jon Andersen with William Blair. Your line is now open.

Steven Oakland: Morning Jon, are you on mute?

Jon Andersen: I’m sorry, can you hear me?

Steven Oakland: Got you Jon, thank you. Good morning.

Jon Andersen: Great. Good morning. Apologize for that. Wanted to ask you about the kind of the macro uncertainty that we’re experiencing and how that’s being expressed in maybe consumer demand, particularly for private label. You noted on Slide 5 that March was kind of a trough in unit trends in your categories with some recovery in April. How are you thinking about kind of the consumption trends as you move forward from here, is private label positioned to perhaps benefit from some of those additional external pressure that the consumer may be feeling? And what are your kind of assumptions related to that as they incorporate it into the full year outlook?

Steven Oakland: Sure Jon. Yes. Well, first of all, let me remind you. Look, we guided zero trend in our number, right? So, any trend that would happen or any more shift to private label would be upside in our number. We do see an environment where the consumer is searching for value and private label when it comes to quality assortment and price gap are probably the best they’ve ever been. So, if that trend comes our way, it’s going to be upside. But we’ve just taken a really conservative stance in our sales guidance, and we feel very comfortable with what we see in front of us and the order pattern that we see that we can deliver that. But we wouldn’t be surprised if we saw some upside there.

Jon Andersen: Great. Can I do a quick follow-up? The margin management activity, I think, was about a 3% headwind in the first quarter. Is that the kind of the level that we should expect through the balance of the year? Thanks for that.

Patrick O’Donnell: Yes, I’d say, Jon, on the full year, there’s probably just a little bit of timing of when we exited some of that. I think for the full year, we still see organic volume and mix down about 1%. We see the benefit of Harris Tea being offset by some of those margin management actions as well as the ready-to-drink business exit and the griddle recall. And then pricing, you’ll see probably about a 1% pickup is how we think about the top line number.

Steven Oakland: Yes. And Jon, I would just say that when we made that pivot, really, we knew about it in the fourth quarter of last year. So, we wanted to get on that quickly to get the full year benefit of some of those exits. And so that’s what you see early in the year.

Jon Andersen: Makes sense. Thanks so much.

Operator: Thank you. The next question comes from the line of Jim Salera with Stephens, Inc. Your line is now open.

Jim Salera: Hey Steve, hey Pat, thanks for taking our question.

Steven Oakland: Hey Jim.

Jim Salera: I wanted to actually ask a little bit about some of the bids you guys are talking about and the decisions to not pursue business that doesn’t meet certain margin targets. Have you found that as retailers are trying to maybe mitigate some potential tariff impacts that they’re being more aggressive in the numbers that they’re putting out and what they expect private label suppliers to bid on?

Steven Oakland: I would say it really isn’t that. Let me give an example maybe. I’ll take a really simple one, sandwich cream cookies, okay? That’s a business that — it’s a great category. Private label has a small share but it’s one that capacity is really tight, okay? So, at the end of last year, we exited some really complex seasonal things, assortment that we had with key customers. That has allowed us to run our plants much more efficiently and literally take the whole category of allocation. So, what we’ve done is we’ve narrowed our mix. We’ve exited some, what I would call, great products but really complex and difficult to make. And that has allowed us to unleash a lot more capacity and fill those customers’ demand on our core items, the chocolate and vanilla sandwich cream cookie, right?

So, I think in some cases, it’s been literally that simple. In categories where capacity is really tight, let’s streamline the assortment, let’s pick those right places where we can serve the customer and where we can run our plants incredibly efficiently. So, I would say it’s less the customer pushing us for price and more us just trying to get our absolute capacity aligned with the opportunity to serve the customer the best.

Jim Salera: Got it. And you kind of answered the question, but maybe just to put a finer point on that. So, in these instances where you opt not to pursue certain business, it’s usually the case that, that just gets removed from the assortment, not that it goes to a competitor? Is that a fair way to frame it?

Steven Oakland: Those seasonals may go to a smaller competitor, quite frankly. I think it’s more about us being much more disciplined on aligning what we do really well with what the customer needs and maybe not trying to do everything for them. Sometimes when we try to do everything, we end up just being inefficient and that impact rolls down the hill in our facilities. So, I think it’s really about us aligning what we do best with what they need. And boy, they appreciate it, right? They appreciate the fact that we can take those other categories off allocation. We can fill their needs in full. So, I think it’s a great relationship with the customer. And in some cases, a smaller vendor may get that specialty item, and that’s great. I think that’s fine.

Jim Salera: Okay, appreciate the color.

Operator: Thank you. Our next question comes from the line of Scott Marks with Jefferies. Your line is now open.

Scott Marks: Hey, good morning guys. Thanks so much for taking our questions. What I wanted to ask about is, we’ve heard from a number of branded peers around the food space have had some pressure on the snacking categories that was notable in Q1. Just wondering if you can kind of share some of your thoughts around that and what you’re seeing?

Patrick O’Donnell: Yes, I think we’ve seen a little bit. I think some of our beverage categories, I think we’ve seen do really well. I think some of our snacking categories in the first half of last year had some really good quarters. And so you’re having some tough comparisons early on in the year. So, we still see those as good categories for the consumer. But obviously, not where they were last year when you’re lapping some of those tougher comparison. So it still seems to us and the data we’ve looked at that consumers are snacking and it’s just a question of what categories they’ve been in here.

Scott Marks: Got it. And then if I heard you correct, you were talking about organic vol mix for the year down about 1%, which I believe implies a pretty material improvement in H2 given Q1 results and the guide for kind of down mid-single-digit in Q2. So, just wondering if you can kind of share maybe some thoughts around what gives you that conviction for the back half of the year.

Patrick O’Donnell: Yes. And I would look at that as sort of net after a couple of things, right? So I would say the organic vol makes about 1% is net of Harris Tea. And then Harris Tea is offset a bit by some of the margin management actions, the ready-to-drink business exit and then the frozen griddle recall. We do expect some acceleration in the back half of the year. Some of that is just normal seasonality for us, and some of it is the recovery of the griddle plant that we have been restoring over the first half of the year. So, that’s how we think a little bit about the complexion of net sales.

Steven Oakland: Yes. Griddle will be a nice positive lap in the fourth quarter.

Scott Marks: Understood. Thanks so much. I’ll pass it on.

Operator: Thank you. [Operator Instructions] The next question comes from the line of William Reuter with Bank of America. Your line is now open.

William Reuter: Good morning. My first question on the resale of your griddle pipeline. How has that gone so far? Kind of where are you at with regard to capacity utilization versus prior to having the recall?

Steven Oakland: Sure. I give that team a lot of credit. We’re up and running. We’re running all of our lines. It will take us a few months to get the customer pipeline and all the inventories filled back up. That’s why we say it will probably — the benefit of that will come in the back half of the year, not the front half of the year. But we’re in good shape. So, I would look at the broth recall as an example. The broth recall today, we have a larger broth business than we did before that incident happened. And that’s because we work closely with the customer and they have confidence in what we’ve done and the value of that capacity, quite frankly. And I think it’s a bit early to claim victory on the waffle one, but we see very similar trends happening with waffles.

William Reuter: Got it. That’s helpful. And then when you were discussing capital allocation, you talked about trying to move closer to your leverage goals. I think your target is 3 to 3.5 times, and you’re only very slightly above that. Did that indicate that there — kind of — are you focusing on a lower target than you previously had? Do you want to be at the low end of the range? And I guess, how does that impact your interest in share repurchases this year?

Patrick O’Donnell: Yes. No, I don’t think we’re changing the target. So we still want to be in that 3 times to 3.5 times range. To your point, we are just above that in the first quarter and likely will be for a couple of quarters while we rebuild our cash position. So, I think the way to think about that is we’ll rebuild that cash position and as we get into the second half of the year and maybe the fourth quarter in particular, we’ll reevaluate what options make sense at that point. So, I would say you’ll see us just think about it that way over the next couple of quarters.

William Reuter: Great. That’s all from me. Thank you.

Operator: Thank you. At this time, there are no further questions. So, that concludes our question-and-answer session. So, I’d like to now turn the conference back over to Mr. Oakland for closing remarks.

Steven Oakland: Sure. I’d just like to thank everyone for being with us today. I know it’s a busy day for you all as well as for us. So, we’ll look forward to being together with you shortly. Have a great day.

Operator: Thank you. This concludes today’s conference call. You may now —