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TreeHouse Foods continues to struggle with service levels

Keith Nunes

OAK BROOK, ILL. : Service levels in about half of TreeHouse Foods, Inc.’s product categories remain an issue for the company. The lingering problems in, most notably, cookies, creamers and single-serve beverages, suppressed volume growth and affected fourth-quarter and fiscal 2022 results.

Supply chain and service level challenges were also issues for TreeHouse Foods during its third quarter that ended Sept. 30, 2022.

“We exited 2022 with about 93%, 94% service in the fourth quarter,” said Patrick M. O’Donnell, chief accounting officer, during a Feb. 13 conference call to discuss fiscal 2022 results. “We expect that to continue to move up as we start to do that. We’re still seeing some pockets of labor challenges, a little bit of material availability and some line things, which is why you’re seeing us invest in cap-ex.”

The company plans to spend approximately $130 million on capital expenditures in 2023.

“This year, approximately half of our spending will be focused on growth and supply chain initiatives, in areas such as capacity expansion and innovation capabilities,” Mr. O’Donnell said. “In total, our 2023 spending is anticipated to be at the high end of our long-term range of 3% to 3.5% of sales as we have a number of locations that require upgrades and investments in equipment that will ultimately improve line reliability and efficiency.”

The service level issues are occurring at an inopportune time for the private label manufacturer. Inflation has pushed branded product prices higher, opening the door for TreeHouse Foods to take advantage of more consumers seeking value options.

“… We have a full court press on,” said Steven T. Oakland, president and chief executive officer. “I can tell you that we’re doing everything we can to get ourselves in a position to take advantage of this opportunity.”

The service issues combined with costs related to the divestment of the company’s meal preparation business affected full-year results. For the year ended Dec. 31, 2022, TreeHouse Foods recorded a loss of $146 million, greater than the loss of $12.5 million the year prior.

For continuing operations, the loss was $16.1 million, an improvement over the year before when TreeHouse recorded a loss of $81 million.

Annual sales reached $3.5 billion, up from $3 billion.

Net income from continuing operations during the fourth quarter was $40 million, equal to 71¢ per share on the common stock, and an improvement over the year before when the company incurred a loss of $31 million.

Quarterly sales rose to $996 million from $816 million during the same period in 2021.

“Pricing to recover inflation accelerated further in Q4 and was up 24.6%, reflecting our cumulative efforts to recover inflation,” Mr. O’Donnell said. “Volume and mix declined 2.2% in the quarter.”

In fiscal 2023, TreeHouse Foods is guiding that sales will rise 6% to 8% and will be driven by price increases. The guidance assumes annual volumes will be flat due to supply chain and service level issues.
“By the end of this year, we expect most of our categories to be very close to our target service level of 98%,” Mr. O’Donnell said.

Courtesy: foodbusinessnews