Shares of Treehouse Foods Inc THS reached a 52-week low of $69.53 on May 22 and eventually closed at $70.05. Shares have lost momentum since the company reported weak first quarter 2015 results on May 7.
Sluggish Results
The food manufacturer posted earnings per share of 59 cents in the first quarter of fiscal 2015. Though it beat the Zacks Consensus Estimate by a penny, earnings declined 26.2% from the year-ago level due to profitability decline in single serve hot beverages. The company began production of 2.0 compatible single serve hot beverages at the end of October.
Net sales of $783.1 million lagged the Zacks Consensus Estimate by 8.4%. However, it increased 26.5% year over year, only due to acquisitions (Protenergy Natural Foods and Flagstone Foods). Besides acquisitions, sales were impacted by unfavorable pricing, flat volumes/mix and unfavorable foreign exchange.
Though these acquisitions have the potential to increase sales, they carry lower margins, which impacts gross margins. During the quarter, gross margin decreased 200 basis points to 19.5% due to the impact of lower margin sales from recent acquisitions, a shift in legacy sales mix, reduced pricing, and unfavorable exchange rates. Acquisitions itself lowered margins by 100 basis points.
Reduced Outlook
Due to disappointing first quarter results and the magnitude of the decline in single serve hot beverages, the company has lowered its full year earnings guidance to a range of $3.40-$3.55, as against the previous forecast of $3.80-$3.95.
Treehouse carries a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Some better-ranked stocks in the food industry include B&G Foods, Inc. BGS, Supervalu, Inc. SVU and The J. M. Smucker Co, Inc SJM. All of them carry a Zacks Rank #2 (Buy).
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