TreeHouse Foods' Integration Of Acquisitions Remains On Track

BMO reiterated its Market Perform rating on TreeHouse Foods Inc. THS, saying that the integration of the recently acquired Private Brands business remains on track.

The quarterly results also showed the margin improvement in Private Brands, and further sales and share recovery in single serve coffee. But, investors are concerned with the volume growth in Private Brands and the untimely departure of CFO and Private Brands' interim president Dennis Riordan.

"While we agree that CFO Riordan's unexpected and untimely departure raises some questions, we believe that his willingness to stay 'as long as needed' and THS's deep, talented management bench reduces the likelihood of a material lapse in timing and extent of sales and margin recovery in the Private Brands' business," analyst Amit Sharma wrote in a note.

Related Link: TreeHouse Foods CFO Dennis Riordan To Retire

The analyst noted that the 270 basis points improvement in Private Brands' gross margins indicates a solid start to its sales/margin recovery. However, the 3.6 drop in Private Brands' volumes and ongoing challenging operating environment in the U.S. packaged food segment prevents the analyst in modeling a straight-line recovery in Private Brands' operations.

On the earnings front, TreeHouse reported second-quarter adjusted EPS of $0.54, $0.05 below BMO estimate due to lower-than-expected sales, primarily in the Private Brands segment.

The company reaffirmed its 2016 adjusted EPS guidance of $3.00–$3.10, including $0.75–$0.80 in the third quarter. Full-year consolidated sales are expected to be $6.3 billion (vs. previous guidance of $6.3 billion–$6.5 billion).

Sharma raised his EPS forecast for 2016 by $0.01 to $3.08 and 2017 view by $0.04 to $4.24. The analyst also increased his price target on the stock by $8 to $98.

At the time of writing, shares of TreeHouse rose 3.33 percent to $99.65.

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