TreeHouse Foods Fails To Impress Some At Analyst Day

TreeHouse Foods Inc. THS this week hosted an analyst day presentation, which failed to impress some Wall Street analysts.

The Analyst

BMO Capital Markets' Amit Sharma downgraded Treehouse's stock from Outperform to Market Perform with a price target lowered from $50 to $48.

The Thesis

Treehouse's investor day presentation was a disappointing event as management failed to detail the "scope and time" of when the company's margin pressures could see improvements, Sharma said in a note. Specifically, the analyst had hoped for updates on what impact does the company's size/scale have in the current pricing environment, what "tough decisions" will management take to defend its margins, and commentary on the recent departure of CEO Robert Aiken now which leaves "unanswered questions" and the potential risk of a new strategy reset.

The company's decision to remain active in all 32 product categories is "puzzling," especially as some categories (like snack nuts) are accompanied with unfavorable margin structures, the analyst said. Also, management appears to be unwilling or unable to pledge new plant closures to reduce its fixed costs at a faster price at a time when some of its smaller rivals are undertaking these initiatives.

One of the biggest trends in the food space is private label brands reaching a "tipping point"of consumer acceptance, Sharma said. But Treehouse's ability to benefit from this trend is "now in question" given its failure to " leverage its national size/scale advantage to protect its pricing/margin structure."

Price Action

Shares of TreeHouse traded near its 52-week low of $40.26 Wednesday morning before rebounding and trading higher by more than 1 percent. The stock is still down more than 40 percent since the start of 2017.

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