Analyst Says TreeHouse Foods' Decision To Sell Snacks Division Could Boost Earnings, Cash Flow

TreeHouse Foods Inc. THS on Monday announced it entered into a definitive agreement to sell its snacks division to Atlas Holding for $90 million.

The sale is expected to be accretive to the company’s FY2020 EPS and should also modestly boost free cash flow, according to Bank of America.

The Analyst

BofA’s Bryan D. Spillane maintained a Neutral rating on TreeHouse Foods with a price target of $63.

The Thesis

TreeHouse Foods’ snacks division sale is still subject to post-closing adjustments but is expected to close in third quarter, Spillane said in the note.

The snacks division comprises of healthy private label snacks with four manufacturing plants in North Carolina, Texas, Alabama and Minnesota. The company expects to use the sale proceeds to pay down debt.

Spillane mentioned a few key takeaways from the sale announcement.

TreeHouse Foods expects the snacks division to generate net sales of around $670 million in FY2019, substantially short of BofA’s $788 million estimate and representing a meaningful decline from the $960 million recorded in FY2018.

The deal is expected to add around 25 cents to BofA’s EPS estimate for FY2020 and should modestly boost free cash flow as it would eliminate capital spending for the minimal EBITDA contribution that the snacks division made.

Spillane added that the sale price comes as a disappointment, since TreeHouse Foods had purchased the business for $1.1 billion in 2014. However, the sale is a “net positive,” as the business is ailing, and the sale allows management to focus on the remaining portfolio.

“We see the transaction having a minimal impact on the leverage ratio given the minimal EBITDA contribution and the relatively small proceeds of the deal," said Spillane.

Price Action

Shares of TreeHouse Foods rose more than 1.7% to $57.07 at the time of publication.