As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.
A company's long-term sales performance signals its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.
With $3.37 billion in revenue over the past 12 months, TreeHouse Foods carries some recognizable products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale.
As you can see below, TreeHouse Foods's 4.6% annualized revenue growth over the last three years was tepid as consumers bought less of its products. We'll explore what this means in the "Volume Growth" section.
This quarter, TreeHouse Foods's $905.7 million of revenue was flat year on year and in line with Wall Street's estimates. Company management is currently guiding for a 3.4% year-on-year decline in sales next quarter.
Looking further ahead, sell-side analysts expect revenue to remain flat over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and suggests its products will face some demand challenges.
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Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there's a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
To analyze whether TreeHouse Foods generated its growth (or lack thereof) from changes in price or volume, we can compare its volume growth to its organic revenue growth, which excludes non-fundamental impacts on company financials like mergers and currency fluctuations.
Over the last two years, TreeHouse Foods's average quarterly sales volumes have shrunk by 1.3%. This isn't ideal for a consumer staples company, where demand is typically stable.
In TreeHouse Foods's Q4 2024, sales volumes jumped 3.8% year on year. This result was a well-appreciated turnaround from its historical levels, showing the company is heading in the right direction.
We struggled to find many positives in these results. Its EBITDA guidance for next quarter missed significantly and its full-year revenue guidance fell short of Wall Street's estimates. Overall, this was a weaker quarter, but it seems expectations were low. The stock traded up 1.9% to $33.89 immediately following the results.
So do we think TreeHouse Foods is an attractive buy at the current price? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it's free.