Update: TreeHouse Foods Earnings

Aug.21.14 | About: TreeHouse Foods, (THS)


The company beat 2Q consensus on the top and bottom lines.

We have a hold thesis on the stock based on the company’s slow growth prospects in the coffee business.

The recent quarterly beat was not in our forecast as the company is seeing marked growth in pickles and other areas.

TreeHouse Foods (NYSE:THS) managed to post 2Q earnings that came in at $0.84 a share (compared to $0.83 consensus) and revenues were $628 million (topping $616 million consensus). EPS was up 29% y/y and full year 2014 EPS is projecting 16% y/y growth. Driving the strong growth has been beverages (including triple-digit y/y growth last quarter in single-serve coffee), pickles and salad dressings.

Shares are up 17% since we first covered the stock in July of last year and up 16% since our December piece. As we noted in December,

The bulls are likely to point to the single serve coffee business, which should see a positive holiday season for single serve machines. However, the latest quarterly results suggested that organic growth might remain flat over the near term thanks to continued economic weakness. Couple this with the prospect of Amazon entering the market, and investors should take a cautiously optimistic approach to TreeHouse.

Shares are just 4% from our initial $84 price target. But shares are already trading at nearly 14x EV/EBITDA, which is above our justified 12x multiple for the company. However, it is worth noting the company continues to innovate in the single-serve space. With 2Q results, the company noted that it had developed single-serve products that work in existing and next-gen brewing systems -- shipping starts in 4Q.

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