Treehouse Foods Making Progress

THS held their Investor Day Presentation on Tuesday December 11th and in its simplest terms the market liked what they heard. In addition to as much as a 10 percent run up days after the end of the presentation, the stock has remained up, out performing the market by about 10 percentage points over the same period. There is a certain symmetry in this movement, for private label generally does well in a down economy, but I’m not sure the market is that efficient, nor that the economy is necessarily tanking, but we shall . . .

The company continues to present a very professional and well structured response to their recent troubles, and as indicated they seem to be making a convincing case that they are making progress, and that the stock is a good long term investment. For those who are interested the presentation is likely still available at the THS website, and I would certainly recommend taking the time to view, or better yet listen to it, as it really is well done.

A few points which caught my attention as part of an overall positive impression:

There is no doubt that THS has assembled an impressive private label business as illustrated by this summary of categories.

THS CEO Steve Oakland does a nice job telling his audience what his team will be communicating over the course of the presentation, by starting and ending the presentation with a Key Takeaways slide. It also subtly suggests that the year’s results will have a “hockey stick” element to it as the good things, relative to the prior year, don’t start to happen until the second half of the year.

To help manage all of this, they introduced a new Customer Centric Enterprise Strategy which includes an on trend cultural component.

In operations they are focusing on fostering a high performance culture of continuous improvement, and tout a pivot from a plant closure focus to an accelerated TMOS roll out. They present a comprehensive outline of their continuous improvement journey with an array of tools in their tool kit, some of which (SMED) seem tailor made for the frequent changeover nature of private label manufacturing. I suggest that it will take a significant amount of specialized resources/talent, either external or internal to pull this off, but the commitment seems to be there and the paybacks certainly will be, so there is no reason it should not happen.

They make an interesting presentation on how they expect to leverage their scale against their private brand competition. Whether they can deliver on this expectation/promise is up to their customers to decide.

They have gotten rid of their Strategic Sales Lead (my so called Matrix Management Hell) customer interface model and replaced it with a more customer/sales led model.

Finally they addressed the recent reporting regarding the sale of Flagstone Foods

• At $1 billion in revenues, and their #1 category share rankings, these categories represent over 17% of THS sales, with many positive characteristics.
• They have set up a new separate management structure for this business with its own President (likely to manage a sale process) General Manager/SVP and VPs of Operations, Sales and Finance, in order, I suspect to make it more attractive to potential financial as well as strategic buyers,
• Listening to the presentation, it seems that there is still some question within senior management ranks, as to whether the business should be sold and kept. The argument seems to be that it will take too much management time to fix/operate profitably this business within THS.
• The prospect of a properly motivated and managed outside buyer making a success of this business raises the question if there are other categories whose cost of fixing/maintaining are not offset by their potential benefits in leveraging their scale. I guess that is why the presentation illustrates a post “strategic considerations” 2018 THS with a $300M reduction in revenues due to additional divestitures.  

Again the market, both customers and financial, will have the last word on the wisdom of creating a multi-category private label manufacturer, something which has never been successfully even tried in Europe, where as THS management points out, private label penetration rates in Western Europe are almost double that experienced in the US and Canada. Quite possibly, the sheer size of the North American market versus that of Europe makes it possible.

Stay tuned!