Treehouse Foods Making Progress

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! 

John Stanhaus OGDG

Striving to play the Infinite Game of Motorcycling as I ride in support of Men’s Health.

6 年

Thanks Koen, there certainly are lots of moving parts. Regarding the go to market platform, while I agree with your comment about specialist dealing with specialists, my comment about Matrix Management Hell is driven by personal experience operating under a similar structure in the past, where neither incentives were aligned nor was there a clear leader of the organizations efforts for each customer. Although I don’t know, I suspect that the previous division specific sales and customer contact personnel and efforts are still in place, they have just been moved under and are reporting up through sales versus a division head who also have responsibility for operations. If so this retains the specialist to specialist contact while clearly affixing responsibility for sales volumes and margins with one group, sales. Given their customer centric approach, this also must be what the customer prefers.

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Koen de Jong

Private Label strategy consultant | Non Executive Board Member | M&A support | Thought Leader | International Keynote speaker | Author

6 年

Hi John, I enjoyed reading your post on Treehouse Foods. Indeed, THS as a multi-category private label manufacturer is a unique company, also from a European perspective. A similar initiative has never been taken at this end of the ocean. Although there is plenty activity in Europe to grow pan-European entities by means of buy-and-build strategies mostly driven by private equity, these companies remain focused on one single category such as biscuits, cereals, ice cream, household cleaning and the like. The decision of THS to chose for a new setup of their go-to-market platform puzzles me a bit however. Although they claim it to be an ‘optimization’ I personally am not too sure about this. To have ‘one face to each customer with clearly aligned resources and ownership’ may not be an improvement compared to their current ‘customer approach as five separate divisions’. I admit up front that my view as a European may not do justice to the US reality. Having said this, I believe that selling private label products requires a deep understanding of not only the product but also production capabilities, packaging, quality, logistics, NPD etc. All these issues will be very product and division-specific. It may be difficult to have only one sales professional or team to offer all this division-specific knowledge to all retail clients. On the other hand, the counterpart at customer-end most likely is a category specialist and therefore different for each individual THS division. In other words: an efficient setup for both retail clients and THS would be to allow specialists to interact with specialists. In the book I am currently writing (publication due March 2019) I shall extensively cover best practices in private label manufacturing. THS will be covered too. Regards, Koen de JongManaging Partner IPLC

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