TreeHouse(THS) - 2025 Q2 - Quarterly Results

Executive Summary TreeHouse Foods reported strong Q2 2025 results, exceeding guidance and maintaining confidence in full-year targets, driven by improved execution and private brand strength Second Quarter 2025 Highlights TreeHouse Foods, Inc. reported strong second-quarter 2025 financial results, with adjusted net sales and adjusted EBITDA exceeding guidance, and remains confident in achieving its full-year 2025 guidance | Metric | Q2 2025 (Millions) | | :------------------- | :----------------- | | Net Sales | $798.0 | | Adjusted Net Sales | $801.4 | | Net Loss | $(2.9) | | Adjusted EBITDA | $73.3 | - Adjusted net sales and adjusted EBITDA both exceeded the upper-end of the company's guidance range[2] - The Company remains confident in its ability to achieve its 2025 guidance[4] CEO Commentary CEO Steve Oakland highlighted strong Q2 results, attributing success to improved execution driving margin improvement and cash flow growth, and believes private brands are well-positioned to offer value and achieve profit and cash flow growth - CEO Steve Oakland appreciated the team's effort for strong Q2 results, with adjusted net sales and adjusted EBITDA exceeding guidance[2] - The company is focused on driving margin improvement and cash flow growth through improved execution[2] - Private brands are considered attractively positioned, offering needed value to customers and consumers, enabling profit and cash flow growth[2] Second Quarter 2025 Financial Results This section details TreeHouse Foods' Q2 2025 financial performance, including net sales growth, improved gross profit, reduced operating expenses, and changes in net loss and cash flow Net Sales Net sales for Q2 2025 increased by 1.2% to $798.0 million, primarily driven by the acquisition of a private brand tea business, favorable pricing, and distribution gains, partially offset by volume/mix declines due to margin management, macroeconomic trends, a frozen griddle product recall, and the RTD business exit | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Change (Millions) | Change (%) | | :---------------- | :----------------- | :----------------- | :---------------- | :--------- | | Net Sales | $798.0 | $788.5 | $9.5 | 1.2% | Drivers of Net Sales Change (Q2 2025 vs. Q2 2024) | Factor | Three Months (%) | | :-------------------------- | :--------------- | | Business acquisition | 4.5% | | Pricing | 4.2% | | Margin management | (2.6)% | | Consumption/other | (2.4)% | | Griddle recall service impacts | (1.2)% | | Volume/mix | (6.2)% | | Business exit | (1.0)% | | Product recall returns | (0.2)% | | Foreign currency | (0.1)% | | Total change in net sales | 1.2% | - The net sales increase was primarily due to the acquisition of the private brand tea business, favorable pricing to recover commodity inflation, and distribution gains[5] - Offsetting factors included volume/mix declines related to planned margin management, macroeconomic consumption trends, service impacts from a frozen griddle product recall, and the RTD business exit[5] Gross Profit Gross profit as a percentage of net sales increased by 1.1 percentage points to 17.4% in Q2 2025, mainly due to insurance recoveries from product recalls, favorable margins from the Harris Tea acquisition, and supply chain savings, partially offset by commodity cost inflation and unfavorable fixed cost absorption | Metric | Q2 2025 | Q2 2024 | Change (pp) | | :-------------------------- | :------ | :------ | :---------- | | Gross Profit (% of net sales) | 17.4% | 16.3% | +1.1 | | Gross Profit (Millions) | $139.2 | $128.3 | +$10.9 | - The increase in gross profit percentage was primarily due to $13.1 million of insurance recoveries related to voluntary product recalls, favorable margin from the Harris Tea acquisition, and supply chain savings initiatives[6] - Partially offset by commodity cost inflation and unfavorable fixed cost absorption due to declining consumption trends[6] Total Operating Expenses Total operating expenses decreased by $20.4 million to $111.9 million in Q2 2025, mainly due to a non-cash impairment charge recorded in Q2 2024 related to the Ready-to-drink beverages asset group and ongoing cost reduction activities in 2025 | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Change (Millions) | | :---------------------- | :----------------- | :----------------- | :---------------- | | Total Operating Expenses | $111.9 | $132.3 | $(20.4) | - The decrease was primarily due to a $19.3 million non-cash impairment charge in Q2 2024 related to the Ready-to-drink beverages asset group[7] - Cost reduction activities in 2025 also contributed to the decrease[7] Total Other Expense Total other expense increased by $16.0 million to $32.9 million in Q2 2025, driven by an unfavorable $16.2 million change in non-cash mark-to-market impacts from hedging activities and a $6.6 million increase in interest expense due to higher borrowings, partially offset by a favorable currency exchange rate impact | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Change (Millions) | | :----------------- | :----------------- | :----------------- | :---------------- | | Total Other Expense | $32.9 | $16.9 | $16.0 | - Increase due to a $16.2 million unfavorable change in non-cash mark-to-market impacts from hedging activities (commodity contracts, interest rate swaps)[8] - Increase of $6.6 million in interest expense primarily due to increased borrowings on the Revolving Credit Facility[8] - Partially offset by a favorable currency exchange rate impact of $6.2 million between the U.S. and Canada[8] Income Taxes The effective income tax rate significantly increased to 48.2% in Q2 2025 from 20.1% in Q2 2024, primarily due to shifts in non-deductible executive compensation and the estimated annual pre-tax earnings | Metric | Q2 2025 | Q2 2024 | Change (pp) | | :-------------------- | :------ | :------ | :---------- | | Effective Tax Rate | 48.2% | 20.1% | +28.1 | | Income Tax Benefit (Millions) | $(2.7) | $(4.2) | +$1.5 | - The change in effective tax rate is primarily driven by changes in non-deductible executive compensation and estimated annual pre-tax earnings[9] Net Loss and Adjusted EBITDA Net loss improved to $(2.9) million in Q2 2025 from $(16.7) million in Q2 2024, while Adjusted EBITDA increased by $2.7 million to $73.3 million, driven by supply chain savings, the Harris Tea acquisition, and cost reduction activities, partially offset by commodity cost inflation and unfavorable fixed cost absorption | Metric | Q2 2025 (Millions) | Q2 2024 (Millions) | Change (Millions) | | :---------------- | :----------------- | :----------------- | :---------------- | | Net Loss | $(2.9) | $(16.7) | +$13.8 | | Adjusted EBITDA | $73.3 | $70.6 | +$2.7 | - The increase in Adjusted EBITDA is primarily due to supply chain savings initiatives, the accretive impact of the Harris Tea acquisition, and cost reduction activities[10] - Offset by commodity cost inflation and unfavorable fixed cost absorption due to declining consumption trends[10] Net Cash Used In Operating Activities Net cash used in operating activities increased by $28.9 million to $100.7 million in the first six months of 2025, mainly due to a decrease in cash flows from the Receivables Sales Program, partially mitigated by higher cash earnings from pricing actions to recover commodity inflation | Metric | 6 Months 2025 (Millions) | 6 Months 2024 (Millions) | Change (Millions) | | :-------------------------------- | :----------------------- | :----------------------- | :---------------- | | Net Cash Used In Operating Activities | $(100.7) | $(71.8) | $(28.9) | - The increase in cash used was primarily attributable to a decrease in cash flows from the Receivables Sales Program[10] - Partially offset by higher cash earnings reflecting the Company's pricing actions to recover commodity inflation[10] Outlook TreeHouse Foods provides its full-year 2025 guidance, maintaining adjusted EBITDA and free cash flow targets while updating adjusted net sales, and outlines expectations for the third quarter Full Year 2025 Guidance TreeHouse Foods is maintaining its 2025 adjusted EBITDA and free cash flow guidance, while updating adjusted net sales guidance to reflect commodity-based pricing actions, now expecting adjusted net sales to range from $3.360 billion to $3.415 billion, representing a slight decline to modest growth year-over-year - TreeHouse Foods is maintaining its previously issued 2025 adjusted EBITDA and free cash flow guidance[11] - Adjusted net sales guidance updated to reflect commodity-based pricing actions[11] Full Year 2025 Guidance | Metric | Guidance Range | | :-------------------- | :-------------------------------- | | Adjusted Net Sales | $3.360 billion to $3.415 billion (0.5% decline to 1% growth YoY) | | Adjusted EBITDA | $345 million to $375 million | | Free Cash Flow | At least $130 million | | Net Interest Expense | $80 million to $90 million | | Capital Expenditures | Approximately $125 million | - Volume/mix is still expected to decline approximately 1% year-over-year, while pricing is expected to provide a low-single-digit benefit[14] Third Quarter 2025 Expectations For the third quarter of 2025, TreeHouse Foods expects adjusted net sales between $840 million and $870 million, indicating approximately flat growth at the mid-point, with adjusted EBITDA projected to be in the range of $90 million to $110 million Third Quarter 2025 Expectations | Metric | Guidance Range | | :-------------------- | :-------------------------- | | Adjusted Net Sales | $840 million to $870 million | | Adjusted EBITDA | $90 million to $110 million | - Third quarter adjusted net sales are expected to represent approximately flat growth at the mid-point[14] - Organic volume and mix are expected to decline high-single digits, driven primarily by continued margin management actions, with pricing providing an approximately 4% benefit[14] Non-GAAP Financial Measures This section explains the company's use of Non-GAAP financial measures, including EBITDA, Adjusted EBITDA, Adjusted Net Sales, and Free Cash Flow, to provide clearer insights into operational performance Overview of Non-GAAP Measures The company uses Non-GAAP financial measures to provide additional insights into financial performance, believing they offer useful information for investors to make meaningful comparisons between periods and view the business from management's perspective, with reconciliations to GAAP measures provided - Non-GAAP financial measures are included to provide useful information to financial statement users, allowing for meaningful comparisons of earnings performance between periods[15][16] - Management uses Non-GAAP measures for assessing operating performance, incentive compensation, and resource allocation decisions[17][18] - Reconciliations between GAAP and Non-GAAP measures are provided, but forward-looking Non-GAAP measures cannot be reconciled to GAAP without unreasonable effort due to inherent uncertainties[16][19] EBITDA and Adjusted EBITDA EBITDA is defined as net loss before interest expense, interest income, income tax benefit, and depreciation and amortization, while Adjusted EBITDA further adjusts for items significantly affecting comparability between periods, such as product recalls, restructuring, acquisitions, impairments, and mark-to-market adjustments, to provide a clearer view of core operating performance - EBITDA is defined as net loss before interest expense, interest income, income tax benefit, and depreciation and amortization expense[17] - Adjusted EBITDA reflects adjustments to EBITDA for items that management believes significantly affect the assessment of earnings results between periods, such as product recalls, restructuring programs, acquisition costs, impairment of assets, and mark-to-market adjustments on derivative contracts[17] - These measures are used by management to assess operating performance and incentive compensation, and by investors as a measure of operating performance and for debt covenant calculations[17] Adjusted Net Sales and Other Adjusted Measures Adjusted net sales, cost of sales, gross profit, operating expenses, operating income, other expense, income tax expense, and net income are GAAP line items adjusted for specific items like product recalls, restructuring, acquisition costs, and mark-to-market impacts to provide a comparable view of performance, with Adjusted diluted EPS calculated based on adjusted net income - Adjusted net sales, cost of sales, gross profit, total operating expenses, operating income, total other expense, income tax expense, and net income are GAAP measures adjusted for items impacting comparability[18] - Adjustments include product recalls, restructuring programs, acquisition/divestiture costs, loss on extinguishment of debt, asset impairment, foreign currency exchange impact, and mark-to-market adjustments on derivative contracts[18] - Adjusted diluted EPS is determined by dividing adjusted net income (loss) by the weighted average diluted common shares outstanding, reflecting adjustments to GAAP EPS for items significantly affecting earnings results between periods[18] Free Cash Flow Free cash flow, a Non-GAAP measure, is calculated as net cash used in operating activities less capital expenditures and proceeds from sales of fixed assets, and is considered an important liquidity measure indicating cash generated from operations available for mandatory payments and investment opportunities - Free cash flow is a Non-GAAP measure representing net cash used in operating activities, less capital expenditures and proceeds from sales of fixed assets[20] - It is an important measure of liquidity, providing insight into cash available for mandatory payment obligations and investment opportunities[20] About TreeHouse Foods TreeHouse Foods, Inc. is a leading North American private brands snacking and beverage manufacturer focused on customer engagement, delivering excellent service, and building capabilities to drive mutually profitable growth, supported by investments in depth, capabilities, and operational efficiencies - TreeHouse Foods, Inc. is a leading private brands snacking and beverage manufacturer in North America[21] - The company's purpose is to engage and delight customers, striving to deliver excellent service and build capabilities to drive mutually profitable growth[21] - This purpose is supported by investment in depth, capabilities, and operational efficiencies aimed at capitalizing on long-term growth prospects in its operating categories[21] Forward-Looking Statements This section contains forward-looking statements based on current beliefs and assumptions, subject to various risks and uncertainties that could cause actual results to differ materially, and the company does not intend to update these statements, cautioning against undue reliance - The press release contains forward-looking statements based on current beliefs and assumptions, subject to risks and uncertainties[23] - Actual results may vary materially from those described due to factors such as quality issues, supply chain disruptions, raw material and commodity costs, labor issues, and market changes[23] - The company does not intend to update these statements and cautions readers not to unduly rely on them[23] Financial Statements This section presents the company's condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows for the reported periods Condensed Consolidated Balance Sheets As of June 30, 2025, TreeHouse Foods reported total assets of $4,044.1 million, an increase from $3,980.0 million at December 31, 2024, with key changes including a significant decrease in cash and cash equivalents, an increase in receivables and inventories, and an increase in long-term debt Condensed Consolidated Balance Sheets (Selected Items, in millions) | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $17.1 | $289.6 | | Receivables, net | $212.0 | $146.8 | | Inventories | $634.8 | $539.3 | | Total current assets | $908.1 | $1,009.7 | | Goodwill | $1,892.1 | $1,819.3 | | Total assets | $4,044.1 | $3,980.0 | | Total current liabilities | $720.2 | $744.9 | | Long-term debt | $1,496.7 | $1,401.3 | | Total liabilities | $2,519.0 | $2,431.1 | | Total stockholders' equity | $1,525.1 | $1,548.9 | - Cash and cash equivalents decreased significantly from $289.6 million at December 31, 2024, to $17.1 million at June 30, 2025[25] - Long-term debt increased from $1,401.3 million to $1,496.7 million[25] Condensed Consolidated Statements of Operations For the three months ended June 30, 2025, net sales were $798.0 million, an increase from $788.5 million in the prior year, and the company reported a net loss of $(2.9) million, an improvement from $(16.7) million in Q2 2024, while for the six months, net sales decreased slightly and net loss widened to $(34.7) million Condensed Consolidated Statements of Operations (Selected Items, in millions, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $798.0 | $788.5 | $1,590.0 | $1,609.2 | | Gross profit | $139.2 | $128.3 | $254.4 | $240.3 | | Total operating expenses | $111.9 | $132.3 | $232.6 | $249.5 | | Operating income (loss) | $27.3 | $(4.0) | $21.8 | $(9.2) | | Total other expense | $32.9 | $16.9 | $71.0 | $27.0 | | Loss before income taxes | $(5.6) | $(20.9) | $(49.2) | $(36.2) | | Net loss | $(2.9) | $(16.7) | $(34.7) | $(28.4) | | Diluted EPS | $(0.06) | $(0.32) | $(0.69) | $(0.54) | - Net sales for the three months ended June 30, 2025, increased by $9.5 million (1.2%) year-over-year[3][27] - Net loss for the three months ended June 30, 2025, improved to $(2.9) million from $(16.7) million in the prior year[10][27] - For the six months ended June 30, 2025, net sales decreased by $19.2 million (1.2%) year-over-year, and net loss widened to $(34.7) million from $(28.4) million[3][27] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2025, net cash used in operating activities increased to $(100.7) million from $(71.8) million in the prior year, net cash used in investing activities significantly increased to $(258.5) million primarily due to a $209.3 million acquisition, and net cash provided by financing activities was $89.2 million, a reversal from cash used in the prior year, driven by increased borrowings and refinanced term loans Condensed Consolidated Statements of Cash Flows (Selected Items, in millions) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(100.7) | $(71.8) | | Net cash used in investing activities | $(258.5) | $(49.7) | | Net cash provided by (used in) financing activities | $89.2 | $(92.9) | | Net decrease in cash and cash equivalents | $(272.5) | $(214.5) | | Cash and cash equivalents, end of period | $17.1 | $105.8 | - Net cash used in investing activities increased significantly due to a $209.3 million acquisition, net of cash acquired[29] - Financing activities shifted from using $92.9 million in 2024 to providing $89.2 million in 2025, largely due to borrowings and refinanced term loans[29] Reconciliation of Non-GAAP to GAAP Measures This section provides detailed reconciliations of various Non-GAAP financial measures, such as EBITDA, Adjusted EBITDA, adjusted net income, and free cash flow, to their most directly comparable GAAP counterparts Reconciliation of Net Loss to EBITDA and Adjusted EBITDA This section provides a reconciliation of GAAP net loss to Non-GAAP EBITDA and Adjusted EBITDA, showing that for Q2 2025, Adjusted EBITDA was $73.3 million, up from $70.6 million in Q2 2024, with key adjustments including mark-to-market impacts, restructuring costs, acquisition-related costs, foreign currency effects, product recalls (including insurance recoveries), loss on extinguishment of debt, and impairment charges Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (in millions) | Metric | Q2 2025 | Q2 2024 | 6 Months 2025 | 6 Months 2024 | | :------------------------------------------------ | :------ | :------ | :------------ | :------------ | | Net loss (GAAP) | $(2.9) | $(16.7) | $(34.7) | $(28.4) | | EBITDA (Non-GAAP) | $58.5 | $30.8 | $72.8 | $63.7 | | Adjustments (total) | $14.8 | $39.8 | $58.0 | $52.9 | | Adjusted EBITDA (Non-GAAP) | $73.3 | $70.6 | $130.8 | $116.6 | | Adjusted EBITDA margin (% of adjusted net sales) | 9.1% | 8.9% | 8.2% | 7.2% | - Adjustments for Q2 2025 included $14.7 million for mark-to-market impacts, $12.7 million for restructuring, $0.7 million for acquisition costs, $(3.7) million for foreign currency gain, and $(9.6) million for product recalls (net of insurance recoveries)[32] - Product recall adjustments for Q2 2025 included $(10.0) million insurance recovery for frozen waffle products and $(3.1) million for broth products, offset by estimated product returns and claims[33][34] Reconciliation of Adjusted Financial Measures This section reconciles various GAAP financial measures (Net Sales, Cost of Sales, Gross Profit, Operating Expenses, Operating Income, Other Expense, Income Tax Expense, Net Income) to their adjusted Non-GAAP counterparts for the three and six months ended June 30, 2025 and 2024, detailing the impact of specific adjustments to derive adjusted performance metrics and adjusted diluted EPS Adjusted Net Income and EPS (Q2 2025, in millions, except per share) | Metric | As reported (GAAP) | Adjustments | As adjusted (Non-GAAP) | | :-------------------- | :----------------- | :---------- | :--------------------- | | Net (loss) income | $(2.9) | $11.7 | $8.8 | | Diluted EPS | $(0.06) | | $0.17 | Adjusted Net Income and EPS (6 Months 2025, in millions, except per share) | Metric | As reported (GAAP) | Adjustments | As adjusted (Non-GAAP) | | :-------------------- | :----------------- | :---------- | :--------------------- | | Net (loss) income | $(34.7) | $45.0 | $10.3 | | Diluted EPS | $(0.69) | | $0.20 | - Adjustments for Q2 2025 included $14.7 million for mark-to-market impacts, $15.6 million for restructuring, $0.7 million for acquisition costs, $(3.7) million for foreign currency gain, $(9.6) million for product recalls (net of insurance recoveries), and $6.0 million for taxes on adjusting items[39] - For Q2 2024, significant adjustments included $19.3 million for impairment and $7.5 million for product recalls, which significantly improved adjusted net income and EPS compared to GAAP[41] Reconciliation of Net Cash Used in Operating Activities to Free Cash Flow This section reconciles net cash used in operating activities (GAAP) to free cash flow (Non-GAAP), showing that for the six months ended June 30, 2025, free cash flow was $(149.9) million, a decrease from $(121.5) million in the prior year, primarily due to increased capital expenditures and higher net cash used in operating activities Reconciliation of Net Cash Used in Operating Activities to Free Cash Flow (in millions) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Cash flow used in operating activities (GAAP) | $(100.7) | $(71.8) | | Capital expenditures | $(54.0) | $(51.1) | | Proceeds from sales of fixed assets | $4.8 | $1.4 | | Free cash flow (Non-GAAP) | $(149.9) | $(121.5) | - Free cash flow for the first six months of 2025 was $(149.9) million, compared to $(121.5) million in the same period of 2024, indicating a larger cash outflow[44] - The change was influenced by an increase in capital expenditures from $(51.1) million to $(54.0) million[44]