TreeHouse(THS) - 2023 Q2 - Quarterly Report

Part I — Financial Information This part presents the company's unaudited condensed consolidated financial statements and management's analysis of financial performance Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the periods ended June 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets The balance sheets detail the company's assets, liabilities, and stockholders' equity as of June 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheets (Unaudited, in millions) | Metric | June 30, 2023 | December 31, 2022 | | :---------------------------------- | :------------ | :------------------ | | Assets | | | | Cash and cash equivalents | $16.9 | $43.0 | | Total current assets | $875.2 | $814.5 | | Total assets | $4,380.4 | $4,253.9 | | Liabilities and Stockholders' Equity | | | | Total current liabilities | $691.9 | $827.8 | | Long-term debt | $1,594.5 | $1,394.0 | | Total liabilities | $2,645.5 | $2,566.9 | | Total stockholders' equity | $1,734.9 | $1,687.0 | | Total liabilities and stockholders' equity | $4,380.4 | $4,253.9 | Condensed Consolidated Statements of Operations The statements of operations outline revenues, costs, and profits for the three and six months ended June 30, 2023 and 2022 Condensed Consolidated Statements of Operations (Unaudited, in millions, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $843.6 | $810.2 | $1,738.4 | $1,582.8 | | Gross profit | $132.8 | $111.0 | $285.1 | $209.7 | | Operating income (loss) | $29.5 | $(25.7) | $68.8 | $(82.0) | | Net income (loss) from continuing operations | $21.7 | $(27.3) | $40.9 | $(41.1) | | Net income (loss) | $23.3 | $(29.4) | $38.5 | $(32.4) | | Earnings (loss) per share basic - Continuing operations | $0.38 | $(0.49) | $0.73 | $(0.74) | | Earnings (loss) per share diluted - Continuing operations | $0.38 | $(0.49) | $0.72 | $(0.74) | Condensed Consolidated Statements of Comprehensive Income (Loss) These statements report the total change in equity from both net income and other comprehensive income items Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited, in millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $23.3 | $(29.4) | $38.5 | $(32.4) | | Other comprehensive income (loss) | $2.0 | $(10.6) | $2.3 | $(6.2) | | Comprehensive income (loss) | $25.3 | $(40.0) | $40.8 | $(38.6) | Condensed Consolidated Statements of Stockholders' Equity This section details the changes in the company's equity accounts during the first six months of 2023 Condensed Consolidated Statements of Stockholders' Equity (Unaudited, in millions) | Metric | Balance, January 1, 2023 | Net income | Other comprehensive income | Issuance of stock awards | Stock-based compensation | Balance, June 30, 2023 | | :----------------------------------- | :----------------------- | :--------- | :------------------------- | :----------------------- | :----------------------- | :--------------------- | | Total Equity | $1,687.0 | $23.3 | $2.0 | $(0.7) | $5.9 | $1,734.9 | Condensed Consolidated Statements of Cash Flows These statements summarize the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (Unaudited, in millions) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(49.8) | $(26.6) | | Net cash used in investing activities | $(172.1) | $(62.0) | | Net cash provided by (used in) financing activities | $193.2 | $(20.1) | | Net decrease in cash and cash equivalents | $(26.1) | $(109.5) | | Cash and cash equivalents, end of period | $16.9 | $195.0 | Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations of the accounting policies and specific financial items presented in the statements 1. Basis of Presentation The financial statements are prepared according to SEC rules for quarterly reporting and cover one operating segment - The unaudited Condensed Consolidated Financial Statements are prepared in accordance with SEC rules for quarterly reporting on Form 10-Q and include all necessary adjustments for fair presentation[25] - The Company manages operations as one segment, manufacturing and distributing private label food and beverages in North America, primarily shelf-stable products with similar customers and distribution[29] 2. Growth, Reinvestment, and Restructuring Programs The company details its ongoing enterprise-wide transformation initiatives aimed at improving long-term growth and profitability - The Company is undergoing an enterprise-wide transformation to build long-term sustainable growth and improve profitability, categorized into Strategic Growth Initiatives and other restructuring activities[31] - Strategic Growth Initiatives, expected to complete in 2023, involve investments in commercial organization, supply chain adaptation, and growth categories, with cumulative costs of $110.8 million to date and total expected costs up to $130.0 million[32] Costs by Activity for Growth, Reinvestment, and Restructuring Programs (In millions) | Activity | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Strategic Growth Initiatives | $3.4 | $7.8 | $10.4 | $24.6 | | Other | $5.5 | $6.1 | $13.8 | $19.4 | | Total | $8.9 | $13.9 | $24.2 | $44.0 | 3. Receivables Sales Program This section describes the program used to manage liquidity by selling trade accounts receivable to third-party financial institutions - TreeHouse Foods uses a Receivables Sales Program to manage liquidity by selling trade accounts receivable to third-party financial institutions at a discount, with a maximum outstanding amount of $500.0 million[37] Outstanding Accounts Receivable Sold (In millions) | Metric | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :------------ | :------------------ | | Outstanding accounts receivable sold | $305.4 | $347.1 | | Receivables collected and not remitted | $176.9 | $204.5 | Loss on Sale of Receivables (In millions) | Period | Loss on Sale of Receivables | | :----------------------------------- | :-------------------------- | | Three Months Ended June 30, 2023 | $3.3 | | Three Months Ended June 30, 2022 | $0.9 | | Six Months Ended June 30, 2023 | $6.6 | | Six Months Ended June 30, 2022 | $1.3 | 4. Inventories This note provides a breakdown of the company's inventory balances by category for the current and prior year-end periods Inventories (In millions) | Category | June 30, 2023 | December 31, 2022 | | :------------------------ | :------------ | :------------------ | | Raw materials and supplies | $275.0 | $232.0 | | Finished goods | $398.4 | $357.5 | | Total inventories | $673.4 | $589.5 | 5. Acquisitions and Divestiture This section details recent acquisitions in the coffee and pretzel categories and the finalized sale of the Meal Preparation business - On June 30, 2023, the Company acquired the Direct Ship coffee business and its Northlake, Texas facility for approximately $92.2 million in cash, enhancing its coffee roasting, grinding, flavoring, and blending capabilities[43] - On April 1, 2023, the Company acquired a seasoned pretzel capability for $14.0 million, including $10.0 million in cash and a $4.0 million deferred payment, aligning with its strategy to build category leadership and drive profitable growth[46] - The sale of a significant portion of the Meal Preparation business was finalized on October 3, 2022, with a final purchase price of $943.5 million, consisting of $522.6 million in cash and a $420.9 million secured Seller Promissory Note[47] Net Income (Loss) from Discontinued Operations (In millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) from discontinued operations | $1.6 | $(2.1) | $(2.4) | $8.7 | 6. Note Receivable This note details the five-year secured Seller Promissory Note received from the sale of the Meal Preparation business - The Company holds a five-year secured Seller Promissory Note from the sale of its Meal Preparation business, with a balance of $424.1 million as of June 30, 2023, bearing interest rates from 10% to 13% per annum[52][53] Interest Income from Note Receivable (In millions) | Period | Interest Income | | :----------------------------------- | :-------------- | | Three Months Ended June 30, 2023 | $10.7 | | Six Months Ended June 30, 2023 | $21.4 | 7. Property, Plant, and Equipment This section provides a breakdown of the company's fixed assets and associated depreciation expenses Property, Plant, and Equipment, Net (In millions) | Category | June 30, 2023 | December 31, 2022 | | :----------------------------------- | :------------ | :------------------ | | Land | $37.4 | $28.7 | | Buildings and improvements | $383.1 | $321.2 | | Machinery and equipment | $1,057.7 | $1,006.8 | | Construction in progress | $52.3 | $66.6 | | Total | $1,530.5 | $1,423.3 | | Less accumulated depreciation | $(804.9) | $(756.8) | | Property, plant, and equipment, net | $725.6 | $666.5 | Depreciation Expense (In millions) | Period | Depreciation Expense | | :----------------------------------- | :------------------- | | Three Months Ended June 30, 2023 | $23.4 | | Three Months Ended June 30, 2022 | $23.4 | | Six Months Ended June 30, 2023 | $47.4 | | Six Months Ended June 30, 2022 | $48.0 | 8. Goodwill and Intangible Assets This note details the carrying amounts of the company's goodwill and various intangible assets Goodwill Carrying Amount (In millions) | Metric | Amount | | :----------------------------------- | :----- | | Balance at December 31, 2022 | $1,817.6 | | Acquisition | $5.4 | | Foreign currency exchange adjustments | $1.6 | | Balance at June 30, 2023 | $1,824.6 | Intangible Assets, Net (In millions) | Category | June 30, 2023 Net Carrying Amount | December 31, 2022 Net Carrying Amount | | :----------------------------------- | :-------------------------------- | :------------------------------------ | | Customer-related | $202.2 | $213.4 | | Trademarks (finite lives) | $3.4 | $4.1 | | Formulas/recipes | $0.7 | $0.4 | | Computer software | $67.2 | $72.1 | | Total finite lived intangibles | $273.5 | $290.0 | | Trademarks (indefinite lives) | $6.0 | $6.0 | | Total intangible assets | $279.5 | $296.0 | 9. Income Taxes This section discloses the company's effective income tax rates and factors influencing rate changes - The change in the effective tax rate is primarily due to the estimated amount of annual pre-tax earnings[57] - Management estimates a possible decrease of up to $0.3 million in unrecognized tax benefits within the next 12 months[58] Effective Income Tax Rates | Period | Effective Tax Rate | | :----------------------------------- | :----------------- | | Three Months Ended June 30, 2023 | 29.1% | | Six Months Ended June 30, 2023 | 27.9% | | Three Months Ended June 30, 2022 | 14.2% | | Six Months Ended June 30, 2022 | 14.2% | 10. Long-Term Debt This note provides a detailed breakdown of the company's outstanding long-term debt obligations - As of June 30, 2023, the Company had $199.5 million drawn from its $500.0 million Revolving Credit Facility, with $267.5 million remaining availability[61] - Amendment No. 6 to the Credit Agreement replaced LIBOR with Term SOFR as the reference rate for interest calculations, plus a credit spread adjustment of 0.10%[60] Long-Term Debt (In millions) | Debt Type | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :------------------ | | Revolving Credit Facility | $199.5 | $— | | Term Loan A | $316.4 | $316.4 | | Term Loan A-1 | $588.6 | $588.6 | | 2028 Notes | $500.0 | $500.0 | | Finance leases | $0.9 | $1.2 | | Total outstanding debt | $1,605.4 | $1,406.2 | | Total long-term debt | $1,594.5 | $1,394.0 | 11. Earnings Per Share This section details the calculation of basic and diluted earnings per share, including the number of weighted average shares - Equity awards totaling 1.2 million for both the three and six months ended June 30, 2023, and 1.8 million and 1.4 million for three and six months ended June 30, 2022, respectively, were excluded from diluted EPS computation as they were anti-dilutive[67] Weighted Average Common Shares (In millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Weighted average common shares outstanding | 56.4 | 56.0 | 56.3 | 55.9 | | Assumed exercise/vesting of equity awards | 0.4 | — | 0.5 | — | | Weighted average diluted common shares outstanding | 56.8 | 56.0 | 56.8 | 55.9 | 12. Stock-Based Compensation This note describes the company's equity incentive plan and the associated compensation expenses - The TreeHouse Foods, Inc. Equity and Incentive Plan was amended on April 27, 2023, increasing the shares available for issuance by 5.0 million to approximately 22.5 million as of June 30, 2023[68] - Unrecognized compensation costs for nonvested stock options totaled $3.1 million at June 30, 2023, expected to be recognized over 1.9 years, while for nonvested restricted stock units, it was approximately $23.9 million, recognized over 2.0 years[70][72] Stock-Based Compensation Expense and Tax Benefit (In millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Compensation expense related to stock-based payments | $5.9 | $5.3 | $13.1 | $9.1 | | Related income tax benefit | $0.8 | $1.2 | $1.7 | $2.1 | 13. Accumulated Other Comprehensive Loss This section details the components and changes in accumulated other comprehensive loss Accumulated Other Comprehensive Loss (In millions) | Component | Balance at December 31, 2022 | Other comprehensive income before reclassifications | Reclassifications from accumulated other comprehensive loss | Balance at June 30, 2023 | | :----------------------------------- | :--------------------------- | :-------------------------------------------------- | :-------------------------------------------------------- | :----------------------- | | Foreign Currency Translation | $(87.0) | $2.2 | — | $(84.8) | | Pension and Postretirement Benefits | $3.3 | — | $0.1 | $3.4 | | Accumulated Other Comprehensive Loss | $(83.7) | $2.2 | $0.1 | $(81.4) | 14. Employee Retirement and Postretirement Benefits This note discloses the net periodic benefit costs associated with the company's pension and postretirement plans Net Periodic Pension Benefit (In millions) | Component | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Service cost | $0.1 | $0.2 | $0.2 | $0.3 | | Interest cost | $3.1 | $2.3 | $6.3 | $4.6 | | Expected return on plan assets | $(3.5) | $(3.8) | $(6.9) | $(7.6) | | Net periodic pension benefit | $(0.1) | $(1.3) | $(0.1) | $(2.6) | Net Periodic Postretirement Cost (In millions) | Component | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest cost | $0.2 | $0.1 | $0.4 | $0.3 | | Amortization of unrecognized net gain | $(0.1) | — | $(0.2) | — | | Net periodic postretirement cost | $0.1 | $0.1 | $0.2 | $0.3 | 15. Other Operating (Income) Expense, Net This section provides a breakdown of other operating income and expenses, including restructuring costs and TSA income Other Operating (Income) Expense, Net (In millions) | Component | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Growth, reinvestment, and restructuring programs | $8.9 | $13.9 | $24.2 | $44.0 | | TSA income | $(11.9) | $— | $(25.3) | $— | | Other | $0.2 | $— | $0.9 | $(1.0) | | Other operating (income) expense, net | $(2.8) | $13.9 | $(0.2) | $43.0 | 16. Commitments and Contingencies This note details ongoing legal matters, including shareholder derivative suits and an antitrust lawsuit - TreeHouse Foods is involved in four shareholder derivative suits with similar allegations of false and misleading statements, underperforming businesses, and overstated guidance, which allegedly inflated stock price and caused harm[85][86] - The Company is also a party to an antitrust lawsuit against Keurig Green Mountain, asserting claims of monopolization in single-serve coffee markets and seeking monetary damages and injunctive relief, with the matter still pending[90] - Management believes adequate accruals have been established for probable and reasonably estimable loss contingencies, and the eventual resolution of these matters is not expected to materially impact financial position, results of operations, or cash flows[89] 17. Derivative Instruments This section describes the company's use of derivative instruments to manage interest rate and commodity price risks - The Company uses interest rate swap agreements with a notional value of $875.0 million to fix the interest rate base on variable-rate debt, hedging exposure to interest rate changes[91][92] - Derivative commodity contracts, with a notional value of $12.5 million as of June 30, 2023, are used to manage market price risk for diesel, oil, plastics, resin, and other raw materials, with maturities expiring throughout 2023 and 2024[93][94] Fair Value of Derivative Instruments (In millions) | Derivative Type | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :------------------ | | Asset derivatives - Commodity contracts | $0.4 | $— | | Asset derivatives - Interest rate swap agreements | $30.0 | $27.2 | | Total Asset derivatives | $30.4 | $27.2 | | Liability derivatives - Commodity contracts | $— | $0.3 | 18. Disaggregation of Revenue This note provides a breakdown of net sales by product category group and sales channel Revenue Disaggregated by Product Category Group (In millions) | Product Category Group | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Snacking | $361.5 | $333.5 | $720.1 | $632.6 | | Beverages & drink mixes | $243.9 | $246.8 | $535.2 | $506.6 | | Grocery | $238.2 | $229.9 | $483.1 | $443.6 | | Total net sales | $843.6 | $810.2 | $1,738.4 | $1,582.8 | Revenue Disaggregated by Sales Channel (In millions) | Sales Channel | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Retail grocery | $663.4 | $608.6 | $1,378.1 | $1,201.7 | | Co-manufacturing | $111.7 | $131.5 | $226.1 | $254.5 | | Food-away-from-home and other | $68.5 | $70.1 | $134.2 | $126.6 | | Total net sales | $843.6 | $810.2 | $1,738.4 | $1,582.8 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial condition and results, highlighting performance drivers, acquisitions, trends, and liquidity management Business Overview This section provides an overview of the company's position as a leading private label food and beverage manufacturer in North America - TreeHouse Foods, Inc. is a leading private label food and beverage manufacturer in North America, focused on customer engagement, service excellence, and building capabilities to drive profitable growth[100] - The Company's portfolio includes snacking, beverage & drink mix, and grocery offerings, sold to retail, co-manufacturing, and food-away-from-home customers in various formats, with an emphasis on value and nutritional solutions[101] Recent Developments This section highlights the company's recent strategic acquisitions in the coffee and seasoned pretzel categories - On June 30, 2023, TreeHouse Foods acquired the Direct Ship coffee business and its Northlake, Texas facility for $92.2 million, expanding its private label coffee capabilities[103] - On April 1, 2023, the Company acquired a seasoned pretzel capability for $14.0 million, aligning with its strategy to enhance category leadership and drive profitable growth in the pretzel segment[104] Executive Summary This summary presents key financial results, showing significant growth in net sales, net income, and adjusted EBITDA - Net sales increased 4.1% for the three months ended June 30, 2023, primarily due to favorable pricing to recover commodity inflation, partially offset by decreased volume due to earlier fulfillment of customer orders in Q1 2023[107] - Earnings increased significantly due to pricing actions offsetting commodity and freight inflation, despite increased costs for supply chain investments to improve service levels[107] Consolidated Financial Results (In millions, except per share data and percentages) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | % Change | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | % Change | | :----------------------------------- | :------------------------------- | :------------------------------- | :--------- | :----------------------------- | :----------------------------- | :--------- | | Net sales | $843.6 | $810.2 | 4.1% | $1,738.4 | $1,582.8 | 9.8% | | Net income (loss) from continuing operations | $21.7 | $(27.3) | 179.5% | $40.9 | $(41.1) | 199.5% | | Diluted earnings (loss) per share from continuing operations | $0.38 | $(0.49) | 177.6% | $0.72 | $(0.74) | 197.3% | | Adjusted EBITDA from continuing operations (Non-GAAP) | $76.4 | $53.1 | 43.9% | $167.0 | $90.4 | 84.7% | | Adjusted diluted EPS from continuing operations (Non-GAAP) | $0.42 | $0.05 | 740.0% | $1.10 | $(0.12) | 1,016.7% | Known Trends or Uncertainties This section discusses the impact of macroeconomic factors like inflation and rising interest rates on consumer behavior and company costs - Consumers face significant inflationary pressure and rising interest rates, leading to an overall decline in food and beverage consumption, though private brands are performing modestly better and gaining unit share[108] - The inflationary environment continues to drive higher costs for raw materials, packaging, fuel, and energy, prompting the Company to implement pricing actions in 2022 that remain in effect in 2023[109] - The Company manages cost increases by locking in prices on commodities and implementing higher pricing, though pricing actions may temporarily lag cost changes or not fully recover increases[111] Results of Operations This section provides a detailed comparison of operational results for the three and six-month periods ended June 30, 2023 and 2022 Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022 This section analyzes the financial performance for the second quarter of 2023 versus the same period in 2022 - Gross profit as a percentage of net sales increased by 2.0 percentage points to 15.7%, driven by pricing actions to recover commodity and freight inflation, partially offset by increased supply chain investment costs[116] - Total operating expenses decreased by $33.4 million to $103.3 million, primarily due to $11.9 million of TSA income, lower professional fees for strategic growth initiatives, reduced retention bonus expense, and lower freight costs[117] - Net income from discontinued operations improved by $3.7 million, from a $2.1 million loss in Q2 2022 to a $1.6 million income in Q2 2023, mainly due to the divestiture of the Meal Preparation business and a favorable loss on disposal adjustment[121] Net Sales Change (Three Months Ended June 30, 2023 vs 2022) (In millions) | Factor | Dollars | Percent | | :---------------- | :------ | :------ | | 2022 Net sales | $810.2 | | | Pricing | $90.9 | 11.2% | | Volume/mix | $(58.0) | (7.2)% | | Acquisition | $2.1 | 0.3% | | Foreign currency | $(1.6) | (0.2)% | | 2023 Net sales | $843.6 | 4.1% | | Organic net sales change | | 4.0% | Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022 This section analyzes the financial performance for the first half of 2023 versus the same period in 2022 - Gross profit as a percentage of net sales increased by 3.2 percentage points to 16.4%, driven by pricing actions and favorable category mix, partially offset by increased supply chain investment costs[123] - Total operating expenses decreased by $75.4 million to $216.3 million, primarily due to $25.3 million of TSA income, lower freight costs, reduced professional fees, and lower retention and severance expenses[124] - Net income from discontinued operations decreased by $11.1 million, from $8.7 million income in H1 2022 to a $2.4 million loss in H1 2023, primarily due to the divestiture of the Meal Preparation business and an expected loss on disposal adjustment[128] Net Sales Change (Six Months Ended June 30, 2023 vs 2022) (In millions) | Factor | Dollars | Percent | | :---------------- | :------ | :------ | | 2022 Net sales | $1,582.8 | | | Pricing | $219.7 | 13.9% | | Volume/mix | $(62.2) | (3.9)% | | Acquisition | $2.1 | 0.1% | | Foreign currency | $(4.0) | (0.3)% | | 2023 Net sales | $1,738.4 | 9.8% | | Organic net sales change | | 10.0% | Liquidity and Capital Resources This section details the company's financial position, cash flows, and capital management strategies - The Company maintains a strong financial position with resources for reinvestment, acquisitions, and capital structure management, supported by a $424.1 million secured Seller Promissory Note and a Receivables Sales Program[129][130][131] - As of June 30, 2023, approximately $267.5 million was available under the $500.0 million Revolving Credit Facility, which was used to fund the $92.2 million Coffee Roasting Capability acquisition[132] - Net cash used in operating activities from continuing operations decreased by $20.9 million to $49.8 million, primarily due to higher cash earnings from pricing actions, partially offset by decreased cash flows from the Receivables Sales Program and accounts payable timing[135] - Net cash used in investing activities from continuing operations increased by $118.3 million to $156.9 million, mainly due to $102.2 million for acquisitions and higher capital expenditures for growth and supply chain initiatives[136] - Net cash provided by financing activities from continuing operations increased by $213.1 million to $193.2 million, driven by a $199.5 million increase in Revolving Credit Facility borrowings to fund acquisitions and inventory investments[137] - The Company is in compliance with all applicable debt covenants, including maintaining a consolidated net leverage ratio of no greater than 4.50 to 1.0[142] Net Cash Flows Provided By (Used In) (Six Months Ended June 30) (In millions) | Activity | 2023 | 2022 | | :----------------------------------- | :----- | :----- | | Operating activities of continuing operations | $(49.8) | $(70.7) | | Investing activities of continuing operations | $(156.9) | $(38.6) | | Financing activities of continuing operations | $193.2 | $(19.9) | | Cash flows from discontinued operations | $(15.2) | $20.5 | Non-GAAP Measures This section explains the non-GAAP financial measures used by the company to assess performance and provides reconciliations to GAAP figures - The Company uses Non-GAAP financial measures like Organic Net Sales, Adjusted Diluted EPS, Adjusted Net Income, Adjusted EBIT, Adjusted EBITDA, Adjusted EBITDAS, and Free Cash Flow to provide investors with meaningful comparisons of performance between periods and to align with management's internal assessment and incentive compensation[148][150][151][156][157][162] Adjusted Diluted EPS from Continuing Operations (Non-GAAP) (Unaudited) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Diluted EPS from continuing operations (GAAP) | $0.38 | $(0.49) | $0.72 | $(0.74) | | Adjusted diluted EPS from continuing operations (Non-GAAP) | $0.42 | $0.05 | $1.10 | $(0.12) | Adjusted Net Income, EBIT, EBITDA, and EBITDAS from Continuing Operations (Non-GAAP) (Unaudited, in millions) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) from continuing operations (GAAP) | $21.7 | $(27.3) | $40.9 | $(41.1) | | Adjusted net income (loss) from continuing operations (Non-GAAP) | $23.8 | $2.7 | $62.2 | $(6.5) | | Adjusted EBIT from continuing operations (Non-GAAP) | $40.9 | $17.8 | $95.5 | $18.6 | | Adjusted EBITDA from continuing operations (Non-GAAP) | $76.4 | $53.1 | $167.0 | $90.4 | | Adjusted EBITDAS from continuing operations (Non-GAAP) | $79.9 | $56.7 | $175.5 | $97.3 | Free Cash Flow from Continuing Operations (Non-GAAP) (Unaudited, in millions) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Cash flow used in operating activities from continuing operations | $(49.8) | $(70.7) | | Less: Capital expenditures | $(54.7) | $(43.4) | | Free cash flow from continuing operations | $(104.5) | $(114.1) | Other Commitments and Contingencies This section outlines the company's exposure to various risks and contingent liabilities from its operations - The Company is exposed to property and casualty risks, including employee health care, workers' compensation, and other casualty losses, as well as contingent liabilities from litigation, investigations, and tax audits[165] Recent Accounting Pronouncements This section states that no recent accounting pronouncements are expected to materially impact the company's financial statements - The Company has reviewed all recent accounting pronouncements and concluded that none will have a material impact on its financial statements or disclosures based on current information[167] Critical Accounting Estimates This section confirms there have been no material changes to the company's critical accounting estimates during the reporting period - There were no material changes to the Company's critical accounting estimates during the three and six months ended June 30, 2023, as detailed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022[168] Cautionary Statement Regarding Forward Looking Statements This section warns that the report contains forward-looking statements subject to various risks and uncertainties - This report contains forward-looking statements subject to risks, uncertainties, and assumptions, which could cause actual results to differ materially from those anticipated[169][170] - Key factors that could impact future results include supply chain disruptions, raw material costs, labor issues, success of growth programs, indebtedness, financial market disruptions, interest rates, foreign currency, collectibility of notes, competition, and litigation outcomes[170] Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company is exposed to market risks inherent in its operations and uses derivative instruments to manage these risks - The Company manages market risks through derivative instruments, as detailed in Note 17 to the Condensed Consolidated Financial Statements[171] - There have been no significant changes in the Company's portfolio of financial instruments or market risk exposures from the 2022 year-end[172] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023 - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of June 30, 2023[174] - The assessment excluded the internal control over financial reporting for the recently acquired seasoned pretzel and coffee roasting capabilities, which represented approximately 0.1% of net sales and 2.4% of total assets[174] - No material changes occurred in the Company's internal control over financial reporting during the quarter ended June 30, 2023[175] Part II — Other Information This part covers legal proceedings, risk factors, and other required disclosures Item 1. Legal Proceedings Information regarding legal proceedings is incorporated by reference from Note 16 to the Condensed Consolidated Financial Statements - Information regarding legal proceedings is available in Note 16 to the Condensed Consolidated Financial Statements[177] Item 1A. Risk Factors There have been no material changes to the company's risk factors since the 2022 Annual Report - Information regarding risk factors appears in Management's Discussion and Analysis of Financial Condition and Results of Operations and in the Annual Report on Form 10-K for the year ended December 31, 2022[178] - There have been no material changes from the risk factors previously disclosed in the TreeHouse Foods, Inc. Annual Report on Form 10-K for the year ended December 31, 2022[178] Item 2. Unregistered Sale of Equity Securities and Use of Proceeds This item is not applicable for the reporting period Item 5. Other Information No director or officer adopted or terminated any Rule 10b5-1 trading arrangement during the quarter ended June 30, 2023 - No director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2023[180] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance and certification documents - Exhibits include the Restated Certificate of Incorporation, Amended and Restated By-Laws, Amendment No. 1 to Seller Note Credit Agreement, List of Guarantor Subsidiaries, CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL documents[181] Signatures This section contains the official signatures authorizing the report - The report was signed on August 7, 2023, by Patrick M. O'Donnell, Executive Vice President and Chief Financial Officer of TreeHouse Foods, Inc[183][185]