TreeHouse Foods (THS, Financial) is maintaining steady trading after finalizing its acquisition of Harris Tea, a private brand tea manufacturer. The company, a major supplier of private label food and beverages, has reaffirmed its FY24 guidance, anticipating sequential improvement in volume growth and profit margin in Q4. THS typically releases Q4 results in mid-February.
- The Harris Tea acquisition, valued at $205 million, enhances TreeHouse's leadership in private label tea, adding a fast-growing, margin-accretive business. Harris Tea's expertise in sourcing, blending, and packing, along with its scale and customer relationships, aligns well with TreeHouse's strategic focus on higher growth and margin targets.
- TreeHouse has faced challenges recently, including a voluntary recall of frozen griddle products and a temporary closure of its Ontario facility for deep cleaning, with manufacturing expected to resume in Q1.
- In mid-November, TreeHouse reported a Q3 sales shortfall, surprising investors with missed revenue expectations and lower Q4 revenue guidance, leading to a stock decline.
- Despite a favorable environment for private labels, with healthy price gaps and market share gains, the gains are from a smaller market due to reduced consumption and lower promotional activity compared to pre-pandemic levels.
- TreeHouse's organic net sales trend improved in Q3, but weakening consumer trends and Hurricane Helene's impact on shipping from its North Carolina distribution center posed challenges. Nonetheless, THS achieved a strong adjusted gross margin through supply chain savings.
Overall, the Harris Tea acquisition is expected to positively impact TreeHouse's growth and margins long-term. In the short term, the reaffirmed Q4 guidance is encouraging following the previous quarter's miss. The focus will be on Q1 guidance in the upcoming Q4 report, with hopes for improved results in 2025.
