TreeHouse Foods Q4 2024 Earnings Report

TreeHouse Foods EPS Results

• Actual EPS: $0.95
• Consensus EPS: $0.97
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: $0.77

TreeHouse Foods Revenue Results

• Actual Revenue: $905.70 million
• Expected Revenue: $907.71 million
• Beat/Miss: Missed by -$2.01 million
• YoY Revenue Growth: -0.50%

TreeHouse Foods Announcement Details

• Quarter: Q4 2024
• Date: 2/14/2025
• Time: Before Market Opens
• Conference Call Date: Friday, February 14, 2025
• Conference Call Time: 8:30AM ET

TreeHouse Foods (NYSE:THS) manufactures and distributes private brands snacks and beverages in the United States and internationally. The company provides snacking products, such as crackers, pretzels, in-store bakery items, frozen griddle items, cookies, and candies; and beverage and drink mixes, including non-dairy creamer, coffee, broths/stocks, powdered beverages and other blends, tea, and ready-to-drink-beverages. It also offers groceries comprising pickles, refrigerated dough, hot cereal, and cheese and puddings, as well as natural, organic, and gluten-free products. The company sells its products through various distribution channels, including retailers, foodservice distributors, food-away-from-home customers, refrigerated and frozen formats, and co-manufacturers, as well as industrial and export, which includes food manufacturers and repackagers of foodservice products. TreeHouse Foods, Inc. was founded in 1862 and is based in Oak Brook, Illinois.

TreeHouse Foods Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Welcome to the TreeHouse Foods Fourth Quarter twenty twenty four Conference Call. All participants will be in listen only mode. After today's presentation, Please note this event is being recorded. At this time, I would like to turn the call over to Matt Feiler, VP of Investor Relations of TreeHouse Foods for the reading of the Safe Harbor statement.

[Matt Siler, Vice President of Investor Relations at TreeHouse Foods]

Good morning and thank you for joining us today. Earlier this morning, we issued our earnings release and posted our earnings deck, both

[Matt Siler, Vice President of Investor Relations at TreeHouse Foods]

of which are available within

[Matt Siler, Vice President of Investor Relations at TreeHouse Foods]

the Investor Relations section of our website at treehousefoods.com. Before we begin, we would like to advise you that all forward looking statements made on today's call are intended to fall within the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and projections and involve risks and uncertainties that may cause actual results to differ materially from our forward looking statements. Information concerning those risks is contained in the company's filings with the SEC. A reconciliation of non GAAP measures to their most direct comparable GAAP measures can be found in the release and the appendix tables of today's earnings deck.

[Matt Siler, Vice President of Investor Relations at TreeHouse Foods]

With that, let me now turn the call over to our Chairman, CEO and President, Mr. Steve Oakland.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Thank you, Matt, and good morning, everyone. Today, I will share with you our fourth quarter and full year '20 '20 '4 financial results, as well as provide our initial 2025 guidance. Before we get to the results, I'd like to update you on a couple of recent events. First, the voluntary recall of frozen griddle products, which occurred last quarter. As you can see on Slide four, Treehouse Foods initiated the recall of products made in our Brantford, Ontario facility out of a commitment to food safety and quality.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

The recall was initiated as a result of the rigorous quality assurance testing of our products made at the facility. We temporarily closed the facility to conduct a deep cleaning, sanitation and hygienic restoration. The facility resumed shipping products in recent weeks, in line with our expectations. And we anticipate no significant financial contribution from Griddle in the first quarter. Second, in January, we completed the purchase of Harris Tea, which is outlined on Slide five.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

I'm pleased to welcome the Harris Tea team to TreeHouse Foods. The transaction strengthens our competitive positioning in the fast growing private label tea category and adds unique blending and sourcing capabilities that customers desire, building upon our category leadership and enhancing our position through additional depth and scale. The acquisition includes Harris Teas manufacturing facilities in Morristown, New Jersey and Marietta, Georgia and provides vertical integration across the company's existing tea business. Turning now to a brief summary of our fourth quarter and fiscal year results on Slide six. Fourth quarter adjusted net sales of $911,400,000 and adjusted EBITDA of $118,300,000 were both in line with our expectations.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

We drove an improvement in our volume and mix and posted almost 4% growth in the period. Amidst voluntary recall related disruptions in our supply chain, we executed well to achieve significant cost savings, securing anticipated procurement savings, which provided the benefits we expected this quarter. Looking at fiscal year twenty twenty four, adjusted net sales of $3,380,000,000 and adjusted EBITDA of $337,000,000 were also in line with our updated expectations. We delivered flattish volume and mix for the year despite our supply chain challenges. Let's take a closer look at the consumer trends we experienced during the fourth quarter in the categories in which TreeHouse operates.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Detailed on Slide seven. Private brand unit sales experienced a rather sharp deceleration during the quarter. We believe this slowdown was a result of continued macro pressure that has impacted the broader food and beverage market. We are experiencing similar trends thus far in Q1, and we have planned our 2025 business accordingly. Despite the macro trends, I am pleased to report that overall private label industry dynamics remain favorable, as we have illustrated on Slide eight.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Price gaps are healthy and maintain their historical cadence during the holiday period. Despite weaker consumption, private brands maintain share. As it relates to promotion levels, we once again saw the traditional pattern of gradual increases as the calendar year progressed. Looking ahead, we believe an increase in promotional activity is likely. Given industry volume softness and overall consumption patterns, and we have planned accordingly.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Promotions are generally still below the historic levels seen prior to the pandemic, and we remain comfortable with the expected levels of promotions in our categories. Moving to Slide nine. Private brands have been consistently gaining share over the last two decades, which we believe will continue over the long term. TreeHouse remains attractively positioned at the intersection of two incredibly powerful long term consumer trends. The growth of private brand groceries in North America and the consumers' love of snacking.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Continuing with the discussion of the long term opportunity on Slide 10, it's clear that many grocery retailers also see further runway for growth in private brands and are making their own strategic investments accordingly. Walmart and Albertsons both launched new private label brands in 2024. Costco's Kirkland brand is well established globally. And Aldi continues its store based expansion across The U. S.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

With an assortment that's focused almost exclusively on private brands. The retailer emphasis underscores the opportunity available to TreeHouse to partner with our retail customers, gain share and create value over the long term. I will conclude by providing additional context as to how we plan to manage the business in 2025, which incorporates the challenging macro food trends and slower category growth. We will continue to focus on what we can control as an organization, primarily the performance of our supply chain and our cost structure. While we have made progress improving our operations, we still have a significant opportunity to improve our execution and consistency.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

As we begin 2025, we are sharply focused on executing what you see outlined on Slide 11. We have visibility to delivering our commitment of two fifty million dollars of gross supply chain savings through 2027. We are focusing on optimizing costs across our supply chain network to drive improved profitability. I'm confident that through our margin management function, we can improve the profitability of our current business as well as sharpen our competitiveness as we work to win new business this year. We will allocate our supply chain capacity to the most attractive mix of opportunities to best drive profitability for both TreeHouse and our customers.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

We have good line of sight to some additional near term opportunities to drive net sales and cash flow, which are highlighted on Slide 12. First, we have the opportunity to improve the production efficiency at our Cambridge facility, which despite significant improvement in 2024, is still not yet in line with our long term expectations. And second, we are on our way to a resolution of the frozen grill recall that is impacting our first half with the glide path progressing as planned. Third, our coffee business will begin to realize cost synergies this year as we complete the needed investments in the facility that we acquire, which should bolster our coffee margin capability. And finally, our level of growth CapEx is going to moderate moving forward as we complete some carryover projects from last year.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

With that, I will now turn the call over to Pat for further detail on our fourth quarter results and our 2025 outlook. Pat?

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Thanks, Steve, and good morning, everyone. I'd like to start by expressing my gratitude to the entire TreeHouse team for a solid close to the year. I am confident in our plans heading into 2025. I'll start with a summary of our fourth quarter results on Slide 13. Adjusted net sales of $911,400,000 and adjusted EBITDA of $118,300,000 both improved versus the prior year in line with our expectations.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Progress on procurement savings drove stronger adjusted gross margin performance. Adjusted EBITDA margin rose to 13%. Let me walk through these results in greater detail. On Slide 14, we have provided a look at our year over year net sales drivers. Our adjusted net sales increase of 0.2% was primarily driven by volume and mix, which was up 3.8% due to strong performance in eight of our top 10 categories, led by pretzels, in store bakery, cookies and broth.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

This positive volume and mix contribution was offset by the impact of our frozen griddle facility restoration, which provided a drag of 2.8%. Pricing was a headwind of about 70 basis points due to targeted commodity driven pricing adjustments as we expected. Finally, foreign currency provided a drag of 10 basis points. Moving to Slide 15, I'll walk you through our profit drivers. Volume and mix including absorption had no impact in the quarter.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

PNOC or pricing net of commodities was a drag of $23,000,000 as expected, which was driven by higher commodity costs and targeted pricing investments. Next, operations and supply chain provided a $29,000,000 benefit year over year driven by supply chain cost savings primarily related to our procurement initiatives. In 2024, we achieved $60,000,000 in gross savings. Lastly, SG and A and other provided a benefit of $4,000,000 year over year driven by expense management and freight costs. Moving on to a summary of our capital allocation strategy on Slide 16.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

We remain focused on deploying capital in a manner that enhances returns for shareholders. We have been balanced in our approach over the past three years with a relatively even split between our strategic priorities. Our first priority remains investing in our business, which we do organically through CapEx and inorganically by strategically adding depth and capabilities as illustrated by our recent acquisition of Harris Teeth. We will continue to maintain our balance sheet and execute on our share repurchase program when we believe our share price has become dislocated and we have the cash on hand to do so. In 2024, we returned roughly $150,000,000 to shareholders through our share repurchase program.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

As we continue in 2025, we will remain disciplined looking at every possible capital deployment decision by evaluating risk adjusted returns. Now turning to our outlook for 2025, I'd like to spend a few moments framing how we are thinking about the year on Slide 17. We continue to see a challenging macro food environment and slowing category growth. As it relates to our top line outlook, there are a few factors to consider in our 2025 guidance for adjusted net sales in a range of $3,340,000,000 to $3,400,000,000 or approximately flat at the midpoint. Volume and mix are expected to decline approximately 1% year over year due to a couple of factors.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Organic volume and mix are expected to decline approximately 1%. Their Harris Tea volume benefit is expected to be offset by our previously announced decision to exit the ready to drink business and other margin management actions along with the impact of the frozen griddle product recall. We expect that commodity related pricing will be an approximately 1% benefit in 2025. Moving to profitability, we expect adjusted EBITDA in a range of $345,000,000 to $375,000,000 in 2025. We are confident in the progress that we've made in implementing our supply chain savings initiatives and believe we are on track to deliver continued cost savings in 2025.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Additionally, we have made margin management a priority in the coming year and are executing on this strategy as we speak. We expect free cash flow of at least 130,000,000 driven by improved profitability. Finally, we anticipate net interest expense in a range of $80,000,000 to $90,000,000 and capital expenditures of approximately $125,000,000 which should continue to move lower as we move beyond a multiyear investment period in both capacity and cost improvement. With regard to the first quarter, we are expecting adjusted net sales in a range of $785,000,000 to $800,000,000 which represents a year over year decline of approximately 3.5% at the midpoint. Volume and mix are expected to decline approximately 3% year over year.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

The Harris Teap volume benefit will be more than offset by the one time impact from the frozen girdle product recall. In terms of profitability, we expect adjusted EBITDA at a range of $38,000,000 to $46,000,000 With that, I'll turn it back over to Steve for closing remarks. Steve?

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Thanks,

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Pat. Twenty twenty four was a difficult year for the food industry and TreeHouse. I'd like to thank the team for managing the business through a tough environment. While we stand to benefit from our categories returning to their historic growth rates, I continue to believe TreeHouse has meaningful margin expansion opportunity. We have been implementing near term strategies to enhance value that are within our control.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

These include several efficiency opportunities across our supply chain and our overall cost structure that should drive improvement in the near term. As we head into 2025, we are focused on strengthening the foundation of our supply chain and margin management initiatives, restoring production levels in key categories and pursuing profitable new business. Additionally, as we move through next year and conclude some carryover growth projects, we will begin a multi year glide path to lower the levels of CapEx, which will drive higher free cash flow conversion. These efforts should drive improved profitability and cash flow regardless of the macro headwinds. With that, I'll turn the call over to the operator to open the line for your questions.

[Operator]

The first question comes from Andrew Lazar of Barclays. Your line is open.

[Andrew Lazar, Managing Director at Barclays]

Great. Thanks so much. Good morning, Andrew. Good morning. I guess first question would be, in the fourth quarter, excluding all the onetime dynamics of exiting businesses and the Griddle recall, I think you said under volume underlying volume rose 3.8%.

[Andrew Lazar, Managing Director at Barclays]

On the same yes, on the same basis, if I'm looking at it right, I think you're looking for underlying volume, again, excluding all of these onetime things in the first quarter that's sort of flattish. I guess if I have that right, what would what do you attribute the sort of sequential slowdown to?

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Yes, Andrew, this is Pat. So I think as we started the ramp up of the broth facility, that was part of what helped us into the fourth quarter as we weren't shipping as much broth. I think we've also seen an offset in some of the category deceleration that we talked about. As we exited the last couple of months and based on what we can see year to date, we're seeing maybe just slightly positive category trends, but largely flat. And so I think that's the way we're thinking about the first quarter.

[Andrew Lazar, Managing Director at Barclays]

Got it. Got it. Thanks for that. And then Steve, just a little bit more high level sort of from an industry perspective really across branded and private label. But over the, whatever, past couple of decades, right, the group has, from time to time, dealt with whatever significant fundamental challenges.

[Andrew Lazar, Managing Director at Barclays]

And each time, while it's taken some time, the group has sort of found its way back to sort of a better place, one sort of one way or another. And it just feels like valuations for the group at this stage are almost sort of implying that this time is different, that the challenges the industry currently faces are maybe more enduring or sort of structural in nature. And I guess I would just be curious on your thoughts, obviously, if you've been in the industry a long time. And at any given point in time, it's always seemed like the challenges are structural and then they've proven not to be. And again, I don't want to be dismissive of any of the challenges the industry is facing.

[Andrew Lazar, Managing Director at Barclays]

I know they're real. But you get a sense of what I'm getting a sense of like is this time different in your view? Thanks.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Sure. Well, maybe I'll answer that by pulling it back to TreeHouse and how we look at it. And we're looking at exactly what you just articulated. So obviously, we're not satisfied with our 2024 results, right? We know this business is capable of more than that.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

And you've got this environment of high inflation. You've got the GLP one question. You've got the consumer pressure question. So you've got a lot of questions around you. We and if I take you just back, it's been literally less than two point five years, just under two point five years ago that we sold the meal prep business and created the new free house, right.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

We chose categories when we did that that had grown historically 3% to 5% in units, okay. And some of those categories had grown at that pace for a decade. Well, obviously to your point, these things have changed dramatically right now, right. You've got a low growth to no growth environment. Private label dynamics within the categories are good, right?

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

But the categories aren't good, right? So what I inferred in my prepared remarks and I hope the group on the call understands is that our management team, our board, our leaders think this is an opportunity for exactly what you said to reset ourselves, right, to rethink how we go to market, how we run our business, okay, and do it differently. We talk about you focus on things you can control, right? Well, in our case, it's our supply chain, it's operational excellence, it's efficiency. We think we can drive significantly more profitability and cash flow.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

We think it has to start with the guide we gave you today, a very conservative volume guide, right? And that conservative volume guide allows us to focus on execution. We can tighten up our spending things like growth capital, working capital, and we can focus our team on projects that will take out structural costs, right? So we do think it comes back, right? And to your point, it does, right?

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

But what we want to do is be a place where when that happens, we can really leverage that financially. So our focus in the near term is to drive those things out. I think Pat I think our categories were up 0.7 in units in January, right? And so if that happens, we'll be a tad better than what we guided. But we thought a conservative guide, really a different mindset across TreeHouse and across our teams to focus on making this operation ready for when that happens.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

And then we're going to know more, right? We're going to the GLP one question is going to flush itself out, right, over the next year or two. A lot of these the trends, the food costs, right, commodities will get will settle. I mean, we can't have a more uncertain environment today with tariffs and all the things that are going on around us. So I think we just should build.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

And I know some of my peers are working on some of the same issues. And so I think we position the business for normalcy and normalcy will happen, right? It has to your point, every other time.

[Andrew Lazar, Managing Director at Barclays]

Okay. I always appreciate your thoughts. Thank you.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Yes. Thanks, Andrew.

[Operator]

The next question comes from the line of Matt Smith from Stifel. Your line is open.

[Matthew Smith, Director at Stifel Financial]

Hi, good morning. Thanks for taking my question.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Good morning.

[Matthew Smith, Director at Stifel Financial]

Steve, I wanted to kind of ask you about the margin management actions you're taking in 2025. It's hard to kind of tease out what the impact to volumes is based on the guidance, perhaps it's a point or so. And can you talk a little bit more about the phasing of when you expect to see the volume headwind from some of those margin management actions? And if this is kind of a reset in 2025 or if this is more of a go forward way of managing the business where we could continue to see volume drag that is offset by new contract wins over time?

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Sure. Maybe I'll touch on the how we approach this and when I think it's going to impact us and Pat can talk about you. So in a market that sort of what I just said to Andrew, if you're assuming your business is going to grow 3% to 5% and that's been the historic trends, you're adding shifts, you're adding capacity, you're taking on complexity that isn't that efficient in your plants. Our margin management allows us to especially in those capacity constrained areas to really align efficient operations with the best where can we give our customers, what customers and what volume will that be the most effective for them and the most effective for us? And not put that pressure on that team to try to grab that extra piece of business that ends up being inefficient, right?

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

So I think there'll be a point or two of volume drag throughout the year, But I think it's offset dramatically by the cost to serve that volume. We've done some really, really good work that suggests some of that volume is really expensive to serve, right? Now that doesn't mean that as things recover, we won't make CapEx capacity expansion expenditures again. But I think there's a chance to pause on that. And also over the next year or two, I think our TMOS activity, we're seeing great progress from TMOS.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

That's adding capacity to our system. So let's let that run for a year or two and free up some capacity and we'll go fill it. So maybe I'll hand it to Pat to talk about the impact.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Yes. And so I think you're thinking about that right from a quantification. I think you'll see that build throughout the year. Obviously, the first quarter, we've got visibility into what business we want to serve there. Throughout the year, you'll start to see us make choices on bids that we participate in where we may not want to run down the structural margin in a category and bid too low.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

And other parts of business that, like Steve described, that are complex and are within the tail of what we serve that don't make sense for us. So I think about that as probably starting second quarter and then building throughout the year.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Yes. It's not going to be draconian. But a couple of points of volume out of our system, the most expensive part of our tail can really impact our margin

[Matthew Smith, Director at Stifel Financial]

capability. Thanks, Pat. And just as a tactical follow-up, the margin management actions to drag on volume, is that going to be it looks like the way guidance was laid out, that's not going to be included in what you're calling organic volume. Is that right?

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Yes. I think the way that we described that, that's right. Maybe the way we described organic might just be what we would call sort of base business, maybe be another way to say that.

[Matthew Smith, Director at Stifel Financial]

Thank you. I'll pass it on.

[Jon Andersen, Partner - Equity Research at William Blair & Company, L.L.C]

Thank you.

[Operator]

The next question comes from John Anderson of William Blair. Your line is open.

[Jon Andersen, Partner - Equity Research at William Blair & Company, L.L.C]

Hey, good morning, everybody.

[Andrew Lazar, Managing Director at Barclays]

Good morning, John.

[Jon Andersen, Partner - Equity Research at William Blair & Company, L.L.C]

A couple of quick questions.

[Jon Andersen, Partner - Equity Research at William Blair & Company, L.L.C]

On the supply chain cost saving program, I think you mentioned, Pat, that cumulatively you kind of realized $60,000,000 of gross savings in 2024. Can you talk a little bit about how we should be thinking about the cadence of the balance of that program in 2025 and 2026? And then I'm also curious around the commentary around the capital expenditure glide path, kind of a multiyear glide path to a lower CapEx rate. I think the CapEx rate was around 4.3% of sales in 2024, kind of implied in the 3.8%, three point seven %, three point eight % range in 2025. How that you expect that to kind of, assuming all else equal, how that glide path might play out over the next two to three years?

[Jon Andersen, Partner - Equity Research at William Blair & Company, L.L.C]

Thanks.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Yes. So on the supply chain savings, a lot of what we drove this year was related to our procurement cost savings initiatives. And we're really pleased to see the flow through of that in the second half of the year primarily. So given that we do a lot of that work in the second half, what we expect to flow through in 2025 will be the carryover impact of that as well as the remainder of the pipeline as we continue to execute on that. Obviously, in a lower volume environment, it's a little bit harder to drive through kind of ongoing cost savings.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

And we do see a little bit of inflation. So that number from a manufacturing will be a little bit smaller this year. But we see ability for TMOS to offset our inflation and deliver a little bit. And then we've had good progress as well on our logistics and there's still more work to go there. So I'd say think of 2025 providing probably a little bit less from a procurement savings, but that's well on its way.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

We'll get some manufacturing and we'll get to start to work on our logistics, which were kind of the pillars of what we talked about. And then we'll just look at based on volumes, what are the structural things we've got to do to make sure we're aligning effort with the volume that we do have. Then as it relates to CapEx, we are winding up a couple of multiyear projects in 2025. And I think for this business, we've said historically 3% to 3.5% is probably the level of CapEx. I think on the high end would be what you need to go to drive more growth.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

And so on the low end, if you're not trying to track back growth, you're probably closer to the low end of that over time, if you're not making those types of investments. And so that'd be a little bit of how we think about the glide path and we'll obviously we'll update that as we get closer to it.

[Jon Andersen, Partner - Equity Research at William Blair & Company, L.L.C]

Makes sense. One quick follow-up. I think it dates back a little ways now, but at one point, you had shared kind of a view of where you may be in 2027 from a margin perspective and I think an implied EBITDA margin around 12% in light of some of the kind of the pivot that you're making here based on the macro and category performance that we're like you're going to be scrutinizing some of the category customer relationships a little bit more for margin management. Does that change the kind of the complexion of long term algo a bit lower top line but offset by improved profitability or gross profit dollars? Thanks.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Yes. I'm not sure, John, we would say at this point, we're going to go a lot above that. But I think that will be the real focus. And I think obviously the work to go drive that type of margin on a lower volume requires a little bit more effort. So I don't think we're going to say anything different.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

But obviously as we get greater line of sight and we see the benefits of that payoff, we can update as we go along.

[Jon Andersen, Partner - Equity Research at William Blair & Company, L.L.C]

Great. Thanks so much.

[Andrew Lazar, Managing Director at Barclays]

Thanks, John.

[Operator]

The next question comes from Jim Salera of Stephens Incorporated. Your line is open.

[Jim Salera, Research Analyst at Stephens Inc]

Yes, good morning. Thanks for taking my questions. Good morning. I was hoping you could maybe give a little more detail around the softness in private label consumption, the sequential step down in 4Q from 3Q. You did call out some strength in pretzels, cookies and the in store bakery, which at least conceptually I would think are

[Jim Salera, Research Analyst at Stephens Inc]

a little bit more discretionary than some

[Jim Salera, Research Analyst at Stephens Inc]

of the other categories in store.

[Jim Salera, Research Analyst at Stephens Inc]

And so you would think the consumer spending there in maybe

[Jim Salera, Research Analyst at Stephens Inc]

is little pressured in other areas

[Jim Salera, Research Analyst at Stephens Inc]

that would actually be a benefit to private label? Just any color you kind of offer around that would be helpful.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Sure. Sure. A couple of things. I think we actually took some share in a couple of those categories, right? Our pretzels team has been performing incredibly well.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

And if you remember a couple of years ago, we made an investment to bring seasoned pretzels to market. That is starting now to pay off. So I think in ISP as well, there's some new business in that group. So I think frankly that's executional. And unfortunately when we have the hangover of our frozen griddle those things are hard to show through.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

But so we actually had some executional strength there. Honestly, we have historically seen brands peak in December. That's been a historical peak. Obviously, you've got holidays, you've got all those things happening. So and you've got a lot of promotional support.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

But we I mean, and I've listened to the other calls on the few calls that have been out. I just think we had a soft consumer environment in the month of December. Like we saw it decelerate as we got into the quarter. I don't know if that's a consumer paying for Christmas. I don't know what those things are.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

But we saw the volume decelerate. We saw I mean we gained a tiny bit of share. We had a tiny bit positive which is still better than the category dynamics. But I think it was more a macro category issue or a macro consumer spending issue than it was a private label issue. And like we said, we saw about 0.7 improvement in January, right, a small improvement in January.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Now we are at record share levels, right? So I'm not sure so much sure it's a private label issue as it is just a macro issue.

[Jim Salera, Research Analyst at Stephens Inc]

Okay. That's great. And maybe as

[Jim Salera, Research Analyst at Stephens Inc]

a follow-up question to that.

[Jim Salera, Research Analyst at Stephens Inc]

If we think about 2025 and again ignoring all the one time headwinds, how should we think about general kind of category improvement versus operational execution leading to share gains as the drivers of the kind of base business volume?

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

I think we are planning for volume to be flat, which as I said in my opening comments, that's a conservative point of view that allows us I think the underlying categories, I mean if there anything like January might be up to point ish. But that allows us a little bit of room to do a little bit of distribution changes and things to improve our margins, right. The Harris Teas acquisition, we thought that's great mix, it's profitable volume. We thought bringing that in gave us an umbrella to operate under to make the rest of the business to position the rest of the business in a much better place. So I think what you'll see there, we'll win some pretzel business, we'll win some of those great categories where we're performing really well.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

And then we'll use that opportunity to position the rest of the business for a more profitable run going forward.

[Operator]

The next question comes from Rob Dickerson of Jefferies. Your line is open.

[Robert Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

Great. Thank you. Maybe just one kind of technical question and one broader question. On for the quarter, volume mix was up 3.8% and then we have the line that shows kind of facilities restoration impact, right, which I assume that's the griddle business.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

That's correct.

[Robert Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

When we go okay.

[Robert Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

And then when we go back last year to Q4, I believe it was about a 4% drag from the broth dislocation, right, kind of from that disruption. So I guess if I'm trying to kind of like net broth, let's say, to Griddle, would you say that that 4% drag from last year's Q4 was essentially recovered in this year's Q4? That's the first question.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Yes, Rob, this is Pat. So I would say some of that, ore that we saw in the prior year in 2023 is recovered over the course of the year. I think as we've described it in the past, we do think it's going to take through Q1 to get broth surface levels back up. And so we're seeing that. So I wouldn't say it's fully recovered in that time frame.

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

It's a seasonal item. And so it takes a little bit from a capacity standpoint to go fill that pipeline back up. So we weren't quite there in the fourth quarter.

[Robert Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

Okay, cool. Perfect. And then just, Steve, you had the comment in the prepared remarks around expectations for promotional activity to increase. I kind of took that as both branded and private label. So I guess just kind of like first part of the question is just kind of in this like lighter volume environment and then kind of your comment on kind of trying to push the margin on a lower volume base.

[Robert Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

Is the idea as you kind of get through Q1, if like the environment, let's just say, doesn't improve materially, And as we kind of get through the year, both branded and private label could actually start to promote a little bit more to try to get those volumes. And hopefully, kind of the lower absolute price point on a promoted private label item becomes more attractive in

[Robert Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

this environment? That's all.

[Robert Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

Thanks a lot.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Sure. I think the assumption is branded, right? I think that they're still below and I mean at some point we have to stop using pre pandemic, right? It's going to get

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

too far.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Nobody's going to remember when it was, right? But the promotion levels are still not at historic norms, right? So there's room for promotions to grow based on that. We expect branded promotion volumes. Look, it's a low volume environment, right?

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

So we expect them to try to find ways to target that and be effective. We contemplated that in our flat guidance, right? We think that's contemplated in. When it comes to promotion for us, that's something we work on the with the retailer. It's not trade for us.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

It's not the same line. It's built into the contracts that we have. So if we're if we need to do that or they need to do that, we'll work on that together, but it won't have financial impact to us the way promotion does in branded accounting, right? So but my feeling is the gaps are pretty substantial right now. I think they can sustain and the value proposition for private label I think is the best it's ever been from a quality and assortment and price point, so price gap.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

So I don't I think we'll weather and we can deliver the numbers that we have comfortably without us having to do much. And that assumes brands are aggressive.

[Robert Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

Okay, super. And then maybe just one last quick one on Harris Teay. Four percent and a contribution to 25% just as you step into that business and I'm sure you've added it pretty quickly or closely, sorry, before you purchased it. Kind of out of the gate, is there like a kind of a larger increased distribution opportunity? Is there something strategic that kind of pairs with coffee that we just aren't discussing, right?

[Robert Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

And we clearly understand kind of what the CAGR on that business has been the category. Just trying to understand kind of what do you do with it out of the gate?

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Well, I think, yes. Number one, it's a great category. Typically, that is a category that is bought with coffee, right? The hot beverage group in most retailers is altogether. And so they bring an even deeper group of relationships with that particular category than we do.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

But also we have a small tea business, right? And we pack tea for some of the most specialty foodservice retailers and things. We have a very high end tea business that didn't have the procurement and blending capabilities. So it brings vertical integration to the business we already had. And that's where the little extra synergy for TreeHouse is besides just the integration stuff, right?

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

So I think we've and this is a really deep group from an expertise level. So they are clear category experts. So I think what we felt they could run our existing tea business better than we were running, right? No knock on our team. Just we felt there was going to be synergy on our tea business.

[Robert Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC]

Super. Thank you.

[Operator]

The next question comes from Carla Casella of JPMorgan. Your line is open.

[Carla Casella, Managing Director at JP Morgan]

Hi. Thanks for taking the question. Just on the Griddle facility, shutdown, and more broadly than that, can you talk about what you're seeing in terms of you talk about account wins. I'm wondering if you're seeing any account losses and if there's a kind of net net wins versus losses way to think about the business?

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

I think our customers have been with us really strongly both on our broth recall and on our griddle recall. So we think the distribution base as we come out of this will be very similar to the distribution base when we went into it. And I think that's just our transparency. There were no consumer injuries on this. This was a this is a rigor that we put into an older facility that we owned.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

And I think their QA groups really appreciate our vigilance on it. I think it was the right thing to do. It was expensive. And I know the retailers didn't don't like this kind of thing, but they appreciate having a partner with the kind of vigilance that we have. So far, we think our distribution will be neutral.

[Carla Casella, Managing Director at JP Morgan]

Okay, great. And then just any conversations you've had with the rating agencies. I know I ask this all the time, but the CCC rating on the bonds was low to us. We're just wondering if you've got any kind of in your sights to maybe get your rating up and what you may need to do?

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Yes. I think it's no different from other stakeholders who are just looking for consistency of execution and delivering on what we've set out. And so I think as we do that, you'll see it. I think as we keep leverage low as well, I think that's another kind of mechanical trigger point as well that we'll need to think about. And certainly, even with our refi, we felt like pricing we got in the first quarter was probably reflected what your sentiment is on the rating as well.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Yes. Carl, I would just say our bondholders and our lenders look at us favorable to that credit rating. So we think the underlying earnings power of the business shows through. And we understand the rating agencies' conservative stance and we're anxious for that to for us to have the returns and the results that we can show through to them as well.

[Carla Casella, Managing Director at JP Morgan]

Okay, great. Thank you.

[Operator]

The last question today comes from William Reuter of Bank of America. Your line is open.

[William Reuter, Analyst at Bank of America]

Good morning. I just have two. The first, your leverage is kind of down near the bottom of your target range of three to 3.5 times. Should we assume that, I guess, the majority of cash at this point will either be deployed towards M and A or if there are not opportunities towards share repurchases?

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Yes. And so I think the way to think about that is we obviously did M and A in January. And so we did put some of that cash that we had on the balance sheet to use early in the quarter in the first quarter of twenty twenty five for the Harris Teague acquisition. And so from a leverage standpoint, you may see that move up just a little bit from where we said our target was and then we'll work that down over course of the year. But certainly not levering up the company by any stretch, but that will change a little bit in the first couple of quarters of

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

twenty twenty five. Yes. We think by year end though, we'll be in an even lower position. I think the Slide 16, we thought it was important. We talk about capital allocation and the discipline that we have.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

We think that pie chart really gives you a sense that we have in fact invested in our business. We have in fact kept our balance sheet strong and opportunistically returned cash to shareholders. So we don't see any change in that going forward.

[William Reuter, Analyst at Bank of America]

Got it. And then given the diversity of your product portfolio, it's a little bit difficult from the outside to track how your commodities may look for the year. I guess, in general, are you going to see either inflation or deflation or should they be relatively flat?

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

Yes. We're going to see sort of low to mid single digit inflation is what we've got visibility to right now. There are large chunks of that that are in coffee and cocoa, which

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

if you follow those, those have

[Patrick O'Donnell, Executive Vice President and CFO at TreeHouse Foods]

been up somewhat more dramatically than other commodities. And then there's probably some things in some edible oils and some other ingredients that we use that are up a little bit year over year. So we'll watch that as we go through the year, but that's what we've got visibility to right now. And we've assumed some level of pricing in our top line guidance

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

for that. And we've talked a number of times much of our coffee pricing is pass through, right, is on timing pass through and we hedge it accordingly based on those pass through agreements. So that's a mechanical exercise and that's probably the largest single piece of it.

[William Reuter, Analyst at Bank of America]

Okay. So does it stand to reason that it sounds like from the last answer that largely you did push through price increases and let's exclude Cocos since there are pass throughs on that or coffee, I can't remember which one you just mentioned. But you price for the majority of the other commodity inflation you saw for the year?

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

I'd say that activity is happening right now. Yes. I would say it's more current. I wouldn't say we've done it. I'd say it's being done.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Yes. And obviously, there's positions in front of that stuff. So that gives us a time to do the customer lead time.

[Operator]

This concludes our question and answer session. I would like to turn the conference back over to Steve Oakland, Chairman, CEO and President of TreeHouse Foods for closing remarks.

[Steven Oakland, President, CEO & Chairman at TreeHouse Foods]

Well, I'd like to thank everyone for being with us today. I'm sure that this isn't what you planned for Valentine's Day, but we appreciate you being with us. And we hope that we hope you have a great evening. And we look forward to talking to you live in between and again next quarter. Have a great

[Operator]

day. This concludes today's conference call. You may now disconnect.

Participants

Executives

• Matt Siler, Vice President of Investor Relations
• Steven Oakland, President, CEO & Chairman
• Patrick O'Donnell, Executive Vice President and CFO

Analysts

• Andrew Lazar, Managing Director at Barclays
• Matthew Smith, Director at Stifel Financial
• Jon Andersen, Partner - Equity Research at William Blair & Company, L.L.C
• Jim Salera, Research Analyst at Stephens Inc
• Robert Dickerson, Managing Director - Consumer Staples Equity Research at Jefferies LLC
• Carla Casella, Managing Director at JP Morgan
• William Reuter, Analyst at Bank of America