TreeHouse Foods, Inc. THS is navigating a challenging period marked by weak consumer demand. Operational challenges and market disruptions are further hindering the company’s performance. As a result, THS’ third-quarter fiscal 2024 net sales declined year over year and missed the Zacks Consensus Estimate.

Management lowered its fiscal 2024 outlook, citing softer consumer demand and the ongoing impact of the product recall, signaling that the road ahead may be even more difficult. Over the past three months, the company’s stock dropped 11.8%, a sharper decline compared to the 7.7% drop in the industry.

Slowing Consumer Trends Hurt TreeHouse Foods

The company has been operating amid a dynamic environment characterized by challenging consumer trends, slower category growth and operational disruptions. These factors persisted in the fiscal third quarter, wherein quarterly net sales of $839.1 million dropped 2.8% due to a voluntary recall of frozen griddle products and unfavorable volume/mix performance. Organic sales decreased 2.7%, with softness driven by slowing consumer consumption trends across key categories.

Although private brand unit sales were positive during fiscal third quarter, there was a notable deceleration as the quarter progressed. This reflects sustained consumer pressure and broad market challenges. The softness persisted into October, with expectations for these trends to continue in the near term. A shrinking market for private brands, despite their historical growth trajectory, raises concerns about TreeHouse Foods’ ability to sustain revenue growth.

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THS’ Updated Guidance Reflects Continued Pressure

Thanks to softer consumer demand and a voluntary recall of frozen griddle products, TreeHouse Foods recently lowered its fiscal 2024 adjusted net sales and adjusted EBITDA guidance. Management expects full-year adjusted net sales of $3.37-$3.4 billion, which indicates a decline of 2% to 1% from the reported level in 2023. This forecast is revised from the previous guidance of $3.43-$3.5 billion, implying a flat to a 2% increase. Adjusted net sales for the fiscal fourth quarter are projected between $900 million and $930 million, indicating a decline of 2% to 1% year over year.

The company revised its fiscal 2024 adjusted EBITDA guidance downward in the range of $335-$345 million compared with $360-$380 million projected earlier. This revision implies weakening consumption trends and a softer mix, leading to supply chain deleverage, along with the anticipated impact of the voluntary griddle recall.

A Rocky Road Ahead for THS

The company is working on improving its operations through the TreeHouse management operating system and other supply-chain initiatives. However, ongoing market challenges and internal disruptions suggest continued volatility. With weak consumer demand and a disappointing outlook, investors should approach TreeHouse Foods with caution in the near term. At present, THS carries a Zacks Rank #5 (Strong Sell).

Some Solid Staple Bets

We have highlighted three better-ranked stocks from the Consumer Staples sector, namely United Natural Foods, Inc. UNFI, Ingredion Incorporated INGR and Freshpet FRPT.

United Natural currently sports a Zacks Rank of 1 (Strong Buy). UNFI delivered a trailing four-quarter earnings surprise of 553.1%, on average.

You can see the complete list of today’s Zacks #1 Rank stocks here.

The consensus estimate for United Natural’s current financial-year sales and earnings suggests growth of 0.3% and 442.9%, respectively, from the year-ago period’s reported figure.

Ingredion Incorporated manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently carries a Zacks Rank #2 (Buy).

INGR has a trailing four-quarter earnings surprise of 9.5%, on average. The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.4% from the year-ago reported number.

Freshpet, a pet food company, presently carries a Zacks Rank #2. FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.

The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 27.2% and 228.6%, respectively, from the year-ago period’s reported figure.

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