Facing challenging circumstances from the pandemic, TreeHouse Foods reported slight declines in net sales but executives remained optimistic as they shared the company’s first-quarter results, which were driven by private label profitability.
"I'm proud of the underlying strength in our business that is reflected in our first quarter results, as revenue across most of our growth categories continued to outpace the rest of private label, while delivering strong profitability," said Steve Oakland, Treehouse president and CEO. "Our results demonstrate ongoing progress on our strategic journey to build a company with long-term sustainable growth. We remain focused on improving our operational and commercial platforms, optimizing our portfolio and investing in people and talent to create value for our customers as their preferred manufacturing and distribution partner."
Oakland discussed the supply chain disruption that impacted its business during a PLMA panel, saying that in food, the change in product demand is around 1-2% annually, so the company wasn’t prepared for the level of volatility brought on by pantry loading and hoarding done during the pandemic. He also said the company faced losses as big as 70% in its foodservice business.
Despite that, the Oak Brook, Ill.-based leading food and beverage supplier posted just slight declines for Q1 including a dip of net sales by 2.5%, year over year, totaling more than $1 billion. Organic net sales decreased 5% in Q1 2021 compared with Q1 2020. Inflation across several agricultural commodities, such as edible oils, and high transportation costs contributed to some of the decrease.
Gross profit as a percentage of net sales was 17.1% in the first quarter this year, compared with 18% a year ago, a decrease of .9%.
The company said the decrease was caused primarily due to lower volume from reduced COVID-19 pandemic demand, commodity inflation, and incremental costs incurred in response to the pandemic, including increased production shifts, supplemental pay, protective equipment for employees, and additional sanitation measures, adding that this was partially offset by increased volume from the inclusion of the business from its recent pasta acquisition and favorable channel mix.
Total operating expenses as a percentage of net sales were 16.0% in the first quarter of 2021 compared to 15.2% in the first quarter of 2020, an increase of 0.8 percentage points. The company said the increase is primarily attributable to integration costs associated with the recent pasta acquisition, higher freight costs due to reduced market capacity and an increase in spot market usage, and professional services fees related to shareholder activism.
"The enhancements we have made to strengthen our business and improve our operating performance, combined with our commitment to excellent service and focus on our customers are critical as we navigate today's inflationary environment and continued pandemic-related uncertainty," Oakland said. "As we make investments in our capabilities and adapt our supply chain to build greater depth in our growth categories, we are confident we will further capitalize on our leading portfolio of private label foods and beverages to drive greater value for all of our stakeholders."
In particular business units, TreeHouse saw an increase in net sales in its meal preparation group, up nearly a full percentage point and just shy of $5 million in Q1. Net sales in its snacking and beverage unit dipped nearly 8% in the first quarter versus a year ago, earning $32.5 million in net sales.