HIGHLIGHTS
- Net sales grow 37.7% year-over-year
- Reported earnings per share of $0.35; $0.41 excluding unusual items
- Adjusted EBITDA grows 18.7% to $40.1 million
- SG&A as percentage of revenue down from 12.9% to 12.0%
- Debt reduced $36.6 million in the quarter
WESTCHESTER, Ill., Nov. 3 /PRNewswire-FirstCall/ -- TreeHouse Foods, Inc.
(NYSE: THS) today reported a 37.7% increase in third quarter net sales to
$374.6 million. Sales before acquisitions grew 8.9% compared to last year.
Net income per fully diluted share increased to $0.35 compared to $0.34 last
year. Adjusted earnings per share, excluding unusual items, was $0.41 per
fully diluted share, an increase of 20.6% from last year's adjusted earnings
per share of $0.34.
Reported net income was $11.1 million or $0.35 per share compared to net
income of $10.6 million or $0.34 per share for the same quarter last year.
This year's results included costs associated with the previously announced
closing of the Portland, Oregon pickle plant, integration costs associated
with the E.D. Smith acquisition and a non-cash exchange loss on Canadian
denominated intercompany debt. Excluding these unusual items, earnings per
share would have been $0.41, a 20.6% increase over last year's adjusted
earnings of $0.34. The following table reconciles the reported earnings per
share to adjusted earnings per share excluding unusual items.
ITEMS AFFECTING DILUTED EPS COMPARABILITY:
Three Months Ended Nine Months Ended
September 30 September 30
2008 2007 2008 2007
(unaudited) (unaudited)
EPS as reported $0.35 $0.34 $0.68 $0.88
Plant closing costs 0.02 0.29
Integration costs 0.01 0.02
Loss on intercompany note translation 0.03 0.06
Non-cash adjustment to value of
license and other 0.02
Adjusted EPS $0.41 $0.34 $1.07 $0.88
Adjusted operating earnings before interest, taxes, depreciation,
amortization and unusual items (Adjusted EBITDA, reconciled to net income, the
most directly comparable GAAP measure, on the attached schedule) increased
18.7% to $40.1 million in the third quarter compared to $33.8 million in the
same period last year. The increase is due primarily to the addition of the
E.D. Smith acquisition. The adjusted EBITDA growth of 18.7% lagged the 37.7%
year-over-year growth in total revenues due to lower margins resulting from
higher commodity and energy costs.
Net sales for the quarter totaled $374.6 million, an increase of 37.7%
over the third quarter of 2007 due primarily to the acquisition of E.D. Smith.
Excluding the acquisition, sales increased 8.9% due to a combination of
increased prices and retail volume gains in soup, salsa and non-dairy powdered
creamers. Gross margins for the quarter decreased from 21.6% to 19.5% due to
higher input costs and energy-related costs that were not fully recovered in
the quarter. On a sequential basis, the 2008 third quarter margins increased
85 basis points from the second quarter of 2008 as pricing programs were more
fully realized in the quarter.
Selling, distribution, general and administrative expenses were $45.0
million for the quarter, an increase from $35.2 million in the third quarter
of 2007. The increase was due to the growth of the Company from new
acquisitions in 2007. Selling, distribution, general and administrative
expenses as a percent of sales improved to 12.0% in the quarter compared to
12.9% last year as we continued to realize synergies from acquired companies.
Other operating expense includes $0.7 million in the quarter for costs
associated with the previously announced closure of the Portland, Oregon
pickle plant. Amortization expense includes the costs of trademarks, trade
names and other amortizable intangible costs. The increase in amortization
expense for the quarter of $1.7 million was due principally to the E.D. Smith
acquisition.
Interest expense in the quarter was $6.5 million compared to $5.0 million
last year due to higher bank debt used to fund the 2007 acquisition of E.D.
Smith. Compared to this year's second quarter, interest expense was down from
$7.6 million due to lower average outstanding debt resulting from the
Company's working capital efficiency programs. The effective income tax rate
of 29.9% in the third quarter was significantly lower than last year's rate of
37.6%. The lower effective tax rate is due to the financing structure
established for the E.D. Smith Canadian and U.S. businesses. The third
quarter effective tax rate is consistent with the year to date effective tax
rate of 29.7%.
Working capital efficiency programs were initiated during the summer in
order to improve operating efficiency. Inventory values have decreased 3.2%
from the beginning of year, despite September 30 being the seasonal high point
for inventory. Cash and asset management programs resulted in debt levels
decreasing by $36.6 million compared to an increase in debt of $32.0 million
in the third quarter last year. Total debt at the end of the quarter was
$551.8 million.
The Company also entered into a $200 million long term interest rate swap
agreement with a forward starting effective date of November 19, 2008 in order
to lock into a fixed LIBOR interest rate base. Under the terms of agreement,
$200 million in floating rate debt will be swapped for a fixed 2.90% interest
base rate for a period of 24 months, amortizing to $50 million for an
additional nine months at the same 2.9% interest rate. Under the terms of the
Company's revolving credit agreement, this will result in an all in borrowing
cost on the swapped principal being no more than 3.8% during the life of the
swap agreement.
'Our top line performance was very good, driven by volume gains in our key
categories of soup, salsa, non-dairy creamers and salad dressings. Although
our gross margins were down from last year, we saw an 85 basis point
improvement from last quarter as our pricing programs were more fully
realized. In addition, we increased our emphasis on working capital
improvements, and improved our quarterly free cash flow used to pay down debt
by $68.6 million compared to last year's third quarter,' commented Chairman of
the Board and Chief Executive Officer, Mr.
