Second Quarter 2018 Results & Outlook. August 2, 2018

Transcription

1 Second Quarter 2018 Results & Outlook August 2, 2018

2 Forward-Looking Statements From time to time, we and our representatives may provide information, whether orally or in writing, including certain statements in this Quarterly Report on Form 10-Q, which are deemed to be forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995 (the Litigation Reform Act ). These forward-looking statements and other information are based on our beliefs as well as assumptions made by us using information currently available. The words anticipate, believe, estimate, project, expect, intend, plan, should, and similar expressions, as they relate to us, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to certain risks, uncertainties, and assumptions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described herein as anticipated, believed, estimated, expected, or intended. We do not intend to update these forward-looking statements following the date of this report. In accordance with the provisions of the Litigation Reform Act, we are making investors aware that such forward-looking statements, because they relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated by the forward-looking statements contained in this presentation and other public statements we make. Such factors include, but are not limited to: our level of indebtedness and related obligations; disruptions in the financial markets; interest rates; changes in foreign currency exchange rates; customer consolidation; raw material and commodity costs; competition; our ability to continue to make acquisitions in accordance with our business strategy; changes and developments affecting our industry, including consumer preferences; the outcome of litigation and regulatory proceedings to which we may be a party; product recalls; changes in laws and regulations applicable to us; disruptions in or failures of our information technology systems; and labor strikes or work stoppages; and other risks that are set forth in the Risk Factors section, the Legal Proceedings section, the Management s Discussion and Analysis of Financial Condition and Results of Operations section, and other sections of this Quarterly Report on Form 10-Q, our Annual Report on Form 10-K for the year ended December 31, 2017, and from time to time in our filings with the Securities and Exchange Commission. 2

3 Welcome & Overview Steve Oakland CEO & President 3

4 Since We Last Spoke Top to top customer meetings with strategic retail customers Investor meetings In-person business review meetings with division leadership teams Key areas of focus Opportunities and challenges Town hall meetings across multiple TreeHouse locations 7 plant visits Completed the sale of McCann s Irish Oatmeal Shareholders Customers Leadership Employees 4

5 Private Label is Increasingly Important to Retailers We're going to continue to be a house of brands, we always have been, always will. But private label in the future is going to play a really important part of what we're doing, so I'm excited to see the growth in that. Customers love our brands better than the national brands and better than other private label offerings. We are especially focused on our top brands of Kroger, Private Selection and Simple Truth. Brett Biggs EVP & CFO, Walmart March 2018 W. Rodney McMullen Chairman & CEO, Kroger June 2018 We pioneered a grocery model built around value, convenience, quality and selection and now Aldi is one of America s favorite and fastest growing retailers. We re growing at a time when other retailers are struggling. Jason Hart CEO, Aldi June

6 THS2020: Further 2018 Actions Are Being Taken Action & Timing At Least 15 Additional Lines Permanently Shuttered Full TMOS Rollout Complete Across 12 Plants Status YE 2018 Running Slightly Ahead of Schedule Visalia, CA Q Closure Battle Creek, MI Mid-2019 Closure Administrative Office Locations Omaha, Q Closure 6

7 Structure to Win Leadership Structure Before After Streamlined decision making Cross functional strategic customer teams Fewer, bigger GM desks 7

8 Continued Progress on Critical 2018 Deliverables Q2 adjusted EPS above the guidance range Q2 revenue slightly above the guidance range Sequential operating improvement from the divisions TMOS rollouts continue Plant closings and line shutdowns on track THS2020 efforts are well underway with robust evidence of operating improvement Running ahead of Structure to Win savings initiatives FY 18 Guidance Tightened to $ $2.35 8

9 Financial Review & Outlook Matthew Foulston EVP & CFO 9

10 TreeHouse Q Financial Performance ($ in millions) Change B/(W) Q Q $ % Net Sales $ 1,455.8 $ 1,522.2 $ (66.4) (4.4) % Division Direct Operating Income (DOI) (27.2) (15.7) Division DOI Margin 10.0 % 11.3 % NA (1.3) pts Items Affecting Comparability 1 (51.9) (98.6) Corporate Unallocated (90.4) (97.9) Total Corporate Unallocated Expense (142.3) (196.5) % Net Loss (20.1) (34.2) % Adjusted EBIT (18.0) (24.8) Adjusted EBIT Margin 3.8 % 4.8 % NA (1.0) pts Adjusted EBITDAS (29.5) (19.9) Adjusted EBITDAS Margin 8.2 % 9.8 % NA (1.6) pts GAAP Diluted EPS $ (0.36) $ (0.60) $ % Adjusted Diluted EPS 2 $ 0.37 $ 0.51 $ (0.14) (27.5) % 1 Total includes amounts recorded in the COGS and operating expense lines of the Condensed Consolidated Statement of Operations related to restructuring programs; product recall reimbursement; acquisition, integration, divestiture, and related costs; and debt amendment and repurchase activity. 2 A reconciliation of Adjusted EBIT, Adjusted EBITDAS, Adjusted Net Income and Adjusted Diluted EPS to the most comparable GAAP measure is provided in the Appendix. 10

11 Q2 Net Sales Growth of 0.9%, Excluding SKU Rationalization and SIF Divestiture Percentage Change in Net Sales vs. Prior Year Baked Goods Beverages Condiments Meals Snacks THS SKU Rationalization (2.2) % (3.4) % (4.9) % (2.8) % (7.1) % (4.2) % Vol / Mix excl. SKU Rationalization (1.5) 0.5 (0.2) (7.8) 6.1 (0.5) Pricing 1.9 (1.1) Product Recalls (0.1) 1 Divestiture (5.9) - (1.1) Currency Total (1.6) % (4.0) % (2.6) % (14.5) % 0.2 % (4.4) % Excluding SIF Divestiture in 2017 (3.3) % Excluding SKU Rationalization and SIF Divestiture 0.9 % 1 Soup and Infant Feeding business sold in May

12 Q2 Adjusted EPS of $0.37, DOI Decline Partly Offset by Structure to Win and Taxes Adjusted EPS Q2 18 vs. Q2 17 Key Drivers $ $0.37 Q2 18 Q Includes $6m ($0.08) benefit from lower amortization expense due to Snacks intangibles write-down in Q417; and $9m ($0.12) in higher incentive compensation expense 12

13 Q Division DOI Drivers vs. Prior Year $ in millions 13

14 Q2 18 Division DOI vs. Prior Year Vol / Mix Pricing, Net of Comm Freight Ops SG&A / Other $m Chg vs. Q2 17 Baked Goods - = $ (1.8) Beverages -- - = -- = (14.5) Condiments Meals ---- = (5.4) Snacks = = (5.7) 14

15 Ongoing Focus on Generating Cash Net Debt $ millions We continue to make solid progress improving our net debt position down ~$600m since the Private Brands acquisition Net working capital has improved $150m since year end We expect working capital to be an ongoing opportunity in 2018 Working Capital $ millions Q4 17 Q2 18 B/(W) Accounts Receivable 1 $ (381) $ (258) $ 123 Inventory (918) (944) (26) Accounts Payable Net Working Capital $ (848) $ (698) $ Q A/R balance adjusted to reclassify certain customer receivables to liabilities related to trade promotional activity due to adoption of the new revenue recognition standard. Adjustment made only for comparative purposes within this presentation. 15

16 Tighten FY 18 Guidance Range of $ $2.35 Current Outlook H2 Volume Softness - Pricing / Commodities = Freight - Canadian tariff impact = Pecatonica re-start costs - Structure to Win ++ THS EPS Guidance Range $ $

17 2018 Guidance 2018E Net Sales EBIT $5.8 - $6.0 b $265 - $290 m EBIT Margin 4.6% - 4.8% Depreciation and Amortization Interest Expense, Net 1 ~ $240 - $250 m $116 - $118 m Tax Rate < 25% Diluted EPS $ $2.35 Weighted Average Diluted Shares Capital Expenditures m ~ $200 m 1 Includes accounts receivable monetization fees which are recorded in Other income/expense, net on the P&L 17

18 Underlying Cash Generation Remains Robust; Liquidity Initiatives Are Expected to Fund Restructuring Charges $420 - $440m ~$200m $120 - $140m $165 - $175m ~$55m $120 - $150m 18

19 Q3 18 Adjusted EPS Guidance of $ $0.60 Headwinds H2 volume softness Extended Pecatonica ramp up period due to tight labor market Canadian tariff impact Net Sales Q3 18 Guidance $ $1.45b Interest Expense, Net $27 - $29m Tailwinds SG&A savings Price realization TMOS impact Tax Rate ~25 % EPS $ $

20 Drivers of Q3 18 Guidance of $ $0.60 Adjusted EPS Q3 18 Guidance vs. Q3 17 Key Drivers $ $0.60 $0.67 Q3 18E Q

21 Key Takeaways Q results above our expectations EPS of $0.37 was above expectations, primarily driven by solid top line, lower SG&A and lower than anticipated tax rate Sales grew 0.9% excluding SIF and SKU rationalization TreeHouse 2020 and Structure to Win 2018 initiatives remain on track TMOS and centralizing manufacturing delivering noticeable improvements Battle Creek and Visalia closures on track Omaha administrative office to close Q Structure to Win expected to contribute >$30 m; annual run rate of $55m Q3 guidance of $ $0.60 Softer H2 volume outlook Additional costs for Pecatonica ramp up due to tight labor market Timing of Canadian tariff recovery FY 2018 guidance tightened to $ $2.35 Underlying cash flow remains strong 2018 guidance range tightened to $ $2.35; midpoint unchanged Investor communication to provide more detail on strategy and delivering shareholder value before year-end 21

22 Appendix 22

23 Comparison of Adjusted Information to GAAP Information The Company has included in this release measures of financial performance that are not defined by GAAP ( Non-GAAP ). A Non-GAAP financial measure is a numerical measure of financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the Company s Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of Comprehensive Income, and the Condensed Consolidated Statements of Cash Flows. The Company believes these measures provide useful information to the users of the financial statements as we also have included these measures in other communications and publications. For each of these Non-GAAP financial measures, the Company provides a reconciliation between the Non-GAAP measure and the most directly comparable GAAP measure, an explanation of why management believes the Non-GAAP measure provides useful information to financial statement users, and any additional purposes for which management uses the Non-GAAP measure. This Non-GAAP financial information is provided as additional information for the financial statement users and is not in accordance with, or an alternative to, GAAP. These Non- GAAP measures may be different from similar measures used by other companies. Given the inherent uncertainty regarding adjusted items in any future period, a reconciliation of forwardlooking financial measures to the most directly comparable GAAP measure is not feasible. Adjusted Earnings Per Fully Diluted Share, Adjusting for Certain Items Affecting Comparability Adjusted earnings per fully diluted share ( Adjusted Diluted EPS ) reflects adjustments to GAAP (loss) income per fully diluted share to identify items that, in management s judgment, significantly affect the assessment of earnings results between periods. This information is provided in order to allow investors to make meaningful comparisons of the Company s earnings performance between periods and to view the Company s business from the same perspective as Company management. This measure is also used as a component of the Board of Director s measurement of the Company s performance for incentive compensation purposes. As the Company cannot predict the timing and amount of charges that include, but are not limited to, items such as acquisition, integration, divestiture, and related costs, mark-to-market adjustments on derivative contracts, and foreign currency exchange impact on the re-measurement of intercompany notes, management does not consider these costs when evaluating the Company s performance, when making decisions regarding the allocation of resources, in determining incentive compensation, or in determining earnings estimates. The reconciliation of adjusted diluted EPS, excluding certain items affecting comparability, to the relevant GAAP measure of diluted EPS as presented in the Condensed Consolidated Statements of Operations, is presented below. Adjusted Net Income, Adjusted EBIT, and Adjusted EBITDAS, Adjusting for Certain Items Affecting Comparability Adjusted net income represents GAAP net (loss) income as reported in the Condensed Consolidated Statements of Operations adjusted for items that, in management s judgment, significantly affect the assessment of earnings results between periods as outlined in the adjusted diluted EPS section above. This information is provided in order to allow investors to make meaningful comparisons of the Company s earnings performance between periods and to view the Company s business from the same perspective as Company management. This measure is also used as a component of the Board of Director s measurement of the Company s performance for incentive compensation purposes and is the basis of calculating the adjusted diluted EPS metric outlined above. Adjusted EBIT represents adjusted net income before interest expense, interest income, and income tax expense. Adjusted EBITDAS represents adjusted EBIT before depreciation expense, amortization expense, and non-cash stock-based compensation expense. Adjusted EBIT and adjusted EBITDAS are performance measures commonly used by management to assess operating performance, and the Company believes they are commonly reported and widely used by investors and other interested parties as a measure of a company s operating performance between periods. A full reconciliation between the relevant GAAP measure of reported net (loss) income for the three and six month periods ended June 30, 2018 and 2017 calculated according to GAAP, adjusted net income, adjusted EBIT, and adjusted EBITDAS is presented in the below tables. Free Cash Flow In addition to measuring the Company s cash flow generation and usage based upon the operating, investing, and financing classifications included in the Condensed Consolidated Statements of Cash Flows, we also measure free cash flow which represents net cash provided by operating activities less capital expenditures. The Company believes free cash flow is an important measure of operating performance because it provides management and investors a measure of cash generated from operations that is available for mandatory payment obligations and investment opportunities such as funding acquisitions, repaying debt, and repurchasing our common stock. A reconciliation between the relevant GAAP measure of cash provided by operating activities for the six months ended June 30, 2018 and 2017 calculated according to GAAP and free cash flow is presented in the tables below. 23

24 TREEHOUSE FOODS, INC. RECONCILIATION OF DILUTED EPS TO ADJUSTED DILUTED EPS Three Months Ended June 30, (unaudited) Six Months Ended June 30, (unaudited) Diluted loss per share per GAAP $ (0.36) $ (0.60) $ (0.96) $ (0.11) Restructuring programs Debt amendment and repurchase activity Foreign currency loss (gain) on re-measurement of intercompany notes 0.03 (0.05) 0.06 (0.06) Acquisition, integration, divestiture, and related costs Tax indemnification CEO transition costs 0.23 Product recall reimbursement (0.02) (0.09) Mark-to-market adjustments (0.13) 0.04 (0.03) 0.05 Taxes on adjusting items (0.19) (0.58) (0.45) (0.64) Adjusted diluted EPS $ 0.37 $ 0.51 $ 0.55 $

25 TREEHOUSE FOODS, INC. RECONCILIATION OF NET LOSS TO ADJUSTED NET INCOME, ADJUSTED EBIT, AND ADJUSTED EBITDAS Three Months Ended June 30, (unaudited in millions) Six Months Ended June 30, Net loss per GAAP $ (20.1) $ (34.2) $ (54.2) $ (6.0) Restructuring programs (1) CEO transition costs (2) 13.0 Mark-to-market adjustments (3) (7.6) 2.3 (2.0) 2.5 Foreign currency loss (gain) on re-measurement of intercompany notes (4) 1.4 (2.6) 3.3 (3.4) Product recall reimbursement (5) (1.4) (5.2) Acquisition, integration, divestiture, and related costs (6) Debt amendment and repurchase activity (7) Tax indemnification (8) Less: Taxes on adjusting items (10.6) (33.4) (25.4) (36.9) Adjusted net income Interest expense Interest income (0.5) (0.3) (2.5) (3.1) Income taxes (6.1) (21.8) (15.9) (10.3) Add: Taxes on adjusting items Adjusted EBIT Depreciation and amortization (9) Stock-based compensation expense (10) Adjusted EBITDAS $ $ $ $

26 TREEHOUSE FOODS, INC. FOOTNOTES FOR RECONCILIATION OF NET LOSS TO ADJUSTED NET INCOME, ADJUSTED EBIT, AND ADJUSTED EBITDAS Location in Condensed Consolidated Statements of Operations (1) Restructuring programs Other operating expense, net $ 46.4 $ 8.8 $ 75.3 $ 15.6 Cost of sales 1.9 (1.0) General and administrative (2) CEO transition costs General and administrative 13.0 (3) Mark-to-market adjustments Other (income) expense, net (7.6) 2.3 (2.0) 2.5 (4) Foreign currency loss (gain) on re-measurement Loss (income) on foreign currency exchange 1.4 (2.6) 3.3 (3.4) of intercompany notes (5) Product recall reimbursement Net sales (1.3) (3.7) Cost of sales (0.1) (1.5) (6) Acquisition, integration, divestiture, and related costs General and administrative Other operating expense, net Other (income) expense, net (7) Debt amendment and repurchase activity General and administrative Other (income) expense, net Interest expense (8) Tax indemnification Other (income) expense, net (9) Accelerated depreciation Cost of sales (10) Stock-based compensation expense included as an adjusting item Three Months Ended June 30, (unaudited in millions) Six Months Ended June 30, General and administrative General and administrative

27 RECONCILIATION OF ITEMS IMPACTING COMPARABILITY INCLUDED IN CORPORATE UNALLOCATED EXPENSE Location in Condensed Three Months Ended Consolidated Statements of Operations Restructuring programs Other operating expense, net $ 46.4 $ 8.8 $ 75.3 $ 15.6 Cost of sales 1.9 (1.0) General and administrative CEO transition costs General and administrative 13.0 Product recall reimbursement Cost of sales (0.1) (1.5) Acquisition, integration, divestiture, and related costs General and administrative Other operating expense, net Debt amendment and repurchase activity General and administrative June 30, (unaudited in millions) Six Months Ended June 30, (unaudited in millions) $ 51.9 $ 98.6 $ $

28 TREEHOUSE FOODS, INC. ADJUSTED NET INCOME, ADJUSTED EBIT, AND ADJUSTED EBITDAS RECONCILING ITEMS INCLUDED IN UNALLOCATED CORPORATE COSTS Net sales to external customers: Baked Goods $ $ $ $ Beverages Condiments Meals Snacks Unallocated Total $ 1,455.8 $ 1,522.2 $ 2,937.0 $ 3,058.4 Direct operating income: Three Months Ended Baked Goods $ 30.7 $ 32.5 $ 58.7 $ 74.4 Beverages Condiments Meals Snacks Total Unallocated selling, general, and administrative expenses (73.9) (82.0) (155.2) (162.0) Unallocated cost of sales (0.4) 6.9 (8.0) 8.4 Unallocated corporate expense and other (68.0) (121.4) (119.1) (154.4) Operating income (loss) 3.2 (23.8) (5.5) 43.5 Other expense (29.4) (32.2) (64.6) (59.8) Loss before income taxes $ (26.2) $ (56.0) $ (70.1) $ (16.3) June 30, (In millions) Six Months Ended June 30, (In millions) 28

29 TREEHOUSE FOODS, INC. NET DEBT RECONCILIATION June 30, March 31, Condensed Consolidated Balance Sheet (unaudited in millions) Current portion of long-term debt $ 10.2 $ 41.6 Long-term debt 2, ,942.3 (Less) Cash and cash equivalents (98.9) (61.1) Net debt $ 2,302.1 $ 2,