Q RESULTS AND 2019 OUTLOOK

Transcription

1 Q RESULTS AND 2019 OUTLOOK S t e v e O a k l a n d, C E O & P r e s i d e n t M a t t h e w F o u l s t o n, E V P & C F O F E B R U A R Y 1 4, 2019

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 our Quarterly Reports on Form 10-Q and 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 WE MADE A GREAT DEAL OF PROGRESS IN 2018 DELIVERED FY 18 ADJUSTED EPS OF $2.20, ABOVE THE MIDPOINT OF $2.05 TO $2.25 GUIDANCE Met or exceeded quarterly financial guidance all year Strong cash performance has enabled net debt reduction of over $800 million since the Private Brands acquisition Communicated vision and strategy for achieving both near term and longer term goals in December Exploring strategic options for the Snack Nuts and Trail Mix business Consolidated 3 manufacturing and 12 warehouse locations and optimized administrative footprint (Omaha; pending St. Louis) Implemented TreeHouse Management Operating System (TMOS) at 14 sites 100% SAP Order to Cash Full year Structure to Win savings exceeded original target 3

4 Q FINANCIAL PERFORMANCE ($ in millions) Change B/(W) Q Q $ % Net Sales $ 1,481.1 $ 1,699.9 $ (218.8) (12.9) % Division Direct Operating Income (DOI) (7.9) (4.3) Division DOI Margin 11.8 % 10.8 % NA 1.0 pts Items Affecting Comparability 1 (59.7) (602.5) Corporate Unallocated (73.2) (94.7) Total Corporate Unallocated Expense 1 (132.9) (697.2) % Net Income 1 $ (12.6) $ (309.0) $ % Adjusted EBIT Adjusted EBIT Margin 6.7 % 5.5 % NA 1.2 pts Adjusted EBITDAS Adjusted EBITDAS Margin 11.0 % 9.6 % NA 1.4 pts GAAP Diluted EPS $ (0.23) $ (5.40) $ % Adjusted Diluted EPS 2 $ 1.03 $ 1.02 $ % 1 Total includes amounts recorded in the cost of sales, general and administrative, impairment of goodwill and other intangible assets, and other operating expense lines of the Consolidated Statement of Operations related to restructuring programs; product recall; acquisition, integration, divestiture and related costs; debt amendment and repurchase activity, plant restoration, and impairment of goodwill and other intangible assets. In 2017, the Company recorded a $550 million impairment charge related to the Snacks division, comprised of a $276.4 in goodwill and $273.3 million related to the customer related intangible assets. 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. 4

5 Q4 NET SALES DOWN 10.5% (EXCLUDING SKU RATIONALIZATION & DIVESTITURES), IN LINE WITH EXPECTATIONS, AND LARGELY DRIVEN BY LOSS OF LOW MARGIN SNACKS VOLUME Percentage Change in Q4 Net Sales vs. Prior Year Baked Goods Beverages Condiments Meals Snacks THS SKU Rationalization (2.0) % (2.6) % (4.1) % (1.8) % (0.8) % (2.2) % Vol / Mix (excl. SKU Rationalization) (0.9) (6.0) (7.1) (9.0) (33.5) (11.9) Pricing 3.0 (0.2) Divestitures (1.3) - (0.2) Currency (0.1) - (0.8) - - (0.2) Total 0.0 % (8.8) % (8.9) % (10.1) % (34.0) % (12.9) % Excl SKU Rat/Divestitures (3.6) % (10.5) % 5

6 Q4 ADJUSTED EPS OF $1.03; DOI DECLINE OFFSET BY STRUCTURE TO WIN INITIATIVES $1.10 $1.00 ADJUSTED EPS Q4 18 VS Q4 17 $1.03 $1.02 $0.31 KEY DRIVERS $0.90 $0.80 $0.70 $0.60 Q4 18 Q4 17 $(0.03) $(0.12) $(0.15) DIVISION DOI CORPORATE SG&A TAX OTHER 6

7 (in $ millions) Q DOI DRIVERS VS PRIOR YEAR Q4 17 VOL/MIX (incl absorption) PNOC 1 OPERATIONS SG&A/ OTHER Q Pricing net of commodities, freight & warehousing 7

8 Q4 18 DIVISION DOI VS PRIOR YEAR Vol / Mix PNOC Operations SG&A / Other $m Chg vs. Q4 17 Baked Goods = $ 1.7 Beverages = (5.2) Condiments -- + = Meals Snacks = + (6.1) 8

9 REDUCED NET DEBT BY $804 MILLION SINCE THE PRIVATE BRANDS ACQUISITION AND BY $285 MILLION IN 2018; REDUCED INVENTORY BY $138 MILLION SINCE 2017 AND BY $78 MILLION IN 2018 $2,961 Net Debt 1 ($ in mil) $804 $2,157 Working Capital ($ in mil) Q4 16 Q4 17 Q4 18 B/(W) vs Q4 17 B/(W) vs Q4 16 Accounts Receivable 2 $ (487) $ (387) $ (351) $ 36 $ 136 Inventory (978) (918) (840) Accounts Payable Q Q Working Capital $ (1,007) $ (854) $ (613) $ 241 $ Net debt reflects total outstanding debt excluding deferred financing costs less cash and cash equivalents. 2 Q and 2016 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. 3 Includes $119 m related to accounts receivable monetization program whereby both payment from bank and payment from customer were received and are reflected in 2018 balance sheet. 9

10 2018 RESULTS SCORECARD Net Sales 2018 Guidance communicated on Q3 18 earnings call Low end of $5.8 - $6.0 b Adjusted 1 Results Result $5.8 b EBIT $265 - $290 m 2 $266 m EBIT Margin 4.6% - 4.8% 2 4.6% Depreciation and Amortization ~ $240 - $250 m $234 m Net Interest Expense 3 $116 - $118 m $112 m Tax Rate < 25% 21% Diluted EPS $ $2.25 $2.20 Capital Expenditures ~ $190 m $196 m 1 Adjusted for items impacting comparability included in corporate unallocated expense. A reconciliation of Adjusted EBIT, Adjusted Depreciation and Amortization, Adjusted Net Interest Expense, Adjusted Tax Rate and Adjusted Diluted EPS to the most comparable GAAP measure is provided in the Appendix. 2 Guidance as of Q2 18 earnings call; no subsequent update. 3 Includes $3.8 m loss on sale related to accounts receivable monetization program. 10

11 FOUR DIVISION REPORTING BEGINS FIRST QUARTER 2019 Beverages Baked Goods 2019 PROJECTED REVENUE $ $5.75 BILLION Meal Solutions Snacks New segment reporting changes include combining the Condiments and Meals divisions, moving ready-to-eat cereal (currently in Meals) and snack bars (currently in Snacks) to Baked Goods division. 11

12 2019 GUIDANCE DETAIL FY 2019 E Net Sales Adjusted EBIT $ $ 5.75 b $ $ 325 m Adjusted EBIT Margin 5.4 % % Depreciation and Amortization Net Interest Expense $ $ 250 m $ $ 120 m Tax Rate 23 % - 24 % Adjusted Diluted EPS $ $ 2.75 Capital Expenditures Free Cash Flow 1 ~ $190 m $ $ 200 m 1 Free cash flow is defined as operating cash flow less capital expenditures. 12

13 H Y-O-Y VOLUME DECLINE EXPECTED; NEW BUSINESS WINS TO BE REFLECTED IN H2 AS WE PIVOT TO GROWTH 0.05 ILLUSTRATIVE 2019 YEAR-OVER-YEAR VOLUME GROWTH CADENCE (1)% - (8)% (10)% - (14)% Q1 Q2 Q3 Q4 FY 19 E 13

14 Q GUIDANCE Pecatonica creamer plant back on line TreeHouse 2020 savings SG&A savings Smoother implementation of pricing to cover inflation Net Sales FY 2019 E $ $1.33 b Weak Snacks performance and lapping record 2018 volume Continued lap of 2018 volume loss in Baked Goods, Beverages and Meal Solutions Q4 18 lower production, reflecting working capital initiatives, and related manufacturing absorption rolling off the balance sheet Net Interest Expense $ 27 - $28 m Tax Rate ~ 24 % Diluted EPS $ $

15 Q Y-O-Y GUIDANCE DRIVERS ADJUSTED EPS Q1 19E VS Q1 18 $ $0.15 $0.18 Q1 18 $0.18 Excludes the impact of Snack Nuts & Trail Mix Lower volumes and operational headwinds in Snacks is masking strong underlying performance in the other three segments Q1 19E $0.10 midpoint Q1 19E Q1 18 VOL/MIX (incl absorption) PNOC OPERATIONS SG&A/ OTHER Q1 19E (ex Snacks) SNACKS 15

16 A NEW TREEHOUSE P U R P O S E Make high quality food and beverages affordable to all COMMERCIAL EXCELLENCE OPERATIONAL EXCELLENCE V I S I O N Be the undisputed solutions leader for custom brands M I S S I O N Create value as our customers preferred manufacturing and distribution partner providing thought leadership, superior innovation and a relentless focus on execution PEOPLE & TALENT T R E E H O U S E E N T E R P R I S E S T R A T E G Y Deliver shareholder value through a performancebased culture OPTIMIZED PORTFOLIO 16

17 THE WAY FORWARD C U S T O M E R C E N T R I C C U L T U R E O P E R AT I O N A L E XC E L L E N C E C O M M E R C I A L E XC E L L E N C E / P E O P L E & TA L E N T O P T I M I Z E D P O RT F O L I O R E V E N U E & E A R N I N G S G R O W T H DELIVER THE BENEFITS OF SCALE FOCUS ON THE CUSTOMER 4 divisions IMPROVE THE PROFILE OF THE PORTFOLIO RETURN TREEHOUSE TO GROWTH Pivot THS2020 to more rapid payback projects From plant closures to accelerated TMOS rollout Manufacturing, logistics and distribution excellence Best in class go-to-market capability Optimize administrative footprint Further SG&A reductions Strategic review of Snacks Evaluate additional divestitures of up to $300 m in revenue Provides ~ 200 bp EBITDA margin improvement with negligible EPS reduction 1-2% revenue growth post 2019 >10% EPS growth Smaller bolt-on synergistic acquisitions over time 17

18 FOCUS ON COMMERCIAL EXCELLENCE CAPABILITIES Talent Optimization Announced hire of Dean General, Chief Commercial Officer Joins February 18 Announced St. Louis office closure end of June Further SG&A reductions planned in

19 KEY TAKEAWAYS Delivered FY 18 adjusted EPS of $2.20; Met or exceeded quarterly financial guidance all year Strong cash performance has enabled net debt reduction of over $800 million since the Private Brands acquisition Reaffirmed FY19 guidance of $ $5.75 b in revenue and EPS of $2.35 to $2.75 Issued Q1 19 guidance of $ $0.15 Customer centric strategy focused on commercial and operational excellence, optimized portfolio and investment in people and talent 19

20 APPENDIX

21 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-GAAPfinancial 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 Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income, and the 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 forward-looking 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 income (loss) 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 decisionsregarding 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 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 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 andother 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 twelve month periods ended December 31, 2018 and 2017 calculated according to GAAP, adjusted net income, adjusted EBIT, and adjusted EBITDAS is presented in the below tables. Free Cash Flow and Net Debt 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 capitalexpenditures. 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 twelve months ended December 31, 2018 and 2017 calculated according to GAAP and free cash flow is presented in the tables below. 21

22 TREEHOUSE FOODS, INC. RECONCILIATION OF DILUTED EPS TO ADJUSTED DILUTED EPS Three Months Ended December 31, (unaudited) Twelve Months Ended December 31, (unaudited) Diluted loss per share per GAAP $ (0.23) $ (5.40) $ (1.10) $ (5.01) Restructuring programs Mark-to-market adjustments 0.50 (0.05) 0.40 (0.04) CEO transition costs 0.23 Plant restoration costs Debt amendment and repurchase activity Foreign currency loss (gain) on re-measurement of intercompany notes (0.10) Tax indemnification (0.08) 0.06 Product recall (0.15) Acquisition, integration, divestiture, and related costs (0.12) 1.76 Impairment of goodwill and other intangible assets Tax reform (1.86) (1.86) Taxes on adjusting items (0.30) (2.26) (1.00) (2.99) Dilutive impact of shares Adjusted diluted EPS $ 1.03 $ 1.02 $ 2.20 $

23 TREEHOUSE FOODS, INC. RECONCILIATION OF NET LOSS TO ADJUSTED NET INCOME, ADJUSTED EBIT, AND ADJUSTED EBITDAS Three Months Ended December 31, (unaudited in millions) Twelve Months Ended December 31, Net loss per GAAP $ (12.6) $ (309.0) $ (61.4) $ (286.2) Restructuring programs (1) Mark-to-market adjustments (2) 28.3 (2.9) 22.5 (2.3) CEO transition costs (3) 13.0 Plant restoration costs (4) Debt amendment and repurchase activity (5) Foreign currency loss (gain) on re-measurement of intercompany notes (6) (5.9) Tax indemnification (7) (4.7) 3.2 Product recall (8) (8.4) Acquisition, integration, divestiture, and related costs (9) (6.6) Impairment of goodwill and other intangible assets (10) Tax reform (11) (106.8) (106.8) Less: Taxes on adjusting items (17.0) (130.3) (56.3) (172.3) Adjusted net income Interest expense Interest income (0.8) (3.8) (4.3) Income taxes (2.3) (125.0) (23.4) (134.0) Add: Taxes on adjusting items Adjusted EBIT Depreciation and amortization (12) Stock-based compensation expense (13) Adjusted EBITDAS $ $ $ $

24 TREEHOUSE FOODS, INC. FOOTNOTES FOR RECONCILIATION OF NET LOSS TO ADJUSTED NET INCOME, ADJUSTED EBIT, AND ADJUSTED EBITDAS Location in Consolidated Statements of Operations (1) Restructuring programs Other operating expense, net $ 43.4 $ 15.4 $ $ 41.4 Cost of sales General and administrative (2) Mark-to-market adjustments Other expense (income), net 28.3 (2.9) 22.5 (2.3) (3) CEO transition costs General and administrative 13.0 (4) Plant restoration costs Cost of sales (5) Debt amendment and repurchase activity General and administrative Other expense (income), net 4.2 Interest expense (6) Foreign currency loss (gain) on re-measurement of Loss (gain) on foreign currency exchange (5.9) intercompany notes (7) Tax indemnification Other expense (income), net (4.7) 3.2 (8) Product recall Net sales (5.5) Cost of sales (2.9) General and administrative (9) Acquisition, integration, divestiture, and related costs General and administrative Other operating expense, net (13.4) 87.3 (10) Impairment of goodwill and other intangible assets Impairment of goodwill and other intangible assets (11) Tax reform Income tax (benefit) expense (104.4) (104.4) (12) Accelerated depreciation included as an adjusting item (13) Stock-based compensation expense included as an adjusting item Three Months Ended December 31, (unaudited in millions) Twelve Months Ended December 31, Other expense (income), net (2.4) (2.4) Cost of sales General and administrative General and administrative

25 TREEHOUSE FOODS, INC. ITEMS IMPACTING COMPARABILITY INCLUDED IN CORPORATE UNALLOCATED EXPENSE Location in Three Months Ended December 31, Consolidated Statements of O perations (unaudited in millions) Twelve Months Ended December 31, (unaudited in millions) Restructuring programs Other operating expense, net $ 43.4 $ 15.4 $ $ 41.4 Cost of sales General and administrative CEO transition costs General and administrative 13.0 Product recall reimbursement Net sales (5.5) Cost of sales (2.9) General and administrative Acquisition, integration, divestiture, and related costs General and administrative Other operating expense, net (13.4) 87.3 Debt amendment and repurchase activity General and administrative Plant restoration costs Cost of sales Impairment of goodwill and other intangible assets Impairment of goodwill and other intangible assets $ 59.7 $ $ $

26 TREEHOUSE FOODS, INC. RECONCILIATION OF SEGMENT AND UNALLOCATED CORPORATE COSTS TO OPERATING INCOME Net sales to external customers: Baked Goods $ $ $ 1,385.3 $ 1,403.9 Beverages , ,073.4 Condiments , ,300.6 Meals , ,189.2 Snacks , ,334.5 Unallocated 5.5 Total $ 1,481.1 $ 1,699.9 $ 5,812.1 $ 6,307.1 Direct operating income: Three Months Ended December 31, (unaudited in millions) Twelve Months Ended December 31, (unaudited in millions) Baked Goods $ 55.9 $ 54.2 $ $ Beverages Condiments Meals Snacks (5.0) Total Unallocated selling, general, and administrative expenses (59.3) (71.6) (278.7) (299.7) Unallocated cost of sales (8.5) (29.4) (31.2) (26.2) Unallocated corporate expense and other (65.1) (596.2) (229.0) (788.6) Operating income (loss) 42.5 (513.9) 67.9 (412.8) Other expense (57.4) (24.5) (152.7) (111.8) Loss before income taxes $ (14.9) $ (538.4) $ (84.8) $ (524.6) 26

27 TREEHOUSE FOODS, INC. NET DEBT RECONCILIATION December 31, December 31, March 31, Consolidated Balance Sheet (unaudited in millions) Current portion of long-term debt $ 1.2 $ 10.1 $ 41.6 Long-term debt 2, , ,942.3 Add back deferred financing costs (Less) Cash and cash equivalents (164.3) (132.8) (61.1) Net debt $ 2,157.0 $ 2,441.8 $ 2,