First Quarter 2018 Results & Outlook. May 3, 2018

Transcription

1 First Quarter 2018 Results & Outlook May 3, 2018

2 Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 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 presentation. 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 press release 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; integration of the Private Brands acquisition and our ability to continue to make acquisitions in accordance with our business strategy or effectively manage the growth from acquisitions; changes and developments affecting our industry, including customer preferences; the outcome of litigation and regulatory proceedings to which we may be a party; product recalls; changes in laws and regulations; 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 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. You are cautioned not to unduly rely on such forward-looking statements, which speak only as of the date made when evaluating the information presented in this press release. TreeHouse expressly disclaims any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein, to reflect any change in its expectations with regard thereto, or any other change in events, conditions or circumstances on which any statement is based. 2

3 Welcome & Overview Sam K. Reed Chairman of the Board Steve Oakland CEO & President 3

4 TreeHouse 2020 Blueprint Portfolio Simplification Revenue & Margin Management Supply Chain Optimization Customer Segmentation Operations Functionalization Structure to Win (SG&A Initiative) 4

5 New CEO on Board to Drive Value Creation Board of Directors Criteria Food industry background Proven leader Deep experience assimilating and integrating acquired businesses Transformation experience Tenacity and fortitude for the role and most importantly, excited about the opportunity Steve Oakland >30 years experience at The J.M. Smucker Company Most recently Vice Chair and President, U.S. Food and Beverage, a $5 billion U.S. Food and Beverage business, operating across all channels Previously served as President, Coffee & Foodservice; President, International, Foodservice & Natural Foods; President, U.S. Retail 5

6 The Private Label Opportunity is Compelling North American Private Brand Share is Well Below W. Europe Strong Q TreeHouse Unit Sell-Through (YoY % Change) TreeHouse 1 B r a n d e d Food Company Average 2 Q1 17 (0.9)% (5.4) % Q % (1.9) % Q % (3.0) % Q % (2.8) % Q % (0.8) % Source: Nielsen Retail Hot Buttons, Q Data refreshed through calendar year Shipping volume (lbs). Excludes impact of Soup & Infant Feeding and estimated impact of SKU rationalization. 2 Change in unit sales at retail, per IRI Q1 PBFYNO 1 as a % of Sales Grew Nearly 300 bps Y-O-Y We have unparalleled leadership in private label and offer PBFYNO products in 26 of 32 categories: 18.8% 21.6% Division Total # of categories # of categories with #1 position # of categories with PBFYNO offerings Premium, Better for You, Natural & Organic, excluding SSB & Flagstone Baked Goods Beverages Condiments Meals Snacks

7 Solid Progress on Critical 2018 Deliverables Private Label Growth Q1 revenue at the top end of the guidance range Q1 adjusted EPS above the midpoint of the guidance range, despite higher than expected tax rate and freight THS2020 efforts are well underway with robust evidence of operating improvement Structure to Win efforts (SG&A initiative) are tracking ahead of plan FY 18 Guidance of $ $2.40 is Unchanged 7

8 Financial Review & Outlook Matthew Foulston EVP & CFO 8

9 TreeHouse Q Financial Performance ($ in millions) Change B/(W) Q Q $ % Net Sales $ 1,481.2 $ 1,536.2 $ (55.0) (3.6) % Division Direct Operating Income (DOI) (47.6) (26.6) Division DOI Margin 8.9 % 11.6 % NM (2.7) pts Items Affecting Comparability 1 (51.5) (13.3) (38.2) NM Corporate Unallocated (88.4) (98.2) Total Corporate Unallocated Expense (139.9) (111.5) (28.4) (25.5) Net (Loss) Income (34.1) 28.2 (62.3) NM Adjusted EBIT (35.3) (45.9) Adjusted EBIT Margin 2.8 % 5.0 % NM (2.2) pts Adjusted EBITDAS (47.3) (30.7) Adjusted EBITDAS Margin 7.2 % 10.0 % NM (2.8) pts GAAP Diluted EPS $ (0.60) $ 0.49 $ (1.09) - NM Adjusted Diluted EPS 2 $ 0.18 $ 0.61 $ (0.43) (70.5) % 1 Total includes amounts recorded in the COGS and operating expense lines of the Condensed Consolidated Statement of Operations related to restructuring and margin improvement activities; CEO transition costs; acquisition, divestiture and related costs; and product recall reimbursement. 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. 9

10 Q1 Net Sales Growth of 1.9%, Excluding SIF 1 Divestiture and SKU Rationalization Percentage Change in Net Sales vs. Prior Year Baked Goods Beverages Condiments Meals Snacks THS Vol / Mix 0.2 % (6.3) % (0.3) % (3.1) % (1.1) % (1.9) % Pricing 0.9 (0.8) Product Recalls (0.2) 1 Divestiture (13.1) - (2.8) Currency Total 1.4 % (7.1) % 1.6 % (14.5) % 1.1 % (3.6) % Excluding SIF Divestiture in 2017 (0.8) % Excluding SIF and Impact of SKU Rationalization 1.9 % 1 Soup and Infant Feeding business sold in May

11 Q1 Adjusted EPS of $0.18, Driven by Lower Division DOI, Partly Offset by SG&A Adjusted EPS Q1 18 vs. Q1 17 Key Drivers $ $0.18 Q1 18 Q Excluding items impacting capability period-over-period. 11

12 Q Division DOI Drivers vs. Prior Year $ in millions 12

13 Q1 18 Division DOI vs. Prior Year Vol / Mix Pricing, Net of Comm Freight Ops SG&A / Other $m Chg vs. Q1 17 Baked Goods = = ---- = = $ (13.9) Beverages = (19.3) Condiments = = -- = = (4.5) Meals (4.1) Snacks = + (5.8) 13

14 12% Increase in Industry Freight Costs in March; Freight Acceptance Rates Down 25% or More THS Freight Carrier Acceptance Rate ~25% Decline Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Manufacturing and shipping scheduling stability Multiple primary carriers Carrier RFP Need to Become the Customer of Choice 14

15 Ongoing Focus on Generating Cash We continue to make solid progress improving our net debt position Net Debt Working capital improved $141m yearover-year We expect working capital to be a continuing opportunity in 2018 Working Capital $ millions 1Q 17 1Q 18 B/(W) Accounts Receivable 1 $ (438.1) $ (345.2) $ 92.9 Inventory 2 (938.7) (940.6) (1.9) Accounts Payable Net Working Capital $ (962.5) $ (821.7) $ Q A/R balance adjusted to reclassify ConAgra receivables to liabilities due to the new revenue recognition standard. Adjustment made only for comparison purposes within this presentation. 2 Excludes Soup and Infant Feeding inventory of $50.8m in Q1 17. Business was sold in May

16 Reduced Interest Rate Exposure As of Q4 17, we were 65% / 35% fixed to floating with $500m of swaps set to expire Feb 2020 In Q1, we substantially reduced future rate exposure by locking in interest rate swaps so we are 80% / 20% fixed to floating $ billions * Fixed-to-Float Ratio (Debt and Interest Rate Swaps) 20% Floating 80% Fixed * $3m of other debt not included (TIF, capital leases). 16

17 2018 Capital Allocation Priorities Strategic Opportunities Repay Debt De-Lever Share Repurchase 10b5-1 ($50m Annually) THS2020 / Structure to Win Capex 17

18 Underlying Cash Flow Remains Robust; 2018 Liquidity Initiatives Mitigate THS2020 / Structure to Win Investments $410 - $440m ~$200m $120 - $140m $165 - $175m ~$50m $10 - $20m $100 - $120m Operating Cash Flow Capex Liquidity Initiatives THS2020 / Structure to Win Share Repurchases Scheduled Debt Repayment Free Cash Flow 18

19 THS2020: 2018 Announced Actions Well Underway Action & Timing Status At Least 15 Additional Lines Permanently Shuttered YE 2018 Full TMOS Rollout Complete Across 12 Plants Slightly Ahead of Schedule Visalia, CA Q Closure Battle Creek, MI Updated to Mid-2019 Closure 19

20 Full TreeHouse Management Operating Structure (TMOS) Rollout Complete in 3 Sites; 10 Additional Sites to be Completed in 2018 TMOS Essentials TMOS (Full) Site Transformation Weeks 61 Activities 2-4 Dedicated Resources Focus on Transforming Operating Structure Scheduling Optimization 4 Weeks 3 Activities Dedicated Resource(s) Focus on Planning and Scheduling Stability Foundation Building 4 Weeks 5 Activities Dedicated Resource(s) Focus on Performance Based Practices 20

21 TMOS is Delivering Robust Improvement Examples of TMOS Impact Across 3 Plants Metric Result Plant Efficiency Up ~15% Down Time Reduction >50% Line Utilization Mid-Teens Improvement Service Levels >98% # Quality and Safety Incidents 21

22 Maintain FY 18 Guidance Range of $ $2.40 Current Outlook Pricing / Commodities = Freight -- Structure to Win ++ THS2020 = / EPS Guidance Range $ $

23 Q2 18 Adjusted EPS Guidance of $ $0.30 Headwinds Historically high freight rates coupled with lower carrier acceptance Softer volumes Competitive environment Pecatonica start-up costs of ~$(0.06) Tailwinds Pricing realization Solid plant performance SG&A savings Net Sales Q2 18 Guidance $1.3 - $1.4b Interest Expense, Net $29 - $31m Tax Rate ~26% Net Income $11 - $17m EPS $ $

24 Drivers of Q2 18 Guidance of $ $0.30 Adjusted EPS Q2 18 Guidance vs. Q2 17 Key Drivers $0.51 $ $0.30 Q2 18E Q

25 2018 Path to FY 18 Guidance of $ $2.40 Pricing begins to catch up with commodities Pecatonica start-up costs SG&A savings Pricing continues Normal seasonal volume SG&A savings Q1 Q2 Q3 Q4 25

26 Key Takeaways Q results in line with expectations Sales grew 1.9% excluding SIF and SKU rationalization Solid operational progress DOI decline was driven by higher commodity, freight and operating costs, including impact of Pecatonica labor dispute TreeHouse 2020: 2018 initiatives are well underway TMOS and centralizing manufacturing is delivering noticeable improvements Visalia closure on track Battle Creek closure updated to reflect mid-2019 timing Structure to Win is on track to exceed $30m in savings in 2018 Program completion planned by mid-year Savings will ramp up throughout 2018, with expected 2018 contribution to exceed $30m; annual run rate of ~$55m Consolidating administrative base with office closures 2018 guidance unchanged at $ $2.40 Strong underlying cash generation 2018 guidance unchanged at $ $2.40 Freight headwind continues to present challenges across our peer group Q2 adjusted EPS anticipated between $ $0.30, including one-time Pecatonica start-up costs of ~$(0.06) 26

27 Growing Strong, Standing Tall 27

28 Appendix 28

29 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. 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 month periods ended March 31, 2018 and 2017 calculated according to GAAP, adjusted net income, adjusted EBIT, and adjusted EBITDAS is presented in the below tables. 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. 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 three months ended March 31, 2018 and 2017 calculated according to GAAP and free cash flow is presented in the tables below. 29

30 TREEHOUSE FOODS, INC. RECONCILIATION OF DILUTED EPS TO ADJUSTED DILUTED EPS Three Months Ended March 31, (unaudited) Diluted earnings per share per GAAP $ (0.60) $ 0.49 Restructuring and margin improvement activities CEO transition costs 0.23 Mark-to-market adjustments 0.10 Foreign currency loss (gain) on re-measurement of intercompany notes 0.03 (0.01) Acquisition, integration, divestiture, and related costs 0.06 Product recall reimbursement (0.06) Taxes on adjusting items (0.26) (0.06) Adjusted diluted EPS $ 0.18 $

31 TREEHOUSE FOODS, INC. RECONCILIATION OF NET (LOSS) INCOME TO ADJUSTED NET INCOME, ADJUSTED EBIT, AND ADJUSTED EBITDAS Three Months Ended March 31, (unaudited in millions) Net (loss) income per GAAP $ (34.1) $ 28.2 Restructuring and margin improvement activities (1) CEO transition costs (2) 13.0 Mark-to-market adjustments (3) Foreign currency loss (gain) on re-measurement of intercompany notes (4) 1.9 (0.8) Product recall reimbursement (5) (3.8) Acquisition, integration, divestiture, and related costs (6) (0.1) 3.7 Less: Taxes on adjusting items (14.8) (3.5) Adjusted net income Interest expense Interest income (2.0) (2.8) Income taxes (9.8) 11.5 Add: Taxes on adjusting items Adjusted EBIT Depreciation and amortization (7) Stock-based compensation expense (8) Adjusted EBITDAS $ $

32 TREEHOUSE FOODS, INC. FOOTNOTES FOR RECONCILIATION OF NET (LOSS) INCOME TO ADJUSTED NET INCOME, ADJUSTED EBIT, AND ADJUSTED EBITDAS Location in Condensed Consolidated Statements of O perations (1) Restructuring and margin improvement activities Other operating expense, net $ 28.9 $ 6.8 Cost of sales (2) CEO transition costs General and administrative 13.0 (3) Mark-to-market adjustments Other expense, net (4) Foreign currency loss (gain) on re-measurement of intercompany notes Loss on foreign currency exchange 1.9 (0.8) (5) Product recall reimbursement Net sales (2.4) (6) Acquisition, integration, divestiture, and related costs Three Months Ended March 31, (unaudited in millions) Cost of sales (1.4) General and administrative (0.1) 3.6 Other operating expense, net 0.1 (7) Depreciation included as an adjusting item Cost of sales (8) Stock-based compensation expense included as an adjusting item General and administrative

33 RECONCILIATION OF ITEMS IMPACTING COMPARABILITY INCLUDED IN CORPORATE UNALLOCATED EXPENSE Location in Condensed Three Months Ended March 31, Consolidated Statements of O perations (unaudited in millions) Restructuring and margin improvement activities Other operating expense, net $ (28.9) $ (6.8) Cost of sales (9.7) (4.2) CEO transition costs General and administrative (13.0) Product recall reimbursement Cost of sales 1.4 Acquisition, integration, divestiture, and related costs General and administrative 0.1 (3.6) Other operating expense, net (0.1) $ (51.5) $ (13.3) 33

34 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 2.4 Total $ 1,481.2 $ 1,536.2 Direct operating income: Three Months Ended March 31, (In millions) Baked Goods $ 28.0 $ 41.9 Beverages Condiments Meals Snacks Total Unallocated selling, general, and administrative expenses (81.3) (80.0) Unallocated cost of sales (7.5) 1.5 Unallocated corporate expense and other (51.1) (33.0) Operating (loss) income (8.7) 67.3 Other expense (35.2) (27.6) (Loss) income before income taxes $ (43.9) $

35 TREEHOUSE FOODS, INC. NET DEBT RECONCILIATION For the Three Months Ended December 31, Condensed Consolidated Balance Sheet (unaudited in millions) Current portion of long-term debt $ 10.1 $ 79.6 Long-term debt 2, ,677.1 (Less) Cash and cash equivalents (128.5) (67.2) Net debt $ 2,414.8 $ 2,