Fourth Quarter 2016 Results & 2017 Outlook. February 9, 2017

Transcription

1 Fourth Quarter 2016 Results & 2017 Outlook February 9, 2017

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 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; 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, 2015, 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 presentation. 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 On Our Call Today Experienced and Proven Senior Management Team Name Tenure Position Sam K. Reed Since Inception Chairman of the Board & Chief Executive Officer Dennis F. Riordan 11 Years President Matthew J. Foulston Joined December 2016 Executive Vice President & Chief Financial Officer Rachel R. Bishop 3 Years Senior Vice President & Chief Strategy Officer 3

4 Investment Considerations 1 We are well positioned and our fundamentals are strong as we enter The integration of Private Brands is very much on track. 3 Our sales force reorganization has been very well received both internally and externally. 4 We continue to have significant opportunities for operational improvements. 5 We will generate substantial free cash flow and expect to be back to 3.5x leverage by mid-year. 4

5 Q4 Accomplishments Continued volume growth in base retail grocery business TreeHouse Private Brands drove strong revenue results in Q4 and margins improved to highest level since acquisition Integration progressing according to plan Ready to launch new 2017 segment reporting structure New CFO in place Executive search for TreeHouse President is in process 5

6 Private Brands Comparisons Are Improving Retail Private Brands Revenue Change vs 2015 Q2 16 Q3 16 Q4 16 6

7 Coffee Equivalent Cup Volume Share by Top Seven Brands % share of cups 24% 22% 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% 23% Private Label 12% 12% 7% 7% 5% 5% Starbucks Green Folgers Donut Shop Dunkin Donuts Mountain McCafe Source: IRI Multi-Outlet, 52 WE

8 5 Divisions 6 Business Units 32 Categories Baked Goods Beverages Condiments Meals Snacks Cookies & Crackers In-store Bakery Refrigerated / Frozen Aseptic Liquids Beverage Enhancers Coffee & Tea Dressings Pickles & Salsa Sauces & Toppings Pasta / Dry Dinners RTE Cereal / Hot Cereal Soup Snack Nuts Trail Mix & Bars Sweet & Salty Non Dairy Creamer Refrigerated Beverages 8

9 IT System Separation Progress February 2016 February 2017 Ecosystem Ecosystem Functionality Functionality CAG TSA Supported Functionality Non CAG Supported Functionality 9

10 Matthew Foulston, EVP & CFO Joins TreeHouse Net Sales ($ in millions) U.S. PRIVATE BRAND SHARE IS AROUND HALF THAT OF SOME EUROPEAN MODELS Legacy TreeHouse +10 Complementary Categories TreeHouse + Private Brands Leading scale manufacturer in 32 food and beverage categories Unparalleled product portfolio allows unique strategic relationships with customers 10

11 TreeHouse Fourth Quarter 2016 Earnings Net sales and gross profit increased 105% and 92%, respectively, primarily driven by the Private Brands acquisition Gross margin, at 19.7%, was down 1.3 points, partially reflecting pricing headwinds, the lower margin Private Brands business and higher variable incentive compensation Goodwill impairment, primarily retail Flagstone, impacted Q4 earnings by $6.19 per fully diluted share Q4 Earnings Change % Change Net Sales $1,776,676 $865,414 $911, % Gross Profit 349, , , % Gross Profit Margin 19.7% 21.0% - (1.3) pts Net (loss) income (281,823) 37,255 (319,078) - Adjusted EBITDAS 210, ,227 90, % Adj EBITDAS Margin 11.8% 13.9% - (2.1) pts GAAP earnings per diluted share $(4.96) $0.85 $(5.81) - Goodwill impairment per diluted share $(6.19) $0.00 $(6.19) - Adjusted earnings per diluted share $1.14 $1.08 $ % For a reconciliation of non-gaap measures to the most comparable GAAP measures, see Appendix. 11

12 Segment Review North American Retail Grocery Net sales and direct operating income increased 123% and 100%, respectively, driven primarily by the acquisition of Private Brands. Direct operating income margin decreased 1.6 points, largely reflecting unfavorable pricing, higher variable incentive compensation and lower margin Private Brands business. Food Away From Home Net sales and direct operating income increased 70% and 49%, respectively, primarily driven by the Private Brands acquisition. Direct operating income margin, at 12.3%, was down 1.8 points, largely reflecting the lower margin Private Brands business. Industrial and Export Net sales increased 23% driven by the Private Brands acquisition, partially offset by unfavorable volume / mix. Direct operating income and direct operating income margin declined 21% and 6.7 points, respectively, primarily due to the impact of lower margin business from Private Brands. North American Retail Grocery Three Months Ended December 31, Change (unaudited) Net Sales $1,493,424 $668, % Direct Operating Income 213, , % Direct Operating Income Margin 14.3% 15.9% (1.6) pts Food Away From Home Three Months Ended December 31, Change (unaudited) Net Sales $ 151,951 $ 89, % Direct Operating Income 18,745 12, % Direct Operating Income Margin 12.3% 14.1% (1.8) pts Industrial and Export Three Months Ended December 31, Change (unaudited) Net Sales $ 131,378 $106, % Direct Operating Income 16,105 20, % Direct Operating Income Margin 12.3% 19.0% (6.7) pts 12

13 2017 Consolidated TreeHouse Foods Guidance 2017P Net Sales $6.4 - $6.6 billion Gross Margin 19.5% % SG&A 12.8% 13.5% Net Income $200 $220 million Adjusted EBITDAS $775 - $815 million 1 Full Year Diluted EPS $ $ Q1 Diluted EPS $ $0.70 New guidance line items in Because the Company cannot predict some of the items included in reported GAAP results, such as the impact of foreign exchange, earnings per share forecasts for both GAAP and adjusted earnings are the same. 13

14 2017 Consolidated TreeHouse Foods Guidance (cont d) 2017P Interest Expense, Net $123 - $127 million Tax Rate 34% - 35% Weighted Average Diluted Shares million Capital Expenditures ~$215 million 14

15 Free Cash Flow and Leverage We have generated abundant free cash flow 1 in recent years and expect this trend to continue in 2017 Our excess cash is primarily used to pay down debt and this will be a focus in 2017 We anticipate our leverage ratio 2 will return to under 3.5x mid-year Each reduction in pricing level under the bank covenants = 25bps savings In $000s Below 3.5x by midyear 1 Free cash flow is defined as net cash provided by operating activities less capital expenditures as presented on the face of the Consolidated Statements of Cash Flows 2 Leverage ratio is net debt / EBITDAS as defined by the bank covenants 15

16 Outlook for New Segment Reporting Division 1 Portfolio Role Sales Direct Operating Income Margin Baked Goods $1.3 - $1.5 billion Low double digits Condiments $1.3 - $1.5 billion Low double digits Meals $1.2 - $1.4 billion Low double digits Snacks $1.2 - $1.4 billion Mid single digits Beverages $0.9 - $1.1 billion Mid 20s 1 X axis represents growth; Y axis represents value 16

17 2017 Integration Initiatives on Track Systems Conversions Partial SAP Implementations - Cereal Cedar Rapids, IA Sparks, NV Battle Creek, MI Lancaster, OH Go To Market Full SAP Implementation Lakeville, MN (bars) Milwaukee, WI (pita chips) Exit Conagra Mixing Centers Pretzels Bars Support Systems Transition Exit Transition Services Agreement (TSA) Flagstone Systems Implementation Plant Closures Battle Creek, MI (partial closure) Ayer, MA Azusa, CA Delta, BC Q1 Q2 Q3 Q4 Q1 1 Not a requirement for being able to exit the TSA 17

18 Summary 1 We are well positioned and our fundamentals are strong as we enter The integration of Private Brands is very much on track. 3 Our sales force reorganization has been very well received both internally and externally. 4 We continue to have significant opportunities for operational improvements. 5 We will generate substantial free cash flow and expect to be back to 3.5x leverage by mid-year. 18

19 Growing Strong, Standing Tall 19

20 Appendix 20

21 Comparison of Adjusted Information to GAAP Information We have included in this presentation 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 Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income, and the Consolidated Statements of Cash Flows. We believe 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, we provide 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 earnings 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, and related costs, mark-to-market adjustments on derivative contracts, 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 for management, 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 above. Adjusted Net Income and Adjusted EBITDAS, Adjusting for Certain Items Affecting Comparability Adjusted net income represents GAAP net loss 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 EBITDAS represents adjusted net income before interest expense, interest income, income tax expense, depreciation and amortization expense, and non-cash stockbased compensation expense. Adjusted EBITDAS is a performance measure commonly used by management to assess operating performance, and the Company believes it is 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 for the three and twelve month periods ended December 31, 2016 and 2015 calculated according to GAAP and adjusted net income and adjusted EBITDAS is presented in the attached 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. 21

22 Diluted (Loss) Earnings per Share per GAAP Compared to Adjusted Diluted EPS RECONCILIATION OF DILUTED (LOSS) EARNINGS PER SHARE TO ADJUSTED DILUTED EARNINGS PER SHARE Three Months Ended Twelve Months Ended December 31, December 31, (unaudited) (unaudited) Diluted (loss) earnings per share per GAAP $(4.96) $0.85 $(4.10) $2.63 Impairment of goodwill & other intangible assets Acquisition, integration, and related costs Restructuring/facility consolidation costs Foreign currency loss (gain) on re-measurement of intercompany notes (0.05) 0.47 Mark-to-market adjustments (0.18) (0.01) (0.25) (0.01) Product recall costs Tax impact of adjusting items (0.26) (0.10) (0.66) (0.27) Adjusted Diluted EPS $1.14 $1.08 $2.95 $

23 Net (Loss) Income per GAAP Compared to Adjusted Net Income and Adjusted EBITDAS TREEHOUSE FOODS, INC. RECONCILIATION OF NET (LOSS) INCOME TO ADJUSTED NET INCOME AND ADJUSTED EBITDAS (In thousands) Three Months Ended Twelve Months Ended December 31, December 31, (unaudited) (unaudited) Net (loss) income per GAAP $ (281,823) $ 37,255 $ (228,594) $ 114,910 Product recall costs (1) ,596 - Foreign currency loss (gain) on re-measurement of intercompany notes (2) 2,189 3,777 (3,024) 20,627 Mark-to-market adjustments (3) (10,226) (244) (14,087) (622) Acquisition, integration, and related costs (4) 9,515 6,694 60,101 11,685 Restructuring/facility consolidation costs (5) 8,118 4,333 21,019 4,837 Impairment of goodwill and other intangible assets (6) 352, ,243 - Less: Tax impact of adjusting items (14,822) - (36,993) - Adjusted net income $ 65,446 $ 51,815 $ 166,261 $ 151,437 Interest expense 31,200 11, ,155 45,474 Interest income (616) (739) (4,185) (2,967) Income taxes 16,457 20,146 33,231 56,354 Depreciation and amortization (7) 75,935 30, , ,982 Stock-based compensation expense (8) 7,048 7,374 29,228 22,877 Add: Tax impact of adjusting items 14,822-36,993 - Adjusted EBITDAS $ 210,292 $ 120,227 $ 659,907 $ 395,157 23

24 Net (Loss) Income per GAAP Compared to Adjusted Net Income and Adjusted EBITDAS Location in Consolidated Statements of Operations Three Months Twelve Months December 31, December 31, (unaudited) (unaudited) (1) Product recall costs Net sales $ 77 $ - $ 9,922 $ - Cost of sales 175-5,674 - (2) Foreign currency loss (gain) on re-measurement of intercompany notes (Gain) loss on foreign currency exchange 2,189 3,777 (3,024) 20,627 (3) Mark-to-market adjustments Other (income) expense, net (10,226) (244) (14,087) (622) (4) Acquisition, integration, and related costs General and administrative 9,489 6,278 51,530 10,500 Cost of sales - - 8, Other (income) expense, net Selling and distribution (5) Restructuring/facility consolidation costs Other operating expense, net 4,106 1,313 13,078 1,817 Cost of sales 4,012 3,020 7,941 3,020 (6) Impairment of goodwill and other intangible assets Impairment of goodwill and other intangible assets 352, ,243 - (7) Depreciation and amortization included in Cost of sales 4,170-9,014 - restructuring/facility consolidation costs General and administrative (8) Stock-based compensation expense included in General and administrative acquisition, integration, and related costs 24

25 Reconciliation of Projected 2017 Net Income to Projected 2017 EBITDAS Reconciliation of Projected 2017 Net Income to Projected 2017 EBITDAS Low High (in millions) Net Income $ 200 $ 220 Taxes (34% - 35%) Interest Expense - Net Depreciation Amortization Stock Comp EBITDAS $ 775 $

26 Free Cash Flow Calculation Calculation of Free Cash Flow (unaudited) Net cash provided by operating activities 1 $ 204,559 $ 216,690 $ 229,550 $ 290,647 $ 478,613 Additions to property, plant, and equipment 1 70,277 74,780 88,575 72, ,231 Free cash flow $ 134,282 $ 141,910 $ 140,975 $ 217,913 $ 303,382 1 Net cash provided by operating activities and additions to property, plant, and equipment obtained from the Consolidated Statements of Cash Flows as reported in Form 10-K for the years ended December 31, 2012, 2013, 2014, and Full year 2016 values represent unaudited amounts for the year ended December 31,