TreeHouse Foods Misses Q4 Estimates But Stock Jumps: What's Driving The Surge?

TreeHouse Foods, Inc. (NYSE: THS) reported its fourth quarter and full year 2024 results on February 14, 2025, with net sales and adjusted EBITDA meeting guidance but falling short of analysts' expectations. Despite the miss, the company's stock price surged, leaving investors wondering what's driving the unexpected rally. This article explores the factors contributing to TreeHouse Foods' performance and the reasons behind the stock's jump.



Q4 Results and Guidance

TreeHouse Foods reported net sales of $905.7 million and adjusted EBITDA of $118.3 million for the fourth quarter of 2024, meeting its guidance but falling short of analysts' expectations. The company also issued initial fiscal year 2025 outlook for adjusted net sales in a range of $3.340 billion to $3.400 billion, adjusted EBITDA in a range of $345 million to $375 million, and free cash flow of at least $130 million.

Factors Contributing to the Miss

Several factors contributed to TreeHouse Foods' missed Q4 estimates:

1. Supply Chain Issues: The company faced two significant supply chain issues during the year, including a voluntary recall of frozen griddle products and operational disruptions from Hurricane Helene. These events led to lost volume and increased expenses, contributing to the missed estimates.
2. Facilities Restoration Impact: The restoration of the griddle product facility following the related recall resulted in lost volume, which negatively impacted net sales. This facility restoration impact contributed to a 2.8% decrease in net sales for the quarter.
3. Commodity-Driven Pricing Adjustments: TreeHouse Foods experienced commodity-driven pricing adjustments in select categories, which contributed to the decrease in net sales. These adjustments may have been necessary to maintain profitability in the face of rising input costs.
4. Product Recall Returns: The company incurred product recall returns, which further impacted net sales. This factor contributed to a 0.8% decrease in net sales for the quarter.



Strategic Plan to Drive Profitable Business and Improve Cash Flow

TreeHouse Foods' strategic plan to drive more profitable business and improve cash flow aligns with its recent financial performance. The company aims to prioritize gross profit dollars, make strategic decisions on margin management for new and existing business, and identify additional efficiency opportunities across the organization. These initiatives are supported by the following recent financial performance indicators:

1. Improved Gross Profit Margin: The company's gross profit margin increased by 2.8 percentage points in the fourth quarter of 2024 compared to the same period in 2023, reaching 19.5%. This improvement is primarily due to the execution of supply chain savings initiatives, a $10.0 million insurance recovery related to the broth recall, and lower commodity costs.
2. Decrease in Total Operating Expenses: Total operating expenses decreased by $13.3 million in the fourth quarter of 2024 compared to the same period in 2023. This decrease was primarily due to lower employee incentive compensation expense, a non-recurring impairment charge in the fourth quarter of 2023, lower severance expense, and lower freight costs.
3. Improved Adjusted EBITDA Margin: The company's Adjusted EBITDA margin improved sequentially, aligning with its updated expectations. This suggests that the company's initiatives to drive more profitable business are having a positive impact on its financial performance.

What's Driving the Stock Surge?

Despite missing Q4 estimates, TreeHouse Foods' stock price surged following the earnings release. This unexpected rally can be attributed to several factors:

1. Forward-Looking Guidance: The company's initial fiscal year 2025 outlook for adjusted net sales, adjusted EBITDA, and free cash flow provided investors with a positive outlook on the company's future performance.
2. Improved Gross Profit Margin and Adjusted EBITDA Margin: The company's improved gross profit margin and adjusted EBITDA margin indicate that its strategic plan to drive more profitable business is working, providing investors with confidence in the company's ability to execute on its long-term growth objectives.
3. Potential for Significant Operating Leverage: TreeHouse Foods' CEO, Steve Oakland, stated that the company's actions will position the business well in the near-term and provide the opportunity for significant operating leverage when its categories return to growth. This suggests that the company's initiatives are designed to create a more resilient and efficient business model, which can drive long-term growth.



In conclusion, TreeHouse Foods' missed Q4 estimates can be attributed to several specific factors, including supply chain issues, facilities restoration impact, commodity-driven pricing adjustments, and product recall returns. However, the company's strategic plan to drive more profitable business and improve cash flow aligns with its recent financial performance, indicating that its initiatives are working. The stock's surge can be attributed to forward-looking guidance, improved gross profit margin and adjusted EBITDA margin, and the potential for significant operating leverage. Investors should monitor the company's progress and assess the long-term growth prospects based on its ability to execute on its strategic plan.