TreeHouse Foods Finds Profit Gains Amid Revenue Slump in Q1

TreeHouse Foods (THS) reported a mixed set of results for Q1 2025, with adjusted earnings improving despite a decline in revenue. While the company swung to an adjusted profit, its net sales fell 3.5% year-over-year to $792 million, driven by operational disruptions, strategic business exits, and the lingering effects of product recalls. Yet, cost controls and margin improvements allowed adjusted EBITDA to surge 25% to $57.5 million. The quarter highlights TreeHouse’s balancing act: navigating supply chain challenges and recalls while pursuing profitability.

Revenue Declines, But Profit Grows

The top line contracted due to a perfect storm of factors. A voluntary recall of frozen griddle products—a key category—led to an 8.3% drop in volume/mix, while the company’s exit from the ready-to-drink (RTD) business and foreign currency headwinds added pressure. However, the Harris Tea acquisition, completed in late 2024, contributed 4.7% sales growth, partially offsetting losses.

Profitability, however, improved. Adjusted EBITDA hit $57.5 million, a $11.5 million increase from a year earlier, thanks to supply chain savings, pricing adjustments, and the margin benefits of Harris Tea. Gross margin expanded to 14.5% from 13.6% in Q1 2024, despite higher freight costs and recall-related disruptions.

The Recall Hangover

The recall of frozen griddle products and broth in late 2024 cast a long shadow. While TreeHouse has restarted production at its Brantford facility, the operational and financial toll persists. Recall-related costs totaled $5.9 million in Q1, and the service disruptions dented sales by 2.4%. CEO Steve Oakland emphasized that resolving these issues is critical to restoring customer confidence and stabilizing volumes.

The company also faces lingering costs from its debt-heavy balance sheet. Long-term debt rose to $1.42 billion, with cash reserves dropping to $16.4 million—a 94% decline from year-end 2024 levels. This reflects increased borrowing under its revolving credit facility, which could pressure interest expenses further.

Strategic Shifts and Risks Ahead

TreeHouse is doubling down on margin management, even if it means sacrificing volume. The company expects full-year 2025 adjusted sales to stay flat year-over-year, with volume/mix declining ~1% as it exits low-margin businesses and manages pricing. Adjusted EBITDA guidance of $345–375 million suggests a focus on cost discipline, though the midpoint implies only modest growth over 2024’s $335 million.

Yet risks loom large. Commodity inflation, labor shortages, and recall-related expenses could squeeze margins. The company also faces supply chain volatility, including geopolitical disruptions and climate-related issues. For instance, the 27.1% effective tax rate in Q1—a 3.6-percentage-point increase from 2024—hints at rising costs across the board.

Conclusion: A Fragile Turnaround?

TreeHouse’s Q1 results show progress in profitability but underscore vulnerabilities. The 25% jump in adjusted EBITDA is a positive sign, especially as the company exceeded its own guidance. However, the revenue decline and debt burden raise questions about long-term sustainability.

Investors should weigh two key facts:
1. Margin Improvements Are Real: The 14.5% gross margin and supply chain savings demonstrate operational discipline.
2. Debt and Liquidity Are Concerns: With cash reserves near historic lows, TreeHouse’s ability to manage debt service costs—and avoid further recalls—will determine its path forward.

The stock’s 2025 performance will hinge on whether the company can stabilize sales through 2025. If adjusted EBITDA reaches the midpoint of its $360 million guidance, that would represent a 7% annual increase—a modest but achievable goal. However, with shares down 18% year-to-date (as of April 2025), investors are clearly skeptical.

In the end, TreeHouse’s story is one of resilience amid chaos. It’s making progress on profitability but remains at the mercy of supply chain and recall risks. For now, the adjusted profit gain is a bright spot, but the road to sustained growth is still bumpy.