2. TreeHouse Foods, Inc. (NYSE:THS)
JANA Partners’ Stake Value: $205,656,000
Percentage of JANA Partners’ 13F Portfolio: 16.45%
Number of Hedge Fund Holders: 20
Publishing its third quarter earnings report on November 8, TreeHouse Foods, Inc. (NYSE:THS) posted an EPS of $0.46, missing estimates by $0.04. The $1.10 billion revenue exceeded estimates by $20.24 million and gained 5.31% from the preceding year quarter.
TreeHouse Foods, Inc. (NYSE:THS) is an Illinois-based multinational food processing company that produces private labeled packaged food. In the third quarter of 2021, Barry Rosenstein increased his stake in TreeHouse Foods, Inc. (NYSE:THS) by 36%, holding 5.15 million shares worth $205.65 million. The stock accounts for 16.45% of the JANA Partners’ total Q3 investments.
TreeHouse Foods, Inc. (NYSE:THS) announced on November 8 that its board of directors has approved a plan to explore strategic alternatives, including a possible sale of the company or a transaction to allow the company to focus on its higher growth snacking and beverages business by divesting a significant portion of its meal prep business.
Of the 20 hedge funds that were bullish on TreeHouse Foods, Inc. (NYSE:THS) in Q3 2021, Jim Simons’ Renaissance Technologies is one of the leading stakeholders of the company, with 616,777 shares worth $24.59 million.
Here is what Palm Valley Capital has to say about TreeHouse Foods, Inc. (NYSE:THS) in its Q3 2021 investor letter:
“During the quarter, we purchased TreeHouse Foods (ticker: THS), the market leading provider of private label foods in the U.S. Since being spun out of Dean Foods in 2005, TreeHouse has been an aggressive acquirer, increasing its size tenfold from 2008 to 2016. Since 2017, the company shifted its strategy from acquiring to improving efficiency, service levels, and profitability. With investors expecting another year of growth and improvement, on August 5th, the company announced it was reducing its earnings guidance for 2021.
There were two items that dragged down expectations. First, the company suffered from an unexpected shift by consumers towards branded products and away from private labels. As government stimulus dollars have boosted incomes, TreeHouse’s management has seen shoppers trade up to branded products. The second contributing factor harming results has become a common theme throughout the food industry—escalating commodity, freight, labor, and packaging costs. Management called the inflationary environment “extraordinary” and is in the process of raising prices. While they expect demand for private label foods to improve as government stimulus fades, it will not be in time to save 2021’s results. Earnings growth will likely not return until early next year.
Based on historical results and our normalized operating margin estimate, we believe TreeHouse can generate $300 million of annual free cash flow. In our opinion, this is attractive relative to the company’s $2.1 billion market cap. While TreeHouse’s $1.9 billion in debt is near our high-end threshold for financial leverage, we believe a portion of future cash flow will be used to pay down debt and repurchase shares, reducing the company’s financial risk and increasing its intrinsic value per share. TreeHouse Foods is a market leader in a stable and growing industry, and we view it as a high-quality small cap business. After being on our possible buy list for many years, we were happy to see its stock price fall abruptly to a level below our calculated valuation.”
