TreeHouse Foods, Inc., which owns Sturm Foods (which markets Grove Square® single-cup coffee), reported second quarter earnings of $0.53 per fully diluted share compared to $0.39 per fully diluted share reported for the second quarter of last year. The company reported adjusted earnings per share, excluding unusual items as described below, of $0.60 compared to $0.43 in the prior year.
The company's 2012 second quarter results included several unusual items that affected the year-over-year quarterly comparison. These items are comprised of a $0.04 per share expense associated with the acquisition of substantially all of the assets of Naturally Fresh, Inc., a $0.04 per share loss on the mark-to-market adjustment of the company's commodity agreements, and a $0.01 per share gain on the foreign currency translation of cash held at E.D. Smith.
"We are very pleased with our overall performance for the second quarter," said Sam K. Reed, chairman, president and chief executive officer in a prepared statement. "Excluding the soup business, our retail grocery volume grew 1.9 percent, with dry dinners, pasta sauces and salsa all posting growth in the double-digits. Clearly our customers see the value of a strong private label portfolio of products during these difficult times."
Adjusted operating earnings before interest, taxes, depreciation, amortization, non-cash stock based compensation, and unusual items, or Adjusted EBITDA, was $69.1 million in the quarter, a 10.9 percent increase compared to the prior year. Adjusted EBITDA was higher primarily due to the improvement in net income.
Net sales for the second quarter totaled $527.4 million compared to $492.6 million last year, an increase of 7.1 percent as the company realized the benefits of increased pricing and additional sales from the acquisition of Naturally Fresh. Sales for the North American retail grocery segment increased 5.9 percent, sales for the food away from home segment increased 11.0 percent compared to last year, while the industrial and export segment showed growth of 8.7 percent.
Selling, distribution, general and administrative expenses were $56.6 million for the quarter, a decrease of 14.5 percent from $66.2 million in the second quarter of 2011. The decrease was due primarily to lower distribution and delivery costs resulting from the efficiencies of last year's warehouse consolidation program and lower incentive based compensation costs.
Other operating (income) expense in the quarter was insignificant compared to $1.3 million in the prior year. Last year's expense was primarily related to the closure of the Springfield, Mo. pickle plant.
Interest expense in the quarter was $12.4 million compared to $13.5 million last year. The decrease was due to lower interest rates.
Income tax expense increased in the quarter to $8.0 million due to higher pretax income. The company's second quarter effective income tax rate of 29.0 percent was lower than last year's second quarter rate of 32.5 percent due to the impact of the repayment of certain intercompany debt and a decrease in the Canadian statutory tax rate.
Net income for the quarter totaled $19.5 million compared to $14.3 million last year. Fully diluted earnings per share from continuing operations for the quarter were $0.53 per share compared to $0.39 per share last year. Excluding unusual items, adjusted earnings per share from continuing operations for the second quarter of 2012 was $0.60 compared to last year's second quarter adjusted earnings per share of $0.43.
The company has three reportable segments:
North American retail grocery – This segment sells private label and branded products to customers within the U.S. and Canada. These products include pickles, peppers, relishes, condensed and ready to serve soups, broths, gravies, jams, spreads, salad dressings, sauces, non-dairy powdered creamers, salsa, powdered drinks, hot cereals, macaroni and cheese, skillet dinners and aseptic products.
Food away from home – This segment sells primarily pickle products, non-dairy powdered creamers, Mexican sauces, aseptic products, hot cereals, refrigerated products and sauces to foodservice customers, including restaurant chains and food distribution companies, within the U.S. and Canada.
Industrial and export – This segment includes the company's co-pack business and non-dairy powdered creamer sales to industrial customers. The non-dairy creamer is either repackaged into single serve packages for the foodservice industry or is used as an ingredient in other foodservice applications. Export sales are primarily to industrial customers outside North America.
The direct operating income for the company's segments is determined by deducting manufacturing costs from net sales and deducting direct operating costs such as freight to customers, commissions, as well as direct selling and marketing expenses. General sales and administrative expenses, including restructuring charges, are not allocated to the business segments as these costs are managed at the corporate level.
North American retail grocery net sales for the second quarter increased by 5.9 percent to $371.5 million from $350.9 million during the same quarter last year primarily due to a 4.8 percent increase in pricing and a 2.8 percent increase due to the Naturally Fresh acquisition that was partially offset by reduced volume/mix. While the company had nice volume increases in categories such as pasta sauces and Mexican sauces, lower volume in the powdered drinks and soup categories more than offset the volume gains. Direct operating income margin in the quarter decreased from 15.4 percent last year to 14.8 percent in the current quarter as higher input and production costs were partially offset by pricing actions.
Food away from home segment sales for the second quarter increased 11.0 percent from last year to $87.9 million from $79.2 million during the same quarter last year, primarily due to a 4.9 percent increase in pricing and a 10.3 percent increase due to the Naturally Fresh acquisition, partially offset by a volume/mix decline of 3.7 percent. Contributing to the volume/mix decline was continued softness in pickles and Mexican sauces. Direct operating income increased to $10.5 million in the quarter compared to $10.1 million last year.
Industrial and export segment sales for the second quarter increased 8.7 percent, primarily driven by increased volume/mix and pricing. Direct operating income decreased to $8.3 million compared to $10.6 million from last year as a result of higher input and distribution costs.
