TreeHouse Foods Inc. (THS) recently announced it was acquiring Sturm Foods, a 105-year old Wisconsin food manufacturer, which will result in over 16% accretion on an annual basis. THS also raised 2009 earnings guidance.
Company Description
TreeHouse Foods manufacturers various food products including canned soup, salad dressings and sauces, salsa and Mexican sauces, infant feeding formulas and liquid non-dairy creamer. It is the largest manufacturer of pickles and non-dairy powdered creamer in the U.S.
TreeHouse also makes jams and pie fillings under the name E.D. Smith.
TreeHouse to Acquire Sturm Foods
On Dec 21, TreeHouse announced it was purchasing Sturm Foods, a manufacturer of healthful drink mixes and sticks, instant oatmeal and hot cereals, and organic and natural foods, for $660 million. It is expected to close on Mar 31.
The acquisition will provide TreeHouse with strength in the hot cereal and powdered soft drink mix categories. The acquisition will have an impact on earnings, adding 38 cents to 40 cents a year.
In 2010, given that the transaction won’t close until the end of March, the company expects Sturm to add 27 cents to 30 cents to earnings per share.
TreeHouse will fund the purchase with $400 million in new debt issuance, $100 million in equity stock issuance and the rest from its existing revolving credit facility.
2009 Guidance Raised
Separate from the Sturm acquisition, TreeHouse raised its 2009 earnings guidance to a range of $2.10 to $2.12 per share from $2.07 to $2.09 as it sees benefits from its cost savings programs and stronger top line growth.
The company also expects earnings to grow 9% to 13% in 2010, excluding the impact of the Sturm acquisition.
Zacks Consensus Estimates Jump
In response to the earnings revision and acquisition, analysts have been raising estimates for 2009 and 2010. The 2009 Zacks Consensus rose a penny to $2.11 per share which is in the middle of the company’s guidance range.
Analysts are more bullish on 2010 than the company as they project earnings growth of 20.64%. The 2010 Zacks Consensus climbed nearly 10% to $2.55 from $2.32 per share in the last 30 days.
TreeHouse is expected to report fourth quarter results on Feb 11. It has surprised on estimates 4 quarters in a row by an average of 17.16%.
Value Fundamentals
TreeHouse is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 14.68 and a price-to-book ratio of 1.76 both of which are under industry averages. TreeHouse also has a 1-year return on equity of 10.07%.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service.
