TreeHouse Foods continues its ‘optimization journey’ by selling its RTD cereal business, shuttering a snack facility

03-May-2019 - Last updated on 03-May-2019 at 14:30 GMT

Source: Getty

TreeHouse Foods’ relatively new CEO Steve Oakland continues to pare back underperforming and non-core products in the company’s portfolio and broader production network with twin announcements Thursday that the company would divest its ready-to-eat cereal business to Post Holdings and close its snack plant in Minnesota.

Oakland, who took the helm of TreeHouse Foods about a year ago, lauded the $9 billion RTE cereal category as having a “long runway for growth,” but said in a statement that the same of TreeHouse’s business, which was worth approximately $260 million in 2018, was necessary to “bring greater focus to the TreeHouse organization and … portfolio optimization journey.”

Terms of the deal, which is expected to close in the third quarter of 2019, were not disclosed, but it does include three manufacturing plants, which employee about 400 hourly and 100 salaried people who will transition from TreeHouse Foods to Post Holdings.

Post said it plans to fold the business into its existing North American RTE cereal business, Post consumer Brands – a move that will allow the deal to be immediately accretive to the company’s free cash flow beyond one-time transaction expenses, which are expected to range from $25-30 million.

Specifically, Post said in a statement that it expects the TreeHouse RTE cereal business will generate $15-20 million in the first year, including synergies.

Closure of Minnesota facility part of a longer play

The sales is part of Oakland’s broader strategy to streamline the business, which some argue was too big for its own good and wasn’t able to operate efficiently.

Another piece of this process was the decision to close its Minneapolis, Minn., production facility for snack nuts and trail mix by the end of the third quarter of 2019.

By announcing the deal months in advance, TreeHouse said in a statement that it was trying to give the facility’s 120 employees “as much notice as possible and to ensure a seamless transition for customers.”

The closure announced yesterday follows an announcement last year that the company would close a pretzel and snack plant in Visalia, Calif., by the end of the first quarter of 2019.

The move could be part of a greater play by TreeHouse, which could include selling its snack nuts and trail mix business. The company noted in a statement that its review of the business is ongoing and it will provide a “more fulsome update around its Snacks business,” during its second quarter earnings release in August.

The company’s first quarter results, revealed May 2, shows that even as Oakland’s efforts to optimize TreeHouse’s portfolio are benefiting the business, it still has a long way to go.

During the first quarter, TreeHouse reported a lower loss per diluted share at 49 cents compared to 60 cents for the same period last year and an adjusted earnings per share at 13 cents, which was lower than the 18 cents during the same time period last year but above the company’s midpoint guidance range of 5 to 15 cents per fully diluted share.