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TreeHouse Foods (THS +4%) is trading nicely higher today after reporting a huge EPS beat. In fact, this major supplier of private label food and beverages reported its largest EPS upside since 1Q23. Revenue dipped 0.5% yr/yr to $905.7 mln, which was in-line, maybe a bit light. The Q1 and FY25 guidance were below analyst expectations.

• THS wrapped up what was a challenging year in 2024. The company had to navigate a slower macro environment and two significant supply chain issues in 2024. The good news is that THS has made steady progress executing on its supply chain improvements despite a difficult consumer backdrop across food and beverage categories.
• Digging into the Q4 results a bit, sales were nearly flat as volume/mix was positively impacted by strong performance in multiple categories including pretzels, in-store bakery, and cookies. However, this was offset by lost volume from the griddle product facility restoration following a recall. Additionally, commodity-driven pricing adjustments in select categories contributed to the decrease.
• Notably, THS says it is focusing more on a more profitable business, including making decisions based on margin management with a goal of prioritizing gross profit dollars. THS is also focused on additional efficiency across its operations. That, coupled with declining levels of capex, should drive improved profitability and cash flow. That appears evident in its Q4 results with a big EPS beat despite a slight miss on revs. That tells us margins were better than expected.
• In terms of the guidance, THS explained that private brand unit sales experienced a rather sharp deceleration during Q4 due to continued macro pressure. THS is experiencing similar trends thus far in Q1.
• Despite the macro trends, THS says the overall private label industry dynamics remain favorable. Price gaps are healthy and they maintained their historical cadence during the holiday period despite weaker consumption. Looking ahead, THS believes an increase in promotional activity is likely given industry volume, softness and overall consumption patterns.
• Bigger picture, THS said on the call that it's clear that many grocery retailers see further runway for growth in private brands and are making investments accordingly. For example, Walmart (bettergoods) and Albertsons (Overjoyed) both launched new private label brands in 2024. Costco's Kirkland brand is well-established, and Aldi continues its store base expansion across the US with an assortment that is focused almost exclusively on private brands.

Overall, we view Q4 as a mixed quarter with strong EPS upside but weak guidance. We are a bit surprised to see the stock up so much. However, we think the big EPS upside really shows that THS is making progress on being more profitable. Also, THS was fairly positive on the private label industry going forward. And there has been a lot of negativity already priced into the stock given its recent struggles, so investors are seeing Q4 as a buying opportunity.