The Macrovue investment committee looks at three companies strongly positioned across the supply chain of the food economy – from farm to fork.
Treehouse Foods (NYSE: THS)
Illinois based Treehouse Foods is a manufacturer of packaged foods and beverages with more than 50 manufacturing facilities across the United States, Canada and Italy that focuses primarily on private label products for both retail grocery and food away from home customers. They have a diverse end market ranging from grocery stores to industrial customers.
One of their main focuses is the "good for you" food, which is a prominent trend among millennials. There also has been a shift to value while still receiving good quality. To play on this notion, THS purchased the private labels segment from Conagra in 2016 to grow their private label portfolio and "good for you" foods.
Treehouse Foods is a direct play on the proliferation of private labels within the grocery chain as consumer spending habits seem to moving away from branded goods towards healthier alternatives and increasingly favouring discount retailers such as Aldi, Walmart and Costco all of whom are promoting “own brand” strategies.
Recent financial results
On 14 February 2019 Treehouse reported pro forma 4Q18 EPS of $1.03, $0.07 above consensus. Versus consensus expectations, sales slightly disappointed on soft volumes due to SKU rationalisation, the McCann's divestiture as well as adverse impacts from volume/mix and currency fluctuations. THS generated revenues of $1.48Bn, light by $20M. On the positive side, gross margins were nicely ahead by some 20 basis points.
The quarterly results gained from favourable pricing actions and savings initiatives such as “TreeHouse 2020” and “Structure to Win”. Looking ahead, guidance for 2019 was a bit mixed. Although EBIT guidance came in healthy ($290-$325MM versus consensus $297), the bottom end of sales guidance was trimmed and 1Q EPS are expected to be weak ($0.05 to $0.15 versus Street consensus of $0.29). More importantly, annual EPS guidance of $2.35-$2.75 was reiterated however.
Treehouse Foods returned +74.86% in the year to 28 February 2019.
Zoetis (NYSE: ZTS)
Zoetis is the only pure play in animal health. It is also the largest animal health company in the world. Its therapeutic footprint includes medicines and vaccines for livestock and companion animals.
The company was a former business unit of Pfizer for 60 years prior to its initial public offering in January 2013. Zoetis has global scale and sells to over 120 countries across eight core species and five major product categories. The company markets products across four regions: the United States, Europe/Africa/Middle East, Canada/Latin America, and Asia/Pacific. Products cover eight species- cattle, swine, poultry, sheep and fish, and the companion animal species of dogs, cats and horses.
There are five product categories: anti-infectives, vaccines, parasiticides, medicated feed additives and other pharmaceutical products. In addition, its Client Supply Services organisation provides contract manufacturing services to third parties.
Recent financial results
Zoetis reported earnings on 14 February 2019. ZTS results reflected solid underlying growth in 2018. ZTS also guided to a solid operational growth forecast in 2019 (+5.5% on an organic basis, at the midpoint of the guidance range, and +8.5% including acquisitions).
4Q18 revenue came in at 2.5% ahead of consensus, driven primarily by the US business. The EPS beat of some 4% vs. the Street was driven by a higher gross margin, offset by slightly higher expenses, along with a lower tax rate. 2019 guidance is roughly in line with Street expectations (revenue in line at the midpoint of the guidance range, and EPS c.1% ahead of the Street.
While the cattle / dairy divisions may remain weak in 2019, the company forecast strong global performance from its other segments such as companion animal, poultry, and swine. Analysts believe that the company well positioned for above market growth within an attractive animal health space driven by a combination of a diversified portfolio and a strong new product cycle (primarily in the higher growth and higher margin companion animal segment).
Zoetis returned +28.6% in the year to 28 February 2019.
Deere (NYSE: DE)
Deere & Co. is a manufacturer and distributor of a complete line of equipment used in agriculture, construction, forestry and turf care. It is the largest agricultural machinery company in the world. It also manufactures engines and other power train components. It operates its business through the following segments: Agriculture and Turf, Construction and Forestry, and Financial Services.
Recent financial results
Deere reported FQ1 2019 earnings on 14 February 2019, delivering a below consensus FQ1 EPS but more importantly maintained FY’19 net income guidance. The company reported FQ1 equipment sales up 16% to $6.94B (consensus $6.95B) and EPS of $1.54 (vs. consensus $1.75)).
Management maintained its FY’19 outlook for net income of $3.6B on equipment sales up 7% to ~$35.7B, which implies FY’19 EPS of $11.30 (vs. prior consensus $11.47); it is now expecting agriculture and turf (A&T) sales up 4% and construction and forestry (C&F) up 13% (vs. prior up ~3% and up ~15%, respectively).
View the CEO Presentation for a “deeper dive” into Deere’s global businesses and outlook.
Deere returned +21.77% in the year to 28 February 2019.
You can invest in these companies directly through Macrovue's Feed the World Share Portfolio (known as a Vue).
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual and does not constitute financial advice. Consider the appropriateness of the information in regards to your circumstances.
Past performance is not a reliable indicator of future performance.