Wednesday, March 11, 2009
(Cont'd from above)...

We know that private label sales have been increasing a lot of the categories that Treehouse does its business in… including pickles, we have had these pickles on the set since Treehouse started too… soups, jams, salad dressing…. sales of private label pickles, olives and relish were up 11.6%… think about it, aren’t those all things that you don’t care if they are label or private… over the year, that is for four weeks ending February 21st, so we have fresh data… the company is selling more units too… and these numbers show improvement over the previous quarter… in condensed soups, private label sales were up 13% year over year, another thing that I think doesn’t need to be the fancy label… how about private label salad dressing… this one shocked me… this one is up 22.5% a year, I always thought that people would ask for Seven Seas or something, you know… or Paul Newman… private label jams, jellies, and spreads up 10.4% year over year… how about this… private label foods took share over the national brands in all of these categories… there isn’t a single branded item that has beaten this stuff… these are all places where Treehouse is one of the dominant private label companies… these numbers don’t necessarily mean that Treehouse is doing better… we are going to have to find that out, right… but they definitely indicate that there is a lot of demand for the kinds of private labels that it sells… and really, what is the difference between one kind of supermarket brand salad dressing and another.

Now, we on Mad Money have done unscientific, and totally anecdotal taste tests… and we can’t taste the difference between branded and unbranded foods… what we know that people feel poorer and that they are buying more private label foods instead of the national branded stuff… they know that it all tastes the same… and now they actually have to cut back… they are dropping their favorite brands for the cheap stuff… even if the stock market is up for a couple of days… we don’t start switching back to the expensive spread… we don’t say, wow, my 401K was up a few bucks yesterday, I am going to splurge and get the nationally branded stuff… the trade is in Treehouse’s favor… but how are they capitalizing on it…we are seeing more private label sales, does that mean more sales and more profits for Treehouse… let’s talk to Sam Reed, Treehouse Food CEO to find out.

Jim:      Mr. Reed welcome back to Mad Money...

Sam:     Thanks Jim, I am glad to be with you again.

Jim:      Do you think that I am presuming too much when I hear those big category growers for private labels, that it has to be impacting Treehouse Foods bottom line?

Sam:     Well, those indicators are indicative of part of a very general trend where private label across a broader ray of food stuff is enjoying accelerated growth. We are at the forefront of that because we have developed a portfolio that includes salad dressings, condensed soups, salsa, and other faster growing products. And second we have made a commitment to work directly with our retail grocery customers to formulate products to a high quality and to meet their specifications.

Jim:      Alright, Mr. Reed, one of the things that had I think… you have been very upfront… you have been very upfront since you became public… you have had a really honest press release, and 10K, and Q… but you have said before, that you couldn’t come back from raw price increases. There was really nothing that you could do. You are a company that tries to keep prices down, but the raw cost increases were too great. Is that starting to moderate?

Sam:     In total, our input costs in the past year increased by 3 times our original forecast to over $110m. We were not able to offset all of that only thru pricing, but held our margins thanks to productivity and other internal improvements. As I look forward to the new year, commodity costs are down substantially and when one looks at the aggregate of commodities, energy and packaging, we see that those costs will be relatively flat in 2009. I should note, that we like most manufacturers, make forward commitments many time at our customers request so we will see, enjoy the benefits of those lower costs primarily in the second half of the year.

Jim:      Alright, that is what a lot of the good food companies are telling me. You didn’t hedge away the gains, you didn’t lock in those high prices did you?

Sam:     We did not, but we look forward, always have a prudent approach to this. And unlike many other branded companies, we are able to do it in concert many times with our largest customers.

Jim:      Okay, I was on the Kroger conference call yesterday, KR, it was dynamite. What they told me was that private label was good, are you a part of the Kroger franchise?

Sam:     We are very pleased to be a leading supplier to Kroger. And all of the other leading grocery retailers. We have four categories in which we are the primary or the sole supplier there, and happened to enjoy low double digit growth with Kroger stores last year.

Jim:      Are there… this has always been something since the day that you came public, I have always followed you because of your previous successes… you have said that you will build, you will buy, but your stock has been stalled. Is there still enough juice in your stock to make acquisitions? And are there other companies that desperately need a partner right now?

Sam:     We take a very strategic view towards acquisitions and we are at present quite ready to expand again, in a large scale way. We successfully integrated Edie Smith with great success last year. As well as San Antonio Farms, which led to far greater sales in salsa. We have a strong balance sheet. Since I last talked to you I think in late December, we announced that we paid $145m in debt in the past year. And I look forward to as market conditions dictate, being able to expand the business in a large scale and strategic way.

Jim:      I know that you also talked about that there was some rationalization that was needed in pickles. You were not making as much money with Peter Piper’s, has that changed?

Sam:     It has dramatically. We have reduced the aggregate of revenues in volume in our pickle business by more than 15% in the past year. In a rationalization program that we undertook, and I am very pleased to report that in total the profitability of the category actually moved slightly up, even with that decline in volume.

Jim:      It is pleasure to have a CEO who totally delivers on his commitments from when he was on the show last. Mr. Sam Reed, thank you so much for being on Mad Money.

Sam:     Thanks again Jim.

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