Two Westbrook Corporate Center
Company Perspectives
TreeHouse Foods is dedicated to being a leader in supplying high quality products and services to the private label and foodservice industries. Our business is based on the following propositions: Private label food and beverage is a $38 billion sector that has grown at approximately twice the pace of branded products over the past six years. Foodservice channels now account for approximately 50% of total food industry sales and continue to gain share from grocery and other retail channels. Consumer needs and customer demands for improved quality, value, availability and service should favor private label food manufacturers with low cost production, a responsive supply chain, a trusted reputation and excellent service. The fragmented private label and foodservice manufacturing industries should continue to consolidate, as greater scale and national distribution are required to compete. We believe that TreeHouse is ideally suited to address the challenges and seize the opportunities posed by these long term trends and strategic developments. Our mission is to create superior value for our customers, their consumers and you, our shareholder, through a combination of superb quality, service, innovation and execution.
TreeHouse Foods, Inc. is a leading U.S. maker of pickles, nondairy creamers, and other food products. Formerly the Specialty Foods Group of Dean Foods Company before being spun off in June 2005, TreeHouse and its main operating subsidiary, Bay Valley Foods LLC, market a wide array of shelf-stable products to the retail and foodservice channels and also sell ingredients to other food manufacturers. The company's largest business, generating approximately 45 percent of total sales, is its pickles segment, which is the largest pickle and pepper supplier in the United States and is also the top supplier of private-label pickles for the retail market. In addition to supplying private-label pickles, relish, peppers, and related products to retailers, TreeHouse sells pickle products to retailers under its own brands, including Farmans, Nalley's, Peter Piper, and Steinfeld, and to foodservice customers. The firm's pickles segment also sells sauces and syrups to retail grocers under the Bennett's, Hoffman House, and Roddenberry's Northwoods brand names. Approximately 37 percent of sales are attributable to the nondairy powdered creamer segment, which sells creamer under private labels and under TreeHouse Foods' proprietary Cremora brand, principally to retailers. The remaining 18 percent of revenues are generated by the sale of other food products, including Mocha Mix nondairy liquid creamer, Second Nature liquid egg substitute, and aseptic cheese sauces and puddings for the foodservice market, aseptic products being ones that have been processed under heat and pressure in a sterile environment, producing a product not requiring refrigeration before use. TreeHouse Foods operates 10 main production plants, which are located in California, Illinois, Indiana, Iowa, Michigan, North Carolina, Oregon, and Wisconsin. The firm's major retail customers include Wal-Mart Stores, Inc., the Kroger Company, and Topco Associates LLC, while major foodservice customers include U.S. Foodservice Inc., UniPro Foodservice, Inc., and McDonald's Corporation.
From its founding, TreeHouse stated its intention to grow through acquisitions. In March 2006 the company agreed to acquire from Del Monte Foods Company its private-label and foodservice soup businesses and the Nature's Goodness baby food business, for approximately $275 million.
The Road Leading to TreeHouse
The original Dean Foods Company, at the time known as Dean Milk Company, had entered the specialty food segment in 1962 when it acquired pickle producer Green Bay Food Company. Green Bay, based in Green Bay, Wisconsin, traced its roots back to the 1862 founding of Alart and McGuire Co., a pioneer in the pickle industry that built the first pickle tank in the United States. Alart and McGuire built a pickle-making plant in 1917 before being bought out by Arnold Brothers Pickle and Preserve Co. in 1925. When Leslie Kelly took control of Arnold Brothers in 1930, he renamed the company Green Bay Food Company. Over the ensuing years, Green Bay expanded its product range, until by 1949 it was making pickles, vinegar, mustard, sauerkraut, and salad dressing.
Under the Dean umbrella, Green Bay expanded considerably, in part through acquisition. In early 1993, for example, Dean acquired W.B. Roddenberry Co. Inc., a processor of pickles, peanut butter, and syrup based in Georgia that generated approximately $57 million in annual sales and owned a stable of brands with widespread regional name recognition. The following year, Green Bay's name was changed to Dean Pickle & Specialty Products.
In December 2001 Dean Foods, then the number two milk processor and distributor in the country, was bought by the number one milk firm, Suiza Foods Corporation, in a $1.7 billion deal. Suiza brought to the combined company two of the brands which were part of the original TreeHouse Foods portfolio. In November 1997 Suiza bought The Morningstar Group, Inc., whose assets included Mocha Mix nondairy liquid creamer and Second Nature liquid egg substitute. Mocha Mix had been introduced in 1950 by Presto Food Products, Inc., which was acquired by Morningstar in December 1996. Suiza assumed the Dean Foods Company name after its acquisition of the old Dean.
A final piece of the TreeHouse Foods puzzle was added late in 2003 when the new Dean's Specialty Foods Group bought the Cremora brand of nondairy powdered creamer from Eagle Family Foods, Inc. Eagle had been spun off from the now defunct Borden Foods Corporation in 1996, and the Cremora line of products continued to sport the Borden name and an image of Elsie, the famous spokescow. Borden had introduced Cremora in 1962.
Creation of TreeHouse Foods in 2005
Eventually Dean Foods elected to narrow its focus in order to concentrate on its two core areas, its Dairy Group and the WhiteWave Foods Company subsidiary. In January 2005, then, Dean transferred the following assets to a newly formed subsidiary called TreeHouse Foods, Inc.: its Specialty Foods Group, which produced pickles, peppers, and relishes; its Mocha Mix, Second Nature, and Cremora product lines; its foodservice salad dressings operations; and its shelf-stable, aseptic cheese-based sauces and puddings. In June 2005 TreeHouse became a completely separate, standalone company when it was spun off to the shareholders of Dean Foods. Its stock was listed on the New York Stock Exchange. TreeHouse started with about 1,700 employees, and its headquarters were established in Westchester, Illinois, a suburb of Chicago.
The name of the new company harkened back to Keebler Foods Company and the home of its mythical elves. A five-member team of former Keebler managers, led by Sam K. Reed, the CEO of Keebler from January 1996 to March 2001, were tapped to lead the Dean spinoff. Reed's team was credited with turning around Keebler before selling it to Kellogg Company in a deal valued at $4.4 billion, a huge increase over the $450 million that Keebler had fetched in a 1996 transaction. Collectively, the new executives invested $10 million in TreeHouse for a 1.67 percent stake. While establishing their headquarters in Westchester, Reed and company kept the main operational base in Green Bay, through a subsidiary called Bay Valley Foods LLC. In August 2005 Joe Coning was named president of Bay Valley. Coning had 34 years of experience in the food industry, most recently as vice-president of contract packing and custom sales at Kellogg.
The initial strategies at TreeHouse were to focus particularly on expanding the private-label businesses and to pursue acquisitions within existing product areas and into new lines related to existing products. An extremely low debt load, just $6.1 million at the end of 2005, left the firm in a strong position to make deals. As it worked on these efforts, the company also took some steps to rationalize its operations. In November 2005 TreeHouse announced plans to close a pickle plant in La Junta, Colorado, that was operating less efficiently than its other plants. Upon its closure in February 2006, production was reallocated among the five remaining pickle plants. TreeHouse in 2005 also sold a production facility in Cairo, Georgia, where its predecessor had manufactured aseptic nutritional drinks.
A $9.9 million charge associated with the La Junta closure helped lead to a net loss of $5.6 million for the fourth quarter of 2005. For the full year, TreeHouse reported net income of $11.6 million on sales of $707.7 million. A 5.6 percent decline in sales of the firm's pickles segment was more than made up for by increased sales of nondairy powdered creamer and other products. Prices were increased in the fourth quarter across all of the company's segments in an effort to offset rising energy and raw material costs.
First Acquisitions in 2006
TreeHouse's pursuit of acquisitions began to come to fruition in early 2006. In February of that year the company acquired the trademarks and customer base of Oxford Foods, Inc., a food processor based in Deerfield, Massachusetts, that produced pickles, peppers, relishes, and barbecue sauce for the foodservice industry. The acquired firm's brands included Oxford, Cains, and Max's Deli Dills. Oxford's distribution center and plant were not included in the deal, and TreeHouse shifted production of the purchased product lines to its plant in Faison, North Carolina.
Following this bolt-on acquisition, TreeHouse next reached an agreement in March 2006 on a major deal to add a third main category to its stable of private-label operations. The firm agreed to pay Del Monte Foods Company $275 million in cash for its private-label soup business, its foodservice soup business, and the Nature's Goodness brand of baby food. The private-label soup business, which produced both condensed and ready-to-eat canned soups, along with broths and gravies, was the most important part of the deal, as TreeHouse instantly gained a business with an estimated 70 percent share of the private-label soup market. Soup fit in well alongside TreeHouse's two other core private-label categories, pickles and nondairy powdered creamer, as all three were "dry" grocery, center-of-the-store businesses. Nature's Goodness, meanwhile, ranked as the third largest brand in the U.S. infant feeding sector. The Del Monte businesses were expected to generate nearly $300 million in sales in the 12 months following the acquisition. The deal was slated to be financed out of the company's existing $400 million line of credit.
This acquisition was unlikely to be TreeHouse's last. While for the short term focused on bringing the new operations in line with the business model created at TreeHouse and Bay Valley Foods, the TreeHouse management team was determined to continue seeking bolt-on acquisitions similar to that of Oxford Foods and to keep their eyes out for bigger opportunities in other food categories, particularly for businesses specializing in private-label products.
Principal Subsidiaries
Bay Valley Foods LLC.
Principal Competitors
H. J. Heinz Company; Kraft Foods North America, Inc.; Nestlé USA, Inc.; Ralcorp Holdings, Inc.
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