OAK BROOK, Ill. - TreeHouse Foods, Inc. (NYSE: NYSE:THS), a major private brands snacking and beverage manufacturer, has entered into a definitive agreement to purchase the private brand tea operations of Harris Freeman & Co, Inc. The deal, valued at approximately $205 million, is expected to close in the first quarter of 2025.
The acquisition includes manufacturing facilities in Moorestown, NJ, and Marietta, GA, and will integrate roughly 300 Harris Tea employees into the TreeHouse Foods team. This move is anticipated to enhance TreeHouse Foods' presence in the tea category, which is seen as an area of growth and higher margins.
Steve Oakland, Chairman, Chief Executive Officer, and President of TreeHouse Foods, noted that the acquisition would build upon the company's category leadership by adding blending and sourcing capabilities that customers seek. Kevin Shah, Co-CEO of Harris Freeman, expressed confidence that the transition to TreeHouse Foods would continue Harris Tea's growth trajectory.
Financial terms reveal the purchase price to be about 8.5 times the trailing-twelve-month adjusted EBITDA of the acquired business or 6.5 times net of synergies and tax benefits. TreeHouse Foods plans to fund the acquisition mainly with cash on hand and states that this transaction will keep the company's leverage ratio within its target range of 3.0x to 3.5x. InvestingPro data shows the company maintains a healthy current ratio of 1.4, with liquid assets exceeding short-term obligations, though it operates with a total debt of $1.55 billion.
In conjunction with the acquisition announcement, TreeHouse Foods reaffirmed its 2024 full-year guidance, expecting sequential improvement in volume growth and profit margins in the fourth quarter. While InvestingPro data shows current gross profit margins at 15.54%, analysts predict the company will return to profitability this year. For deeper insights into TreeHouse Foods' financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.
Wells Fargo (NYSE:WFC) Securities, LLC and Holland & Knight provided financial and legal advisory services to Harris Tea, while Gibson and Dunn served as legal counsel to TreeHouse Foods for the transaction.
This acquisition is part of TreeHouse Foods' broader strategy to focus on higher-growth and higher-margin categories, aligning with their long-term plan for expansion and capability building. The information regarding this acquisition is based on a press release statement issued by TreeHouse Foods.
In other recent news, TreeHouse Foods has been making significant moves in the market. The company's Board of Directors approved a $400 million share buyback program, indicating confidence in its financial stability and future cash flow potential. However, the company's Q3 2024 financial results showed mixed performance with adjusted net sales of $854 million, slightly below its guidance due to weakening consumer trends and disruptions from Hurricane Helene.
Barclays (LON:BARC) responded to these developments by reducing its price target for TreeHouse Foods from $39 to $32, while maintaining an Equalweight rating on the stock. The company has also announced a strategic shift towards improving margins and cash flow, aiming to make its operations less reliant on challenging consumer patterns. Furthermore, TreeHouse Foods completed the divestiture of its Snack Bars business and announced a voluntary recall of frozen griddle products, with operations expected to resume in Q1 2025.
Despite a weaker outlook for 2025 due to a decline in volume, TreeHouse Foods remains focused on enhancing profitability and cash flow. These recent developments and the next earnings report in February 2025 will provide further insights into the company's performance and strategic direction.
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