TreeHouse Foods, Inc. (THS) Earnings Call Transcript & Summary

Good morning and welcome to the Annual Meeting of Stockholders of TreeHouse Foods, Inc. I would now like to turn the meeting over to Gary Smith, the Chairman of the Board of TreeHouse Foods, Inc. Please go ahead.

Thank you. Good morning, and welcome to our TreeHouse. My name is Gary Smith, and I am the Chairman of the Board of TreeHouse, Inc. On behalf of the company, I'd like to welcome each of you to the 2020 Annual Meeting of Stockholders. We're pleased to have you joining us today as we host our annual meeting virtually. As is our custom, we will conduct the business portion of our meeting first and answer the questions at the end of the meeting. Though we may not be able to answer every question, we will do our best to provide a response to as many as possible. In keeping with the digital approach to this year's meeting, it is now just shortly after 9:00 a.m. Central time on April 30, and this meeting is officially called to order. Our general order of business today will be: first, to accept the motions to be properly considered at this meeting; second, to review the highlights of 2019; three, to answer any questions that you may have relating to the business at hand; and finally, to receive the results of the voting from the inspector of elections. At this time, I would like to introduce our Board of Directors who are in virtual attendance at today's meeting: Dennis F. O'Brien, Partner of Gryphon Investors Inc., who is retiring from the Board in conjunction with this shareholders' meeting. Dennis has been a long-standing distinguished director and has served with distinction on every committee, chaired the Nominating and Governance Committee and served as Lead Independent Director since he joined the Board in 2010. His contributions and commitment to the Board and TreeHouse will long be remembered with warm affection and deep gratitude. Thank you, Dennis. Linda K. Massman, former President and Chief Executive Officer of Clearwater Paper Corporation; Steven Oakland, Chief Executive Officer and President of TreeHouse Foods, Inc.; Frank J. O'Connell, General Partner of the Quincy Investment Pools Limited Partnership and Co-founder of Tuckerman Capital; Matthew E. Rubel, former Chief Executive Officer of Varsity Brands; Ann M. Sardini, Independent Advisor and Consultant in Progress Advisors; Jean E. Spence, Independent Consultant of JES Consulting; Jason J. Tyler, Chief Financial Officer of Northern Trust Corporation; David B. Vermylen, former Senior Advisor to TreeHouse Foods, Inc. And also in virtual attendance is Mark R. Hunter, the former President and CEO of Molson Coors Brewing Company, who is standing for election. Our stockholders are fortunate to have a group of directors whose dedication, judgment and background serve our company so well. I would also like to introduce the TreeHouse Foods senior officers who are with us today: William J. Kelley, Executive Vice President and Chief Financial Officer; and Thomas E. O'Neill, Executive Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary. Allow me to also introduce [ Suzy Korkowski ] of the accounting firm Deloitte & Touche LLP, our independent auditors. And finally, the company has appointed Broadridge financial services to act as inspector of elections. Ms. [ Tracy Oates ] from Broadridge is with us today and has taken the oath of inspector of elections earlier today. Again, on behalf of the Board of Directors and our senior management team, welcome to our and your TreeHouse. Following the official items of business, we will answer questions submitted on our website. If you have logged into the meeting with your control number, you may ask a question by typing it into the box at the bottom of the screen anytime during this meeting. Out of consideration for others, please limit yourself to one question. Please note that this meeting is being recorded. However, no one attending by the way of the webcast is permitted to use any audio recording device. I have the following documents on hand: a list of stockholders entitled to vote at this meeting, a copy of the notice of annual meeting of stockholders, the proxy statement, our annual report and an affidavit of mailing certifying that these documents were mailed on March 13, 2020, to the stockholders of record of TreeHouse Foods as of March 2, 2020. These documents will be filed with the records of the company and Computershare, our registrar and transfer agent. The bylaws of TreeHouse Foods, Inc. provide that a quorum in person or by proxy of the majority of shareholders of common stock issued and outstanding and entitled to vote is required for any vote to be taken at this meeting. Our Corporate Secretary is responsible for the proxy and shareholder vote procedures. May I now have the Corporate Secretary's report on whether the quorum is present?

Thank you, Mr. Chairman. This is Tom O'Neill. And the stockholder list shows that, as of the record date, there were 56,263,642 shares of common stock outstanding and entitled to vote at this meeting. Only stockholders of record of the common stock of the company on March 2, 2020, are entitled to vote at this meeting. We are informed by the inspector of elections that there are represented in person or by proxy at least 52,388,172 shares of common stock, a majority of the 56,263,642 shares outstanding at the close of business on March 2, 2020, and this number constitutes a quorum.

Thank you, Tom. Since a quorum is present, the meeting will now proceed. I will present the matters to be voted upon, and the first item on the agenda is the election of 3 directors. I would like to ask Mr. Kelley to read the Board's nominees as placed before this meeting in the proxy statement and also listed in the proxy ballot.

Mr. Chairman, this is Bill Kelley. The Board of Directors has nominated Mark R. Hunter, Ann M. Sardini and Jean E. Spence as Directors to serve for 3-year terms until their successors are elected and qualified.

Thank you, Bill. May I have a motion?

Mr. Chairman, I move the election of the Board's nominees.

Mr. Chairman, this is Tom O'Neill, and I second the motion.

The next item on the agenda is the advisory vote to approve the company's executive compensation. May I have a motion?

Mr. Chairman, this is Bill Kelley. I move the advisory vote to approve the company's executive compensation.

Mr. Chairman, this is Tom O'Neill, and I second the motion.

The next item on the agenda is the ratification of the Board's appointment of Deloitte & Touche LLP as independent auditors for the fiscal year ending December 31, 2020. May I have a motion?

Mr. Chairman, this is Bill Kelley. I move the ratification of the appointment of Deloitte & Touche LLP as independent auditors for the fiscal year ending December 31, 2020, as placed before this meeting in the proxy statement and listed on the proxy ballot.

Mr. Chairman, this is Tom O'Neill, and I second the motion.

Thank you. We will now call for a vote on the 3 items that were presented. Any stockholder who has not yet voted or wishes to change their vote may do so by clicking on the "vote here" button on your screen now. Stockholders who have sent in proxies or voted by way of telephone or Internet and do not want to change their vote do not need to take any further action. We will now pause to let the stockholders vote. [Voting]

Now that everyone has had an opportunity to vote, I now declare the polls for the 2020 Annual Stockholders Meeting of TreeHouse Foods, Inc. closed at 9:10 Central time on April 30, 2020. Now I'd like to ask Mr. Oakland to report on the state of the business.

Thank you, Gary. And this is Steve Oakland. Before I get into my remarks about our achievements and performance last year, I'd like to make a few comments around how we at TreeHouse are responding as to how it relates to the coronavirus situation. This is a remarkable time in our history. We are deemed an essential business by the government, and our manufacturing and distribution facilities are committed to helping feed the nation. At the same time, the welfare of our employees is of utmost importance. The list of actions we've taken in the last 7 weeks is long, but let me just name a few. We've stepped up our efforts to sanitize and clean our facilities. We've added more hand washing stations, installed plexiglass where possible to create greater distance between employees. And we have also implemented preventative screening, which includes noncontact temperature testing, at all of our plants. We are also providing masks and personal protective gear within our facilities. From a benefit standpoint, we are supporting our hourly employees and their families, as we recognize the need to prioritize the care and health of their loved ones. We have provided both a bank of hours, from which employees may draw if needed; and also provided supplemental pay for a limited period of time. In the case of COVID-related illness, we have established a series of protocols which we follow. This includes quarantine periods, contact tracing, operational stoppage and intensified sanitation and deep cleaning before we will restart a facility. Finally, in line with state guidelines, most of our administrative and back-office employees are working remotely, and we plan to do so at least until the end of May. Our teams have adjusted successfully. We are connecting virtually, encouraging balance and a diligent focus on health. And as the situation has evolved, we have revisited our efforts to ensure that we are doing everything we can to keep our more than 10,000 employees safe and healthy. I'm very proud of how our company has mobilized to meet the unprecedented demand. Our supply chain has responded well, as we've added shifts and days across the network to ramp up production. Our company's purpose, making high-quality food and beverages affordable to all, has taken an even greater meaning during this time, as we help our grocery customers restock their shelves and nourish their communities. We'd like to extend our deepest gratitude to everyone across the nation who's working tirelessly on the front lines. From medical professionals to grocery retail clerks, there are countless examples of people who are working diligently and making sacrifices to help us get to the other side of this pandemic. Their efforts have been nothing short of extraordinary. Today's COVID-19 crisis has touched us all either directly or indirectly, and we are keeping the individuals affected and their families in our thoughts and prayers. With that, let me turn briefly to our results. We are currently finalizing our first quarter 2020 results to be announced next week, on May 7. Consequently, securities laws do limit my remarks to the calendar year 2019 results. Last year, we made significant strides positioning TreeHouse to realize the potential of private label food and beverage. Private label represents an opportunity for our customers, some of whom, on one end of the spectrum, seek to bring value to their consumers; and on the other end, to bring uniqueness and differentiate to their offerings. Our portfolio encompasses 29 categories across the grocery store, and we offer clean label and organic in nearly all of them. If you will remember, at the end of 2018, we introduced our 4-point enterprise strategy focused on operational excellence, commercial excellence, portfolio optimization and people and talent. Our progress within each of these 4 areas is work that we're very proud of. These achievements have made us a much healthier and more profitable business ready to restore the top line to growth. Within organizational -- or excuse me, within operational excellence, recall that in 2018 and a good part of 2017 the work was focused on SKU rationalization, streamlining the manufacturing and distribution footprint, rolling out an operating structure and implementing a continuous improvement mindset. All of those actions were designed to rebuild service levels, a critical element in restoring customer confidence. I'm pleased to report that we achieved that goal finishing 2019 with 98.4% service levels across the company, above the 98.1% target. Under commercial excellence, last year, we designed, stood up and launched our new customer-facing organization. While the team is less than a year old, today, we are reaping the benefits of this commercial organization as our teams closely partner with our retail customers. Think of it as TreeHouse being a supply chain for our customers' brands. We accomplished a great deal last year under portfolio optimization. In August, we completed the sale of our Snacks division, which included snack nuts and trail mix, to Atlas Holdings. Two weeks ago, we closed on the sale of 2 of our specialty in-store baking facilities to Rich Foods. And finally, we plan to remarket our ready-to-eat cereal business when the economic conditions and environment are appropriate. People and talent will continue to be the driving force of our business into the future. To that end, last year, we rolled out The TreeHouse Way and have aligned the organization around a set of values, and they make our work not only about what we do but how we do it. In short, we ended 2019 as a smaller, more focused, more profitable company ready to pivot the top line to grow. Our sales were $4.3 billion last year, and the company posted a GAAP fully diluted loss per share of $1.96 and a profit of $2.39 on an adjusted basis. Finally, I want to echo Gary's remarks earlier in thanking Dennis O'Brien for his years of service on the TreeHouse Board. Dennis, thank you. We appreciate your contributions and wish you all the best. You have all received a copy of our Form 10-K for 2019, which along with our proxy and year-end press release are all available on our website at treehousefoods.com. Our Form 10-K for 2019 contains comprehensive information about the company and its performance. I hope these materials answer any factual questions that you have [ or posed to ] TreeHouse. On behalf of our more than 10,800 employees, their families, our management team and our Board of Directors, I thank you for your interest in TreeHouse. Gary?

Thank you. Thank you, Steve. Now we would like to open things up for stockholder questions. And once again, if you have logged into the meeting with your control number and would like to ask a question, you may do so now by typing your question into the box at the bottom of the screen. Please note that we'll attempt to answer as many questions as this time allows, but only questions that are germane to the meeting will be addressed. I'll now pause for those who want to put in questions.

Gary, this is Steve Oakland. I will read the questions, and then we'll -- one of us will answer them. So the first question comes from the Chicago Regional Council of Carpenters. And the question reads: The carpenters union pension fund, with combined assets of over $70 billion, have a collective ownership position of 187,150 shares of the company common stock. As a long-term shareholder, we appreciate the efforts of the company to address the difficulties faced by employees, customers and other important stakeholders during the COVID-19 pandemic. Audit firm independence is critical to the integrity of our system of financial reporting. Could you or a representative of Deloitte describe the periodic lead partner rotation process and the decision-making process in selecting a new lead partner? I would like to ask Bill Kelley, our CFO, to answer that question, as we just went through this process with Deloitte.

Thank you, Steve. This is Bill Kelley, CFO of TreeHouse. As Steve just mentioned, we have just completed the lead partner rotation by selecting a partner from Deloitte. As you all know, per regulations as defined by the Public Company Accounting Oversight Board, the lead partner must rotate every 5 years. We have just completed that rotation. The process was fulsome and very and truly independent. We were presented with several qualified candidates, all of whom were top notch and could do the role for TreeHouse. The partner we selected was very knowledgeable of our industry and experience in all technical matters. We were very fortunate with Deloitte to have a thorough selection process that was executed perfectly.

Yes. We welcome [ Suzy ]. And we're fortunate that not only does Deloitte have a robust talent pool for us to select from, but many of them are here in Chicago. So we're blessed to be in Chicago and have the talent pool to look at that we have. The second question is from an individual shareholder. And the question is how is COVID-19 affecting TreeHouse? Hopefully, I answered some of that in my earlier remarks. I think we -- because we have some limitations on what we can say financially, we will go in and address the details of the COVID-19, the demand and our response next week, on our earnings call on the 7th. So I think, hopefully, you saw that we've put people safety, product safety. And then we take our responsibility very, very seriously in the food supply chain. So we'll be able to give the actual numeric results to that next week, but I -- but hopefully, you see that we've done everything we can to put our people and our product in the best place possible. We have one last question, again from the same representative of the Chicago Regional Council of Carpenters. The recent growth in the size of passive mutual funds, corporate ownership interests in U.S. corporations has been dramatic. The carpenters fund believe that the growth concentration of ownership raises important public policy and corporate governance issues. Currently, BlackRock holds 8.8% and Vanguard 9.9% of the company's outstanding shares. Does the Board see this growth in ownership concentration as a positive or negative development as regards to long-term corporate strategy, planning and performance? I can answer that one on behalf of the Board, as a Board member and as the CEO of the company. I would suggest that we run the company for the best interests of all shareholders. And the trend towards passive funds is real, but we're not -- we don't run the company with that intent. We run the company with the best governance, the best operating performance and the best long-term strategy possible. We are blessed to have a Board that works very closely with us and that is constantly looking at how we maximize shareholder return across shareholder base. So I'm sure that different funds buy different equities for different reasons. That will rotate over time as those funds and those reasons change. It's our responsibility to provide the best long-term returns regardless of shareholder class. So we've not seen any change in our management style or our strategy with regards to shareholders. So that is the end of our question-and-answer session. That is our last question. With that, I'll turn it back to Gary.

Okay, well, thank you, Steve. And also thank you to everyone who submitted questions. Appreciate that. I will now ask [ Tracy Oates ], the inspector of elections, to report the results of the voting. [ Tracy ]?

Thank you, Mr. Smith. The results are as follows: Mark R. Hunter, Ann M. Sardini and Jean E. Spence have each been elected to the Board of Directors. The advisory vote on the compensation of executive officers as described in the company's proxy statement has passed. The proposal to ratify the appointment of Deloitte & Touche LLP has been approved.

Thank you very much. Since the plurality and in fact the majority of the votes entitled to be cast were voted to elect all of the nominated directors, Mark R. Hunter, Ann M. Sardini and Jean E. Spence are duly elected. Since the majority of the votes cast were voted in favor of the advisory vote to approve the company's executive compensation, the advisory vote is approved. Since the majority of the votes were voted in favor of the ratification of the appointment of Deloitte & Touche LLP, the appointment is approved. The Chair hereby directs the results of the election to be incorporated into the minutes of this meeting. This concludes our official business agenda for the day. If there is no other further business to come before this meeting, the Chair will entertain a motion to adjourn.

Mr. Chairman, this is Bill Kelley. I move the meeting be adjourned.

Mr. Chairman, this is Tom O'Neill, and I second the motion.

Thank you. It has been moved and seconded that the meeting be adjourned. Will those in favor please say aye? [Voting]

Opposed? [Voting]

The meeting is now adjourned, and thank you all for joining us today.