OAK BROOK, Ill. — TreeHouse purchased ConAgra’s private-label division last year expecting to increase its sales and expand its reach. Instead, sales began to fall, along with the company’s stock. Although it delivered adjusted earnings within range of its second quarter guidance, recovery has been slower than chairman and CEO Sam K. Reed anticipated. These continued challenges have prompted the company to launch a restructuring plan, called TreeHouse 2020, which will result in the closure of two factories and downsizing at a third — a move that will cost 375 people their jobs.
By shutting down the facilities in Brooklyn Park, Minn., and Plymouth, Ind., and eliminating non-peanut packaging operations at its facility in Dothan, Ala., TreeHouse hopes to regain its footing and improve its operating margins. “The decisions to close these facilities are difficult ones given their effect on families and communities,” said Reed. “However, despite the toll they exact, these measures are required if we are to remain competitive in a rapidly changing marketplace for packaged foods.”
The Brooklyn Park, Minn., facility employs approximately 90 employees and produces boxed dinners and packaged side dishes. The Plymouth, Ind., facility employs approximately 150 employees and produces banana peppers, jalapeños, pickles and pickle relish. Production is expected to cease by the end of this year for both factories. Downsizing at the Dothan, Ala., facility will affect 135 employees beginning in Nov. TreeHouse will provide outplacement support to employees whose positions are being eliminated, noted Reed.
Total costs related to the announced facility closures are expected to be approximately $44.5 million, of which approximately $29.7 million is expected to be in cash. Components of the charges include non-cash asset write-offs of approximately $14.8 million, employee-related costs of approximately $7 million and other closure costs of approximately $22.7 million.
Despite the grim news, Reed remained positive, voicing his belief in the eventual payoff of the private brands business. “It is clear that we are witnessing an evolution in the retail landscape, as digital and bricks-and-mortar compete for the attention of consumers in a slow to no-growth food and beverage marketplace. As our customers seek growth in this environment by reinvesting in their corporate brands, we continue to believe that we are best positioned to capitalize on the opportunity,” he said.
This restructuring follows closures of facilities in City of Industry, Calif.; Ayer, Mass.; Azusa, Calif.; Delta, British Columbia (frozen griddle); and Ripon, Wis., and downsizing at the facility in Battle Creek, Mich.
Despite high operating costs, unfavorable pricing and other challenges, net sales increased in baked goods, beverages and condiments increased in the quarter. Meals and snacks didn’t fare as well, dropping 9% and 11.5%, respectively.