Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Executive Overview
The following discussion provides an analysis of our financial condition, results of operations, and cash flows from management's perspective and should be read in conjunction with the consolidated financial statements and related notes included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K. Our objective is to also provide discussion of material events and uncertainties known to management that are reasonably likely to cause reported financial information not to be indicative of future operating results or of future financial condition and to offer information that provides an understanding of our financial condition, results of operations, and cash flows.
See below for discussion and analysis of our financial condition and results of operations for 2024 compared to 2023. See Item 7, Management’s Discussions and Analysis of Financial Condition and Results of Operations , in our Annual Report on Form 10-K for the year ended December 31, 2023 for a detailed discussion of our financial condition, results of operations, and cash flows for 2023 compared to 2022.
This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See Cautionary Statement Regarding Forward-Looking Information for a discussion of the uncertainties, risks, and assumptions associated with these statements.
Recent Developments
Debt Refinancing
On January 17, 2025, the Company entered into the Third Amended and Restated Credit Agreement, dated as of January 17, 2025 (the "New Credit Agreement"), among the Company, the lenders from time to time party thereto and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.
The New Credit Agreement amends, restates and replaces the Company’s existing Credit Agreement, dated as of December 1, 2017 (as amended from time to time prior to January 17, 2025), pursuant to which the Company obtained a $500.0 million revolving credit facility (the "Revolving Facility"), a $500.0 million term A loan (the "Term A Loan") and a $900.0 million tranche A-1 term loan (the "Tranche A-1 Term Loan" and, together with the Term A Loan, the "Term Loans"). Pursuant to the New Credit Agreement, the Company (i) continued and extended the maturity of the Revolving Facility and the Term Loans, (ii) decreased the aggregate size of the Term A Loan to $480.0 million and (iii) decreased the aggregate size of the Tranche A-1 Term Loan to $425.0 million. Refer to Note 12 to our Consolidated Financial Statements for additional information.
Acquisition of Private Brand Tea Business
On January 2, 2025, the Company completed the acquisition of certain subsidiaries that operate the private brand tea business of Harris Freeman & Co, Inc. ("Harris Tea"), a leading private brand tea manufacturer in the U.S., for approximately $205.0 million, subject to customary purchase price adjustments. In addition to private brand tea, Harris Tea manufactures specialty retail tea brands and foodservice tea products for restaurant and hospitality industries. The acquisition aligns with our long-term strategy to build capabilities in our higher-growth, higher-margin categories. Refer to Note 7 to our Consolidated Financial Statements for additional information.
Impact of Griddle Voluntary Recall
In the third quarter of 2024, our results of operations were impacted by a voluntary recall of frozen griddle products produced at our Brantford, Ontario, Canada facility that were still within their shelf-life. During the fourth quarter of 2024, we incurred plant restoration costs. As of the first quarter of 2025, we have resumed production of frozen griddle products at the Brantford facility. As we continue to restore the facility to its full production capacity and capability, we expect to have impacts to our sales volumes. Refer to Note 19 to our Consolidated Financial Statements for additional information.
The Company is seeking to recover the recall-related costs through its insurance coverage, and such recoveries are recorded in the period in which the recoveries are determined to be probable of realization.
Long-Lived Asset Impairment and Related Business Exit
We evaluate property, plant, and equipment, operating lease right-of-use assets, and finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable. Indicators of impairment include deteriorations in operating cash flows, the anticipated sale or disposal of an asset group, and other significant changes in business conditions.
During the second quarter of 2024, as a result of forecasted cash flow losses, the Company made the decision to exit the RTD business. As a result, the Company performed a recoverability assessment over the RTD asset group in the second quarter of 2024, which indicated that the asset group was not recoverable, and we were required to determine the fair value of the business. Our fair value assessment indicated that the carrying value was in excess of the fair value, and an impairment of $19.3 million of property, plant, and equipment was recognized in our RTD beverages asset group. The impairment charge is included in Asset impairment in the Consolidated Statements of Operations. Refer to Note 8 to our Consolidated Financial Statements for additional information.
The production for the RTD business ceased during the first quarter of 2025. Refer to Note 3 to our Consolidated Financial Statements for additional information.
Restoration of One of our Broth Facilities
Since the end of 2023, our results of operations have been impacted by a voluntary recall of certain broth products produced at our Cambridge, Maryland broth facility and the subsequent restoration of this facility. The restoration impacted our results of operations throughout 2024, as we incurred costs to restore and upgrade our broth facility to full production capacity. During the first half of 2024, the Company successfully restored the key broth production lines and substantially completed upgrades to the facility. The Company continues to progress in advancing production capacity to historical levels at the facility.
During the fourth quarter of 2024, the Company recognized a $10.0 million insurance recovery in Cost of sales in the Consolidated Statements of Operations. The Company is seeking to recover additional recall-related costs through its insurance coverage, and such recoveries are recorded in the period in which the recoveries are determined to be probable of realization. Refer to Note 19 to our Consolidated Financial Statements for additional information.
Acquisition of Pickle Branded Assets
On January 2, 2024, the Company completed the acquisition of pickle branded assets, including Bick’s pickles, Habitant pickled beets, Woodman’s horseradish, and McLarens pickled onions brands, from The J.M. Smucker Co., a North American producer of coffee, consumer foods, dog snacks, and cat food, for a total purchase price of $25.9 million in cash. The allocation of the purchase price consists primarily of inventory. The acquisition is consistent with our strategy and builds depth in our Pickles category by expanding into Canada. Refer to Note 7 to our Consolidated Financial Statements for additional information.
Macroeconomic Conditions and Trends
Significant inflationary pressure on U.S. households, which persisted in recent years, contributed to sluggish overall food and beverage consumption trends. However, in the categories where TreeHouse operates, private brands have consistently gained unit market share compared to national brands, which we believe demonstrates the continued strength of the private brands market. We continue to monitor consumption trends including the increased use and/or prevalence of certain weight loss drugs, which may or may not impact consumer preferences and consumption patterns.
Industry-wide supply chain disruption over the last several years, which had previously constrained our ability to service all of the customer orders received and depressed service levels, has meaningfully improved. Additionally, TreeHouse has made considerable progress toward its long-term supply chain cost savings initiative goals throughout its business, resulting in margin improvement. TreeHouse continues to make strong progress in enhancing our service levels and capturing demand for private brand food and beverage.
Many of our ingredients and packaging input costs still remain elevated compared to historical levels, such as the prices of coffee and cocoa. In response, we from time to time will implement pricing actions to recover inflationary costs. We will continue to monitor the inflationary environment to determine if additional pricing actions will be necessary.
We manage the impact of cost increases, wherever possible, on commercially reasonable terms, by locking in prices on the quantities we expect are required to meet our production requirements. In addition, as input costs rise, we seek to recover inflation by implementing higher pricing. However, our pricing actions often lag commodity cost changes temporarily, or we may not be able to pass along the full effect of increases in raw materials and other input costs as we incur them.
Results of Operations
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
The following table presents certain information concerning our financial results, including information presented as a percentage of consolidated net sales:
Year Ended December 31,
Increase / (Decrease)
(Dollars in millions, except per share amounts)
Dollars
Percent
Dollars
Percent
$ Change
% Change
Net sales
Cost of sales
Gross profit
Operating expenses:
Selling and distribution
General and administrative
Amortization expense
Asset impairment
Other operating expense, net
Total operating expenses
Operating income
Other expense:
Interest expense
Interest income
Loss (gain) on foreign currency exchange
Other expense, net
Total other expense
Income before income taxes
Income tax expense
Net income from continuing operations
Net loss from discontinued operations
Net income
Earnings (loss) per common share - diluted:
Continuing operations
Discontinued operations
Net earnings per share diluted (1)
(1) The sum of the individual per share amounts may not add due to rounding.
Year Ended December 31,
Increase / (Decrease)
(Dollars in millions, except per share amounts)
Dollars
Dollars
$ Change
% Change
Other financial data: (1)
EBITDA from continuing operations
Adjusted EBITDA from continuing operations
Adjusted net sales
Adjusted cost of sales
Adjusted gross profit
Adjusted total operating expenses
Adjusted operating income
Adjusted total other expense
Adjusted income tax expense
Adjusted net income from continuing operations
Adjusted diluted earnings per share from continuing operations
(1) Other financial data includes Non-GAAP financial metrics. See "Non-GAAP Measures" for definitions and reconciliations of our Net income (loss) from continuing operations to EBITDA from continuing operations and Adjusted EBITDA from continuing operations, Net sales to Adjusted net sales, Cost of sales to Adjusted cost of sales, Gross profit to Adjusted gross profit, Total operating expenses to Adjusted total operating expenses, Operating income to Adjusted operating income, Total other expense (income) to Adjusted total other expense, Income tax expense to Adjusted income tax expense, Net income (loss) from continuing operations to Adjusted net income from continuing operations, and Diluted earnings per share from continuing operations to Adjusted diluted earnings per share from continuing operations.
Continuing Operations
Net Sales — Net sales for the year ended December 31, 2024 totaled $3,354.0 million compared to $3,431.6 million for the year ended December 31, 2023, a decrease of $77.6 million, or 2.3%. The change in net sales from 2023 to 2024 was due to the following:
Dollars
Percent
Volume/mix
Facilities restoration impact
Product recall returns
Pricing
Foreign currency
Business acquisitions
Total change in net sales
Product recall returns
Total change in adjusted net sales (1)
(1) Adjusted net sales is a Non-GAAP financial measure. Refer to the "Non-GAAP Measures" section for additional information.
The net sales decrease of 2.3% was primarily due to targeted commodity-driven pricing adjustments in select categories. Additionally, the decrease was due to the restoration of one of our broth facilities and the voluntary recall of frozen griddle products, as well as unfavorable volume/mix related to planned distribution exits. These items were partially offset by volume/mix from the acquisition of the Coffee Roasting Capability, as well as new business wins.
Gross Profit — Gross profit as a percentage of net sales was 16.4% for the year ended December 31, 2024 compared to 16.8% for the year ended December 31, 2023, a decrease of 0.4 percentage points. The decrease is primarily due to a voluntary recall of frozen griddle products, which impacted Gross profit by 1.1 percentage points, as well as costs incurred from the restoration of one of our broth facilities related to the broth recall. This was partially offset by the execution of supply chain savings initiatives as well as a $10.0 million insurance recovery related to the broth recall received during the fourth quarter of 2024.
Total Operating Expenses — Total operating expenses were $445.3 million for the year ended December 31, 2024 compared to $429.2 million for the year ended December 31, 2023, an increase of $16.1 million. The increase in expense was primarily due to a decrease in TSA income of $41.1 million and non-cash impairment charge of $19.3 million related to the RTD beverages asset group recorded in the second quarter of 2024. Refer to Note 8 of our Consolidated Financial Statements for additional details. This was partially offset by lower employee incentive compensation expense, lower freight costs, and TSA-related expense reductions.
Total Other Expense — Total other expense was $70.0 million for the year ended December 31, 2024 compared to $63.5 million for the year ended December 31, 2023, an increase in expense of $6.5 million. The increase in expense was primarily due to a decrease in interest income of $34.5 million from the Seller Promissory Note, which was repaid in the fourth quarter of 2023. Additionally, unfavorable currency exchange rate impacts of $10.8 million between the U.S. and Canada contributed to the increase in expense. This was partially offset by a favorable change of $21.8 million in non-cash mark-to-market impacts from hedging activities, largely driven by interest rate swaps, a decrease of $11.4 million in interest expense, primarily due to a decrease in borrowings on our Revolving Credit Facility, and a decrease of $4.4 million in costs related to the Receivables Sales Program due to decreased usage.
Income Taxes — Income taxes were recognized at an effective rate of 18.7% in 2024 compared to 29.3% in 2023. The change in the Company's effective tax rate is primarily driven by changes in the amount of the effect of cross-border tax laws, income tax credits, unrecognized tax benefits, and the impact of the jurisdictional mix of earnings on state income taxes. These items are partially offset by a change in the amount of tax deductible stock-based compensation.
Discontinued Operations
Discontinued Operations — Net loss from discontinued operations decreased by $5.9 million for the year ended December 31, 2024 compared to the year ended December 31, 2023. The decrease is primarily a result of a non-recurring net loss from the Snack Bars Business due to its divestiture on September 29, 2023. Additionally, during the year ended December 31, 2023, the Company recognized an expected loss on disposal adjustment of $2.2 million related to the divestiture of a significant portion of the Meal Preparation business on October 3, 2022. Refer to Note 7 of our Consolidated Financial Statements for additional details.
Liquidity and Capital Resources
Management assesses the Company's liquidity in terms of its ability to generate cash to fund its operating, investing, and financing activities. The Company remains in a strong financial position, with resources available for reinvesting in existing businesses, conducting acquisitions, and managing its capital structure on a short and long-term basis.
Receivables Sales Program
The Company achieves a more efficient cash conversion cycle while strategically managing customer payment terms and counterparty risk through its Receivables Sales Program. Our Receivables Sales Program provides us timely and lower cost access to liquidity that is more effective than other working capital tools, including offering early payment discounts, negotiating shorter payment terms, or drawing on our Revolving Credit Facility. Due to the seasonal nature of our business, we generally increase use of the Receivables Sales Program in the fourth quarter in preparation for our relatively high cash needs in the first half of the year as inventory levels are replenished in anticipation of accelerating sales in the second half of the year.
Approximately $22.5 million was available under the Receivables Sales Program operating limit as of December 31, 2024. See Note 5 to our Consolidated Financial Statements for additional information regarding our Receivables Sales Program.
Revolving Credit Facility
If additional borrowings are needed, approximately $467.7 million of the aggregate commitment of $500.0 million was available under the Revolving Credit Facility as of December 31, 2024. See Note 12 to our Consolidated Financial Statements for additional information regarding our Revolving Credit Facility. We are in compliance with the terms of the Revolving Credit Facility and expect to meet foreseeable financial requirements.
Share Repurchases
During the year ended December 31, 2024, the Company repurchased approximately 4.1 million shares of common stock at a weighted average share price of $36.28 for a total of $149.7 million. See Note 13 to our Consolidated Financial Statements for additional information regarding our stock repurchase program.
Cash Flow
The following table is derived from our Consolidated Statements of Cash Flows:
Year Ended December 31,
(In millions)
Net Cash Flows Provided By (Used In):
Operating activities of continuing operations
Investing activities of continuing operations
Financing activities of continuing operations
Cash flows from discontinued operations
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Operating Activities From Continuing Operations
Net cash provided by operating activities from continuing operations was $265.8 million in 2024 compared to $157.3 million in 2023, an increase of $108.5 million in cash provided. The increase in net cash provided by operating activities was driven by improved working capital management, resulting in an increase in cash flows from accounts payable and from the Receivables Sales Program. Refer to Note 5 to our Consolidated Financial Statements for additional information regarding the Receivables Sales Program.
Investing Activities From Continuing Operations
Net cash used in investing activities from continuing operations was $138.3 million in 2024 compared to $241.4 million in 2023, a decrease in cash used of $103.1 million. The decrease in net cash used was primarily driven by $100.6 million of cash used in the second quarter of 2023 for the acquisitions of the seasoned pretzel and coffee roasting capabilities and the exercise of a purchase option on the lease of our Cambridge, Maryland facility for $8.1 million during the first quarter of 2023. This activity was partially offset by an increase in remaining capital expenditures during 2024 related to growth initiatives and integration activities from recent acquisitions.
Financing Activities From Continuing Operations
Net cash used in financing activities from continuing operations was $159.3 million in 2024 compared to $107.5 million in 2023, an increase in cash used of $51.8 million. The increase in cash used is primarily due to incremental common stock repurchases of $49.7 million in 2024 compared to 2023. Refer to Note 13 to our Consolidated Financial Statements for additional information.
Cash Flows From Discontinued Operations
There was no cash provided by discontinued operations in 2024 compared to $468.1 million in 2023, a decrease in cash provided of $468.1 million. The decrease in cash provided by discontinued operations is primarily due to the $425.2 million repayment of principal on its Seller Note Credit Agreement on October 19, 2023 and the completion of the sale of the Snack Bars Business on September 29, 2023, which resulted in a non-recurring cash inflow of $58.7 million from the buyer. Refer to Note 7 to our Consolidated Financial Statements for additional information.
Debt Obligations
As of December 31, 2024, $467.7 million of the aggregate commitment of $500.0 million of the Revolving Credit Facility was available. Under the Second Amended and Restated Credit Agreement (the "Credit Agreement"), the Revolving Credit Facility matured on March 26, 2026. In addition, as of December 31, 2024, there were $32.3 million in letters of credit under the Revolving Credit Facility that were issued but undrawn. On January 17, 2025, the Company entered into the Third Amended and Restated Credit Agreement, dated as of January 17, 2025, among the Company, the lenders from time to time party thereto and Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (the “New Credit Agreement”) The New Credit Agreement amends, restates and replaces the Credit Agreement. Pursuant to the New Credit Agreement, the Company (i) continued and extended the maturity of the Revolving Facility and the Term Loans, (ii) decreased the aggregate size of the Term A Loan to $480.0 million and (iii) decreased the aggregate size of the Tranche A-1 Term Loan to $425.0 million. Refer to Note 12 to our Consolidated Financial Statements for additional information.
Our long-term debt outstanding, including the current portion, was $1,409.1 million at December 31, 2024 and $1,405.6 million at December 31, 2023, an increase of $3.5 million. This increase was primarily due to an increase of finance lease obligations by $3.5 million during the year ended December 31, 2024.
At December 31, 2024, we had $316.4 million outstanding under Term Loan A, $588.6 million outstanding under Term Loan A-1, $500.0 million of the 2028 Notes outstanding, and $4.1 million of finance lease obligations.
The Company has long-term interest rate swap agreements to fix the interest rate base in order to mitigate the Company's exposure to interest rate risk. As of December 31, 2024, we have an outstanding variable-rate debt balance of $905.0 million, and our interest rate swap agreements have a notional value of $1,750.0 million. Under the terms of the agreements, $875.0 million of interest rate swaps mature on February 28, 2025. Following the maturity of those interest rate swaps, the remaining $875.0 million of interest rate swaps become effective February 28, 2025 and mature on February 29, 2028. As a result, our variable-rate debt is nearly fully hedged with our fixed rate interest rate swaps through 2028.
The Credit Agreement contained various financial and restrictive covenants and required that the Company maintain a consolidated net leverage ratio of no greater than 4.50 to 1.0, and our debt obligations contain customary representations and events of default. We are in compliance with all applicable debt covenants as of December 31, 2024.
See Note 12 to our Consolidated Financial Statements for information on our debt obligations.
Guarantor Summarized Financial Information
The 2028 Notes issued by TreeHouse Foods, Inc. are fully and unconditionally, as well as jointly and severally, guaranteed by our directly and indirectly owned domestic subsidiaries, which are collectively known as the "Guarantor Subsidiaries." The guarantees of the Guarantor Subsidiaries are subject to release in limited circumstances, only upon the occurrence of certain customary conditions. There are no significant restrictions on the ability of the parent company or any guarantor to obtain funds from its subsidiaries by dividend or loan.
The following tables present summarized financial information of TreeHouse Foods, Inc. and the Guarantor Subsidiaries on a combined basis. The combined summarized financial information eliminates intercompany balances and transactions among TreeHouse Foods, Inc. and the Guarantor Subsidiaries and equity in earnings and investments in any Guarantor Subsidiaries or Non-Guarantor Subsidiaries. The summarized financial information is provided in accordance with the reporting requirements of Rule 13-01 under SEC Regulation S-X for the issuer and Guarantor Subsidiaries.
TreeHouse Foods, Inc. and Guarantor Subsidiaries
Summarized Statement of Operations
Year Ended December 31, 2024
(In millions)
Net sales
Gross profit (1)
Net income
TreeHouse Foods, Inc. and Guarantor Subsidiaries
Summarized Balance Sheet
December 31, 2024
(In millions)
Current assets
Noncurrent assets
Current liabilities
Noncurrent liabilities (2)
(1) During the year ended December 31, 2024, TreeHouse Foods, Inc. and Guarantor Subsidiaries recorded $94.1 million of net sales to the Non-Guarantor Subsidiaries and $288.7 million of purchases from the Non-Guarantor Subsidiaries.
(2) Includes an amount due from Non-Guarantor Subsidiaries of $20.3 million as of December 31, 2024.
Cash Requirements
Our cash requirements within the next twelve months include working capital requirements, interest payments, and capital expenditures. We believe our current cash balances, strong cash flows, and our available sources of liquidity and capital, including a $500.0 million Revolving Credit Facility, as well as possible future sources of liquidity and capital will be sufficient to meet these twelve month and long-term cash requirements and capital expenditures.
Our cash requirements under our various contractual obligations and commitments include:
• Debt obligations and interest payments – See Note 12 to our Consolidated Financial Statements for information on our debt obligations and the timing of future principal. Estimated future interest payments on the Company’s debt are expected to be $180.3 million (with $73.8 million expected in 2025) based on the interest rates at December 31, 2024. Additionally, the Company has entered into interest rate swap agreements to lock into a fixed Term SOFR interest rate base. See Note 20 to our Consolidated Financial Statements for information on our interest rate swap agreements and the future obligations.
• Operating and finance lease obligations – See Note 4 to our Consolidated Financial Statements for information on our operating and finance lease obligations and the amount and timing of future payments.
• Purchase obligations – Purchase obligations primarily represent commitments to purchase minimum quantities of raw materials used in our production processes. We enter into these contracts from time to time in an effort to ensure a sufficient supply of raw ingredients. In addition, we have contractual obligations to purchase various services that are a part of our production process. Minimum amounts committed to as of December 31, 2024 were $462.5 million (with $450.1 million due in 2025).
• Pension and other postretirement benefit obligations – Future payments related to pension and postretirement benefits are estimated by an actuarial valuation. See Note 17 to our Consolidated Financial Statements for information on our pension and postretirement benefit obligations and the amount and timing of future payments.
• Exit or disposal cost obligations – See Note 3 to our Consolidated Financial Statements for information on our exit or disposal cost obligations and the amount and timing of future payments. Our exit or disposal cost obligations primarily consist of severance obligations.
• Unrecognized tax benefits – See Note 11 to our Consolidated Financial Statements for information on our unrecognized tax benefits and the amount and timing of future payments.
• Acquisition – See Note 7 to our Consolidated Financial Statements for information on our acquisition of certain subsidiaries that operate the private brand tea business of Harris Freeman & Co, Inc. ("Harris Tea").
• Other liabilities – Other liabilities include obligations associated with certain employee benefit programs, employee health care, workers' compensation claims, other casualty losses, in addition to contingent liabilities related to the ordinary course of litigation and investigation, and various other long-term liabilities, all of which have some inherent uncertainty as to the amount and timing of payments and were reflected on our Consolidated Balance Sheet as of December 31, 2024. See Note 19 to our Consolidated Financial Statements for more information about the Company’s commitments and contingent obligations.
Capital Expenditures
We continue to make investments in property, plant, and equipment and software for our business offices, manufacturing, and distribution facilities. This includes planned capital expenditure commitments at our Princeton, Kentucky cracker manufacturing facility for capacity expansion and safety advancements. Our preliminary estimate of capital expenditures for 2025 is approximately $125 million. Our capital expenditures were $139.7 million and $140.8 million for the years ended December 31, 2024 and 2023, respectively.
Our capital plan includes investment in climate-related projects in order to achieve our broader environmental goals. These climate-related projects are for investments in energy and water efficiency as well as waste reduction initiatives. Our investments are expected to be approximately $7 million in 2025.
Critical Accounting Estimates
Critical accounting estimates are defined as those most important to the portrayal of a company’s financial condition and results, and require the most difficult, subjective, or complex judgments. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP with no need for the application of our judgment. In certain circumstances, however, the preparation of the Consolidated Financial Statements in conformity with GAAP requires us to use our judgment to make certain estimates and assumptions. These estimates affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of net sales and expenses during the reporting period. We have identified the estimates described below as our critical accounting estimates. See Note 1 to the Consolidated Financial Statements for a detailed discussion of significant accounting policies.
Trade Allowances — We maintain an allowance for customer promotional programs, marketing co-op programs, and other sales and marketing expenses. These customer promotional programs are generally more significant for branded products compared to the majority of our private label products. This allowance is based on a combination of historical average program activity and specific customer program accruals, and can fluctuate due to the level of sales and marketing programs, and timing of deductions. The recognition of these costs therefore requires management judgment regarding the volume of promotional offers that will be redeemed by the customer. These estimates are made using various techniques including historical data on performance of similar promotional programs. Differences between estimated expense and actual redemptions are immaterial and recognized as a change in management estimate in a subsequent period. This allowance was $17.3 million and $20.2 million at December 31, 2024 and 2023, respectively.
Long-Lived Assets — We evaluate property, plant, and equipment, operating lease right-of-use assets, and finite lived intangible assets for impairment when circumstances indicate that their carrying values may not be recoverable (a "triggering event"). Indicators of impairment include deteriorations in operating cash flows, the anticipated sale or disposal of an asset group, and other significant changes in business conditions. Undiscounted cash flow analyses are used to determine if impairment exists. We utilize current cash flow information and expected growth rates related to the asset group from our internal projections and operating plans. If the carrying values of asset groups are determined not to be recoverable, the impairment loss is calculated based on estimated fair value. Impairment charges are measured by comparing the carrying values of the asset groups to their estimated fair values. The fair value of these assets is based on expected future discounted cash flows using Level 3 inputs. Long-lived assets held for sale are reported at the lower of the carrying amount or fair value less the cost to sell.
During the second quarter of 2024, as a result of forecasted cash flow losses, the Company made the decision to exit the RTD business. As a result, the Company performed a recoverability assessment over the RTD asset group in the second quarter of 2024, which indicated that the asset group was not recoverable, and we were required to determine the fair value of the business. Our fair value assessment indicated that the carrying value was in excess of the fair value, and an impairment of $19.3 million of Property, plant, and equipment, net was recognized in our RTD beverages asset group.
Additionally, as the Company continued to execute upon integration activities associated with the Coffee Roasting Capability acquisition, the Company exited a distribution center in Grand Prairie, Texas during the third quarter of 2024. As a result of this distribution center exit, an impairment of $0.9 million of Operating lease right-of-use assets was recognized in our Grand Prairie asset group in the third quarter of 2024.
Further, as a result of the Dallas plant closure in the fourth quarter of 2023, the Company performed a recoverability assessment on the Dallas facility asset group, which indicated that the asset group was not recoverable. Our fair value assessment indicated that the carrying value was in excess of the fair value, and an impairment of $4.7 million within Property, plant, and equipment, net was recognized.
Gain or Loss on Disposal of a Business — On September 29, 2023, the Company completed the sale of its Snack Bars business to John B. Sanfilippo & Son, Inc. for approximately $58.7 million in cash. The Company classified the proceeds within Net cash provided by investing activities - discontinued operations. The Company recognized a gain on disposal of $1.1 million during the year ended December 31, 2023. The gain on disposal is recognized within Net loss from discontinued operations in the Company's Consolidated Statements of Operations. The gain on disposal was calculated as the difference between the fair value of the disposal group and the carrying value of the associated assets. The fair value was determined based on the consideration transferred less costs to sell.
Purchase Price Allocation — We record acquisitions using the acquisition method of accounting. All of the assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. In a business combination, the difference between the purchase price and the estimated fair values of the identifiable net assets acquired is either recorded as goodwill or as a bargain purchase gain. The application of the purchase method of accounting for business combinations requires management to make significant estimates and assumptions in the determination of the fair value of assets acquired and liabilities assumed, in order to properly allocate purchase price consideration between assets that are depreciated and amortized from goodwill. The fair value assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions, as well as other information compiled by management, including valuations that utilize customary valuation procedures and techniques. Significant assumptions and estimates include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, and the cost savings expected to be derived from acquiring an asset. If the actual results differ from the estimates and judgments used in these estimates, the amounts recorded in the financial statements may be exposed to potential impairment of the intangible assets and goodwill, as discussed in the Goodwill and Indefinite Lived Intangible Assets accounting estimates section.
Goodwill and Indefinite Lived Intangible Assets — Goodwill and indefinite lived intangible assets totaled $1,825.3 million and $1,830.7 million as of December 31, 2024 and 2023, respectively, resulting primarily from acquisitions. Upon acquisition, the purchase price is first allocated to identifiable assets and liabilities, including but not limited to inventory, accounts payable, trademarks, and customer-related intangible assets, with any remaining purchase price recorded as goodwill. Goodwill and indefinite lived trademarks are not amortized.
The Company has one reporting unit within its single reportable and operating segment. The Company completed its annual goodwill and indefinite lived intangible asset impairment analysis as of December 31, 2024. Our assessment did not result in an impairment. Our analysis employed the use of an income approach, corroborated by the market approach. The Company believes the income approach is the most reliable indicator of the fair value of the reporting unit. Significant assumptions used in the income approach include growth and discount rates, margins, and the Company’s weighted average cost of capital. We used historical performance and management estimates of future performance to determine margins and growth rates. The income approach utilizes projected cash flow estimates developed by the Company to determine fair value, which are unobservable, Level 3 inputs. Unobservable inputs are used to measure fair value to the extent that relevant observable inputs are not available. The Company developed our estimates using the best information available at the time. Discount rates selected for the reporting unit approximated the total Company discount rate. Our weighted average cost of capital included a review and assessment of market and capital structure assumptions. The Company's single reporting unit has a fair value that the Company considers to be substantially in excess of its carrying values. Therefore, we believe that only significant changes in the assumptions would result in an of goodwill. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows. Assumptions used, such as forecasted growth rates and our cost of capital, are consistent with our internal projections and operating plans. Changes in our estimates or any of our other assumptions used in our analysis could result in a different conclusion.
We reviewed our indefinite lived intangible assets, which consist of trademarks totaling $6.0 million as of December 31, 2024, using the relief from royalty method. Significant assumptions include the royalty rates, growth, margins, and discount rates. Our assumptions were based on historical performance and management estimates of future performance, as well as available data on licenses of similar products. The Company’s policy is that indefinite lived assets must have a history of strong sales and cash flow performance that we expect to continue for the foreseeable future. When these criteria are no longer met, the Company changes the classification. Considerable management judgment is necessary to evaluate the impact of operating changes and to estimate future cash flows. Changes in our estimates or any of our other assumptions used in our analysis could result in a different conclusion. Our testing of our trademarks indicated that the implied fair value was significantly in excess of the carrying values. The fair values of our trademarks exceed book value by a minimum of 82% as of December 31, 2024. Therefore, we believe that only significant changes in the assumptions would result in an impairment of any trademark.
Income Taxes — Deferred taxes are recognized for future tax effects of temporary differences between financial and income tax reporting using tax rates in effect for the years in which the differences are expected to reverse. We periodically estimate our probable tax obligations using historical experience in tax jurisdictions and informed judgments. There are inherent uncertainties related to the interpretations of tax regulations in the jurisdictions in which we operate. These judgments and estimates made at a point in time may change based on the outcome of tax audits and changes to, or further interpretations of, regulations. If such changes take place, there is a risk that our tax rate may increase or decrease in any period, which would impact our earnings. Future business results may affect deferred tax liabilities or the valuation of deferred tax assets over time.
Employee Benefit Plan Costs — We provide a range of benefits to our employees, including pension and postretirement benefits to our eligible employees and retirees. We record annual amounts relating to these plans based on calculations specified by GAAP, which include various actuarial assumptions, such as discount rates, assumed investment rates of return, compensation increases, employee turnover rates, and health care cost trend rates. We review our actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when appropriate. As required by GAAP, the effect of such modifications is generally deferred and subsequently amortized over future periods. Different assumptions that we make could result in the recognition of different amounts of expense over different periods.
While a number of the key assumptions related to our qualified pension plans are long-term in nature, including assumed investment rates of return, compensation increases, employee turnover rates, and mortality rates, GAAP requires that our discount rate assumption be more heavily weighted to current market conditions. As such, our discount rates will likely change frequently. We used a discount rate for each plan to determine our estimated future benefit obligations, and our weighted average discount rate was 5.61% at December 31, 2024. If the discount rate of each plan were one percent higher, the pension plan liability would have been approximately 8.0%, or $15.9 million, lower as of December 31, 2024. If the discount rate of each plan were one percent lower, the pension plan liability would have been approximately 9.3%, or $18.6 million, higher as of December 31, 2024. The projected benefit obligation was $199.5 million and $216.9 million at December 31, 2024 and 2023, respectively, for our pension benefit plans. The projected benefit obligation was $14.4 million and $15.1 million at December 31, 2024 and 2023, respectively, for our postretirement benefit plans.
See Note 17 to our Consolidated Financial Statements for more information regarding our employee pension and retirement benefit plans.
Recent Accounting Pronouncements
Information regarding recent accounting pronouncements is provided in Note 2 to the Consolidated Financial Statements.
Non-GAAP Measures
We have included in this report measures of financial performance that are not defined by GAAP ("Non-GAAP”). A Non-GAAP financial measure is a numerical measure of financial performance that excludes or includes amounts so as to be different than the most directly comparable measure calculated and presented in accordance with GAAP in the Company’s Consolidated Financial Statements. We believe these measures provide useful information to the users of the financial statements as we also have included these measures in other communications and publications.
For each of these Non-GAAP financial measures, we provide a reconciliation between the Non-GAAP measure and the most directly comparable GAAP measure, an explanation of why management believes the Non-GAAP measure provides useful information to financial statement users, and any additional purposes for which management uses the Non-GAAP measure. This Non-GAAP financial information is provided as additional information for the financial statement users and is not in accordance with, or an alternative to, GAAP. These Non-GAAP measures may be different from similar measures used by other companies.
Organic Net Sales
Organic net sales is defined as net sales excluding the impacts of business acquisitions, divestitures, and foreign currency. This information is provided in order to allow investors to make meaningful comparisons of the Company's sales between periods and to view the Company's business from the same perspective as Company management. The following table reconciles the Company's 2024 net sales as presented in the Consolidated Statements of Operations to organic net sales.
Dollars
(In millions)
2024 Net sales
Business acquisitions
Foreign currency
2024 Organic net sales
EBITDA from Continuing Operations, EBITDA from Continuing Operations Margin, Adjusted EBITDA from Continuing Operations, and Adjusted EBITDA from Continuing Operations Margin, Adjusting for Certain Items Affecting Comparability
EBITDA from continuing operations margin is defined as EBITDA from continuing operations as a percentage of net sales. Adjusted EBITDA from continuing operations margin is defined as adjusted EBITDA from continuing operations as a percentage of adjusted net sales. EBITDA from continuing operations represents net income from continuing operations before interest expense, interest income, income tax expense, and depreciation and amortization expense. Adjusted EBITDA from continuing operations reflects adjustments to EBITDA from continuing operations to identify items that, in management’s judgment, significantly affect the assessment of earnings results between periods. This information is provided in order to allow investors to make meaningful comparisons of the Company’s earnings performance between periods and to view the Company’s business from the same perspective as Company management. As the Company cannot predict the timing and amount of charges that include, but are not limited to, items such as product recalls and related costs, growth, reinvestment, and restructuring programs, acquisition, integration, divestiture, and related costs, impairment of assets, foreign currency exchange impact on the re-measurement of intercompany notes, mark-to-market adjustments on derivative contracts, and other items that may arise from time to time that would impact comparability, management does not consider these costs when evaluating the Company’s performance, when making decisions regarding the allocation of resources, in determining incentive compensation, or in determining earnings estimates. EBITDA from continuing operations, and adjusted EBITDA from continuing operations are performance measures commonly used by management to assess operating performance and incentive compensation, and the Company believes they are commonly reported and widely used by investors and other interested parties as a measure of a company’s operating performance between periods and as a component of our debt covenant calculations.
Adjusted Net Sales, Adjusted Cost of Sales, Adjusted Gross Profit, Adjusted Total Operating Expenses, Adjusted Operating Income, Adjusted Total Other Expense, Adjusted Income Tax Expense, Adjusted Net Income from Continuing Operations, and Adjusted Diluted Earnings Per Share from Continuing Operations, Adjusting for Certain Items Affecting Comparability
Adjusted net sales, adjusted cost of sales, adjusted gross profit, adjusted total operating expenses, adjusted operating income, adjusted total other expense, adjusted income tax expense, and adjusted net income from continuing operations represent their respective GAAP presentation line item adjusted for items such as product recalls and related costs, growth, reinvestment, and restructuring programs, acquisition, integration, divestiture, and related costs, impairment of assets, foreign currency exchange impact on the re-measurement of intercompany notes, mark-to-market adjustments on derivative contracts, and other items that may arise from time to time that would impact comparability. Management does not consider these costs when evaluating the Company’s performance, when making decisions regarding the allocation of resources, in determining incentive compensation, or in determining earnings estimates. This information is provided in order to allow investors to make meaningful comparisons of the Company’s earnings performance between periods and to view the Company’s business from the same perspective as Company management. The Company has presented each of these adjusted Non-GAAP measures as a percentage of adjusted net sales compared to its respective reported GAAP presentation line item as a percentage of net sales. Adjusted diluted earnings per share from continuing operations ("Adjusted diluted EPS") is determined by dividing adjusted net income from continuing operations by the weighted average diluted common shares outstanding. Adjusted diluted EPS reflects adjustments to GAAP earnings () per diluted share to identify items that, in management's judgment, significantly affect the assessment of earnings results between periods.
The following table reconciles the Company's net income from continuing operations as presented in the Consolidated Statements of Operations, the relevant GAAP measure, to EBITDA from continuing operations and Adjusted EBITDA from continuing operations for the years ended December 31, 2024 and 2023:
Year Ended December 31,
(unaudited, in millions)
Net income from continuing operations (GAAP)
Interest expense
Interest income
Income tax expense
Depreciation and amortization
EBITDA from continuing operations (Non-GAAP)
Product recalls and related costs (1)
Growth, reinvestment, restructuring programs & other, excluding accelerated depreciation (2)
Impairment (3)
Acquisition, integration, divestiture, and related costs (4)
Foreign currency loss (gain) on remeasurement of intercompany notes (5)
Mark-to-market adjustments (6)
Shareholder activism (7)
Tax indemnification (8)
Adjusted EBITDA from continuing operations (Non-GAAP)
% of net sales
Net income from continuing operations margin
EBITDA from continuing operations margin
% of adjusted net sales
Adjusted EBITDA from continuing operations margin
Griddle Recall and Related Costs
On October 18, 2024, the Company initiated a voluntary recall of certain frozen waffle products produced at its Brantford, Ontario, Canada facility, and on October 22, 2024, the Company expanded its voluntary recall to include all products manufactured at the Brantford facility that are still within their shelf-life. For the year ended December 31, 2024, the Company recognized incremental charges of $36.6 million, which includes $21.0 million for product returns, non-cash inventory write-offs of $7.4 million, plant shutdown charges of $6.5 million, and other costs, including logistics, of $1.7 million.
Broth Recall and Related Costs
On September 22, 2023, the Company initiated a voluntary recall of certain broth products produced at its Cambridge, Maryland facility. Since the voluntary recall, the Company executed a turnaround plan to restore the facility operations. As a result of these restoration activities, for the year ended December 31, 2024, the Company incurred incremental costs (benefits) of $4.5 million, which included plant shutdown charges of $8.9 million, other costs, including product returns and logistics of $4.2 million, non-cash inventory write-offs of $1.4 million, and an insurance recovery of $(10.0) million. For the year ended December 31, 2023, the Company incurred incremental costs related to the product recall of $27.0 million, which include plant shutdown charges of $12.5 million, non-cash inventory write-offs of $10.4 million, and other costs, including product returns and logistics, of $4.1 million. Additionally, the Company recognized a non-cash inventory write-off of $2.2 million for a packaging quality matter for the year ended December 31, 2023.
Refer to Note 19 of the Consolidated Financial Statements for additional information.
The Company’s growth, reinvestment, and restructuring activities are part of an enterprise-wide transformation to improve long-term growth and profitability for the Company. During 2024, the Company recognized $0.2 million of accelerated depreciation within the Company's growth, reinvestment, and restructuring activities as depreciation expense.
Refer to Note 3 of the Consolidated Financial Statements for additional information.
During the second quarter of 2024, the Company incurred $19.3 million of non-cash impairment charges related to property, plant, and equipment. The impairment is due to forecasted cash flow losses in the Ready-to-drink beverages business resulting in a decision to exit this business.
Refer to Note 8 of the Consolidated Financial Statements for additional information.
Acquisition, integration, divestiture, and related costs represent costs associated with completed and potential acquisitions, the related integration of the acquisitions, completed and potential divestitures, and gains or losses on the divestiture of a business. During the year ended December 31, 2024, $6.7 million were classified in General and administrative, $2.0 million were classified in Cost of sales, and $0.2 million were classified in Other operating expense, net. During the year ended December 31, 2023, $15.0 million were classified in General and administrative, $0.8 million were classified in Cost of sales, and $0.9 million were classified in Other operating expense, net.
Refer to Note 7 to our Consolidated Financial Statements for additional information.
The Company has foreign currency denominated intercompany loans and incurred foreign currency gains/losses to re-measure the loans at quarter end. These amounts are non-cash and the loans are eliminated in consolidation.
The Company's derivative contracts are marked-to-market each period. The non-cash unrealized changes in fair value recognized in Other expense (income), net, within the Consolidated Statements of Operations are treated as Non-GAAP adjustments. As the contracts are settled, realized gains and losses are recognized, and only the mark-to-market impacts are treated as Non-GAAP adjustments.
Refer to Note 20 to our Consolidated Financial Statements for additional information.
The Company incurred fees related to shareholder activism which include directly applicable third-party advisory and professional service fees.
Tax indemnification represents the non-cash write off of indemnification assets that were recorded in connection with acquisitions from prior years. These write-offs arose as a result of the related uncertain tax position being released due to the statute of limitation lapse or settlement with taxing authorities.
The following tables provide a reconciliation of Adjusted net sales, Adjusted cost of sales, Adjusted gross profit, Adjusted total operating expenses, Adjusted operating income (loss), Adjusted total other expense (income), Adjusted income tax expense (benefit), and Adjusted net income from continuing operations to their most directly comparable GAAP measure, for each of the periods presented:
Year Ended December 31, 2024
(Unaudited, in millions, except per share amounts)
Net sales
Cost of sales
Gross profit
Total operating expenses
Operating income
Total other expense
Income tax expense
Net income from continuing operations
As reported (GAAP)
Adjustments:
Product recalls and related costs (1)
Growth, reinvestment, restructuring programs & other, including accelerated depreciation (2)
Impairment (3)
Acquisition, integration, divestiture, and related costs (4)
Foreign currency loss on remeasurement of intercompany notes (5)
Mark-to-market adjustments (6)
Taxes on adjusting items
As adjusted (Non-GAAP)
As reported (% of net sales)
As adjusted (% of adjusted net sales)
Earnings per share from continuing operations:
Diluted
Adjusted diluted
Weighted average common shares:
Diluted for net income from continuing operations
Diluted for adjusted net income from continuing operations
Year Ended December 31, 2023
(Unaudited, in millions, except per share amounts)
Net sales
Cost of sales
Gross profit
Total operating expenses
Operating income
Total other expense
Income tax expense
Net income from continuing operations
As reported (GAAP)
Adjustments:
Product recalls and related costs (1)
Growth, reinvestment, restructuring programs & other (2)
Acquisition, integration, divestiture, and related costs (4)
Foreign currency gain on remeasurement of intercompany notes (5)
Mark-to-market adjustments (6)
Shareholder activism (7)
Tax indemnification (8)
Taxes on adjusting items
As adjusted (Non-GAAP)
As reported (% of net sales)
As adjusted (% of adjusted net sales)
Earnings per share from continuing operations:
Diluted
Adjusted diluted
Weighted average common shares:
Diluted for net income from continuing operations
Diluted for adjusted net income from continuing operations
Free Cash Flow From Continuing Operations
In addition to measuring our cash flow generation and usage based upon the operating, investing, and financing classifications included in the Consolidated Statements of Cash Flows, we also measure free cash flow from continuing operations (a Non-GAAP measure) which represents net cash provided by operating activities from continuing operations less capital expenditures. We believe free cash flow is an important measure of operating performance because it provides management and investors a measure of cash generated from operations that is available for mandatory payment obligations and investment opportunities such as funding acquisitions, repaying debt, repurchasing public debt, and repurchasing our common stock.
The following table reconciles cash flow provided by operating activities from continuing operations (a GAAP measure) to our free cash flow from continuing operations (a Non-GAAP measure):
Year Ended December 31,
(In millions)
Cash flow provided by operating activities from continuing operations
Less: Capital expenditures
Free cash flow from continuing operations
