TreeHouse Foods, Inc. (NYSE:THS)

SpinningFree (96.84) Submitted: 3/2/2011 11:57:43 AM : Start Price: $51.49 THS Score: +10.70

There are three really good reasons I see to buy this company:

1) They play in a growing industry. Private Label is growing at a faster clip than branded consumer packaged goods, and with good reason - people with less money to spend start to make the switch. Once consumers switch to private label it's hard for them to go back, and more and more people are coming to private label. Seeing that the % of goods sold on private label in the US is nowhere near that of Europe, I think there is lots of room to grow here. Private Label has very strong loyalty, particularly when the quality is just as good as a branded product - which takes me to point #2:

2) Attention to quality. THS prides itself on making high-quality goods, which can still undercut the pricing of branded products because they work off the 'store brand' label - with no money put behind marketing, they can still sell goods to stores on the cheap, and generally speaking the margins are higher for the stores carrying the goods when compared to branded. As I said earlier, if they buy a THS product, they are less likely to jump ship if they are satisfied with the quality at a low price point.

3) Growth strategy. Their biggest business, pickles, is slow growth but a major cash cow. This helped them build a strong balance sheet with lots of cash coming in and zero debt. So what do they do with that extra cash? Purchase other small Private Label businesses in rapidly growing sectors, and make them more profitable than they were before by using their scaled distribution chains - and continuing to pay attention to quality, so that the recurring revenue keeps coming in.

So there you have it. Great strategy for growth in a growing sector of CPG's, and a focus on what counts - keeping the customer buying your product by delivering on expectations.