Treehouse Foods, Inc. (THS)

Carrying Value of Goodwill and Intangibles Looks Suspect

We have covered Treehouse Foods (THS) for our institutional clients since June of 2020. Since that time, we have criticized the company for its noticeably low returns despite years of restructurings as well as the company adding back a suspiciously large amount of COVID-related costs to its non-GAAP earnings. The stock has been down close to 20% while under coverage although it has recovered much of that over hopes that activist Jana Partners will be successful in pushing the company to sell itself off. As such, we would not consider this a high conviction short idea. However, given our recent look at goodwill accounting, we thought we would discuss some potential problems we see with the company’s valuation of its sizeable goodwill and intangibles balances.