After a relatively short holding period of just 12 months, we sold our TreeHouse (NYSE:THS) position. After the acquisition of the Private Brands business from ConAgra in November of 2015, the Company became by far the largest manufacturer and distributor of private label grocery products in the U.S. With notable size and scale through unmatched scale in both manufacturing and distribution, we believed TreeHouse would significantly benefit from the secular shift toward private label, particularly in higher margin natural and organic segments, while driving out costs in lower growth segments. Specifically, the shift toward private label brands was one of the rare growth opportunities in the increasingly cut-throat battles in nearly every aisle of the grocery store business. We see private brands all around us in our local family-owned grocery stores and in the big national chain stores, as well as food retailers that are uniquely private label – Whole Foods, Trader Joe’s, Aldi, and Costco.
Our investment thesis began to be challenged earlier in the year, as forecasted synergies from the Private Brands acquisition were slow to emerge. In addition, the cadence and frequency of privately-owned businesses pricing bids began to shorten from the industry standard 12-month pricing, rendering significant volatility to financial results – particularly at the earnings line. The Company’s response – like most of the industry’s – has been to protect revenues by reducing prices. By this point our original thesis was compromised enough that we sold our position to redeploy capital back into more promising portfolio positions.
From David Rolfe (Trades, Portfolio)'s Wedgewood Partners 3rd quarter shareholder letter.
