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After surging 12%, TreeHouse could be your next play on organic & natural food

After surging 12% TreeHouse could be your next play on organic & natural food

To fully understand how the stock of private-label king TreeHouse Foods surged more than 12 percent on Thursday, one must take a look at its history with Conagra Brands.

TreeHouse has a long history of making smart acquisitions. However, some investors were displeased a little over a year ago when the company announced it was buying the private-label cereal business called Ralcorp from Conagra for $2.7 billion.

That was a lot less than what Conagra paid for it in 2013, but the view of Ralcorp was that it was not a winner. So, when TreeHouse last reported three months ago, the results were light, and shares of TreeHouse fell.

Hence, it was a huge surprise for Wall Street when TreeHouse knocked earnings out of the park on Thursday. CEO Sam Reed told "Mad Money" host Jim Cramer that the company realized it was too focused on the carve-out from ConAgra in the previous quarter.

"Once we realized that was taking people away from their day jobs we got that group back and in a fury they went about their business," Reed said.

Sam Reed, chief executive officer of TreeHouse Foods Inc.
Tim Boyle | Bloomberg | Getty Images

TreeHouse's core legacy business was up 3 percent in the fourth quarter, and the private brands from Conagra managed to go from a deficit and post a gain. Part of the problem, Reed said, was that Conagra attempted to combine its branded business with the private label business. In Reed's experience, he said that is not a combination that works well.

"We have dedicated ourselves only to customer brands and having that sole focus is absolutely critical to succeeding here," Reed said.

Reed was particularly pleased that in the legacy segment of TreeHouse's business, 20 percent of its private-label offerings are within the theme of better-for-you, natural and organic. Those brands sell at a 10 percent premium to average brands. Thus, 20 percent of the company's business is now growing at a pace of 30 percent.

"Private label has become the place where people looking for health and wellness can go and find products that offer them value," Reed said.

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