Post ahead on transformation efforts

by Eric Schroeder
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ST. LOUIS — A heightened focus on the center store space, active nutrition and private label spearheaded the transformation process at Post Holdings, Inc. in fiscal 2013.

“The past 12 months witnessed the continued transformation of Post from a low growth, single category participant to a more diversified consumer products enterprise with a portfolio that is allowing us to gain participation in retail channels and categories exhibiting more dynamic growth,” Terry Block, president and chief operating officer, said during a Nov. 21 conference call with analysts.

Mr. Block said the areas of focus — center store, active nutrition and private label — have provided access to new customers and channels for Post. Additionally, he said Post’s acquisition of Attune Foods and the Hearthside Golden Temple granola business has provided entry into the natural specialty channels, where natural and organic cereals are experiencing high single-digit growth.

“This combination gives Post access to an attractive base of brands and retail customers,” he said. “Attune Foods will be cash accretive in fiscal 2014.”

Mr. Block said Attune Foods turned in a record fourth quarter, with results driven by strength in organic, non-bioengineered, gluten-free cereals, especially the recently introduced Erewhon super grain line, Peace Cereal, and bulk granola. Additionally, Attune’s private label portfolio gained new customers and increased business with current long-standing customers, he said.

“The integration of the operations in San Francisco and Eugene, Ore., was completed in September, and Attune Foods now addresses customers with one sales broker network and a unified systems platform creating one Attune, both internally and externally,” Mr. Block said. “Momentum on the business remains positive with opportunities for operational improvements capitalizing on Post’s scale and knowledge while remaining an independent operating unit.”

Looking at the company’s ready-to-eat cereal business, Mr. Block said the number of brands that have grown or shown stable dollar share is greater than at any time in at least the past two years.

“Drivers of share performance were increases in base sales by consumers continuing to switch to larger Post sizes, which is offset somewhat by selling fewer packages on promotion, due to higher competitive activity,” he said.

For the 52 weeks ended Sept. 28, dollar sales of Great Grains grew 8.6%, driven by strong advertising and distribution gains behind two new items that Mr. Block said deliver on consumers’ desire for more protein in the diet. In 2014, Post plans to further invest behind the brand to appeal to the ingredient-conscious consumer with non-bioengineered offerings as well as the introduction of two new Great Grains digestive blend items.

Dollar sales of Grape-Nuts increased 2.3% in the year, driven by distribution gains on Grape-Nuts Fit and on brand revitalization efforts behind the “What’s Your Mountain?” campaign that leverages Grape-Nuts role in the first summit up Mount Everest by Sir Edmund Hillary. Mr. Block said Grape Nuts dollar share for the past 52 weeks is the highest it has been in the past three years.

Mr. Block described Honey Bunches of Oats as “a work in process,” with sequential improvement during the fourth quarter.

“The brand is becoming more competitive,” he said. “We remain focused on executing the fundamentals of pricing, pack size architecture, shelving, and merchandising on (Honey Bunches of Oats). The brand will also have a new marketing campaign in 2014 and will introduce (Honey Bunches of Oats) Morning Energy and two flavors that leverage protein and high levels of whole grain designed to tap into consumers' increasing desires for healthy energy. We are also encouraged by the early results of Honey Bunches of Oats granola and will be expanding distribution on those items throughout 2014.”

A focus on “fruity” and “cocoa” flavors led to dollar sales growth of 0.4% in the two varieties of Pebbles business during the past 52 weeks. But overall, total franchise sales were down 3.2% in the past 52 weeks, as Post discontinued Marshmallow Pebbles and Boulders. Mr. Block said Post once again will try to invigorate the Pebbles brand with the launch of Poppin’ Pebbles in 2014. The new cereal will give children a “fizzy popping sensation with each bite,” he said.

Finally, while Post’s value offering called Good Morenings failed to achieve expectations, it did provide a meaningful learning with regard to product mix, product placement, size mix and marketing, Mr. Block said.

“Capitalizing on those learnings, this September we began expanding our efforts to address the value-seeking consumer with the limited introduction of large-bagged items of Fruity and Cocoa Pebbles, Honeycomb, and Golden Crisp,” Mr. Block said.

Net income at Post in the year ended Sept. 30 was $9.8 million, equal to 30c per share on the common stock, down sharply from $49.9 million, or $1.45 per share, in fiscal 2012. During the year, Post incurred an incremental $9.6 million of accelerated depreciation expense and $3.8 million related to employee termination benefits.

Net sales were $1,034.1 million, up 8% from $958.9 million.
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