Three factors prompt Post to lower guidance

by Eric Schroeder
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ST. LOUIS — Post Holdings Inc. has lowered its fiscal 2014 adjusted EBITDA guidance to between $300 million to $320 million, down from an earlier forecast of $315 million to $340 million.

The softer view was blamed on three main factors: continued elevated holding company costs supporting merger and acquisition activity, delays in new business volume at Dakota Growers Pasta, and softness in the ready-to-eat cereal category during the second quarter of fiscal 2014.

Rob Vitale, chief financial officer, elaborated on the factors during a March 10 conference call with analysts.

“As you know, we have a very active M&A strategy,” he said. “Accordingly, our holding company expenses increased to support these M&A activities, and we now anticipate this elevated level to continue throughout fiscal 2014. Specifically, the costs include increased audit fees for pending or completed acquisitions, due diligence fees on abandoned acquisitions, outside service fees related to I.T. integrations, and increased headcount to support a larger footprint. We have, and we will continue to, prioritize investment in integration and additional M&A over near-term profit targets. We believe M&A remains central to building long-term value.

“Our acquisition of Dakota Growers closed on Jan. 1. As expected, in late 2013 and early 2014, certain customers of Dakota in-sourced the manufacturing of certain ingredient purchases. This materialized as expected, but the replacement volume is developing more slowly than we anticipated. We believe Dakota has a strong pipeline of business development opportunities, some of which are currently under contract and some of which are in the late stages of discussion. We expect Dakota to return to historical volume levels in 2015.

“Finally, in R.-T.-E. cereal, despite gaining modest share in a down market, the projected ongoing softness in the category is causing us to revise our outlook for the Post Foods business for the balance of fiscal 2014. We believe the R.T.E. cereal category will return to a single-digit growth rate in 2015.”

Mr. Vitale’s optimism in the R.-T.-E. cereal category going forward prompted one analyst to note that it’s a comment that a lot of bigger cereal players have been loath to make on their own.

Mr. Vitale responded, “Well, our sense is that there’s an emergence of leadership from General Mills and Kellogg’s to refocus on their base business that will bring consumers back into the category. The category has certainly undergone some demand shocks in the last three to five years, whether it’s Greek yogurt or Q.S.R.s or low-carb, it has gone through a shift. We believe that that shift is nearer the end than the beginning, and that on the other side of that shift is a growth rate that corresponds to household formation, population growth, low single digits, and that a large part of that assumption is predicated upon the effectiveness of the category leaders, which we see re-emerging.”
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