Infographic: Acquisition costs weigh on Post earnings

by Eric Schroeder
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ST. LOUIS — Post Holdings, Inc. sustained a loss of $5 million in the first quarter ended Dec. 31, 2013, which compared with net income of $7.6 million, or 23c per share, in the same period a year ago. Adjusted EBITDA, though, was $55.9 million, up from $52.5 million in the same period a year ago.

Net sales in the first quarter increased 25% to $297 million from $236.9 million, boosted by acquisitions, which contributed $60.1 million to consolidated net sales during the quarter.

Selling, general and administrative expenses, including those related to acquired businesses, increased to $83 million in the first quarter, which was up $10.9 million from the prior year’s first quarter.

Post Foods, which comprises mostly the Post branded cereal business, had operating profit of $46.5 million, down from $47 million a year ago, while net sales were flat at $236.9 million.

In a Feb. 7 conference call with analysts to discuss first-quarter results, Terry Block, president and chief operating officer of Post Holdings, said Post’s ready-to-eat cereal business continued to show market share progress, delivering its strongest year-over-year share increase in two years.

“We continue to be pleased by the breadth of share improvement across the Post cereal portfolio, with most brands showing share stabilization or growth versus the same period year ago,” he said. “This is a significant reversal of the broad-scale, multi-year declines of the past.”

Looking at specific brands, Mr. Block said Post’s largest brand, Honey Bunches of Oats (H.B.O.), turned in its best quarter in two years, growing dollar sales 1.2%, with market share up two-tenths of a percentage point to 4.5%.

“H.B.O. is becoming more competitive, driven by improvement in the underlying strength of the core flavors, as well as new item gains, including H.B.O. Granola,” Mr. Block said. “The core flavors — honey roasted and almond — had the highest total share in any quarter in nearly three years. To build upon the recent improving trends for this most important brand, we will continue to focus on executing the fundamentals, our pricing pack size architecture, shelving, and merchandising.”

Meanwhile, the company’s fastest growing brand, Great Grains, also continued to outperform during the quarter, with a 10% increase in dollar sales.

“Great Grains has strong momentum, with double-digit consumption dollar growth over the latest 52 weeks, driven by strong advertising and distribution gains, supporting new items,” he said. “We're building on this momentum with the introduction of two flavors of our new Great Grains Digestive Blends. Launching now, these new flavors further enhance the brand’s health and wellness image.”

Dollar sales for Grape-Nuts increased 5.4% during the quarter, driven by distribution gains on Grape-Nuts Fit and continued brand revitalization efforts.

Raisin Bran, Honeycomb and Golden Crisp all had stable or growing share in the most recent quarter, Mr. Block said, an indication that Post’s “tactical approaches to support some of our smaller brands are delivering meaningful results and reversing multi-year share declines. These brands also are benefiting from increased attention by being represented by the Post direct-selling organization.”

One brand that failed to meet expectations during the quarter was Pebbles. Mr. Block said the brand’s softer performance reflected cycling of heavier advertising promotion during the year and delistment of weak flanker stock-keeping units, including Marshmallow Pebbles and Pebbles Boulders. But Mr. Block noted the brand’s core flavors, Fruity Pebbles and Cocoa Pebbles, exhibited stability during the quarter, and the company has significant innovation planned for the second quarter, including Poppin’ Pebbles, which he said has received strong customer acceptance and has tested well among the cereal’s target audience.

The Attune Foods segment, which includes the cereal and snack business of the Attune, Uncle Sam and Erewhon brands and the private label and branded cereal, granola and snack business of the Golden Temple, Peace Cereal, Sweet Home Farm and Willamette Valley Granola Co. brands, turned a profit of $2.6 million during the quarter. Net sales were $23.2 million, up nearly 18% from the pre-acquisition quarter a year ago.

Profit within the Active Nutrition segment totaled $4.2 million on sales of $37.2 million. Mr. Block said Active Nutrition is a “key component” in the transformation of Post into a more diversified consumer products company.

“Post Holdings continues to increase its commitment to the active nutrition category and anticipates combining Premier Nutrition; Dymatize Enterprises, markers of the Dymatize and Supreme brands; with the PowerBar and Musashi brands being acquired from Nestle to form a singular Active Nutrition group within Post with expected annualized revenue approaching $550 million,” he said. “Competing in a category with very attractive growth dynamics, the global active nutrition category is projected to grow at high single-digits in the upcoming years according to Euromonitor.

“This combination will afford Post a broad portfolio of brands, addressing various segments of the category covering bodybuilding, endurance, lifestyle, and sports nutrition, consumer interests and benefits. The combined portfolio will provide the Active Nutrition group access to all channels of sales and distribution, as well as all leading product forms including bars, shakes, and powders, while expanding presence worldwide.”

Post completed the first phase of its Modesto, Calif., manufacturing facility closing in the first quarter of fiscal 2014, which is expected to achieve savings of approximately $2.8 million in fiscal 2014. The second phase of the facility closing is expected to be completed by September 2014, with the total net pre-tax annual cash savings of approximately $14 million expected to be fully phased in by fiscal 2015.

During the first quarter of 2014, Post incurred an incremental $2.7 million of accelerated depreciation expense recorded in cost of sales and $500,000 related to employee termination benefits. Post anticipates recognizing additional accelerated depreciation expense of $5.8 million through the completion of the project in September 2014 and an additional $900,000 of employee termination benefits.
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