Post finds transformation challenging

by Eric Schroeder
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ST. LOUIS — Transforming from a company with under $1 billion in sales a year ago to one with projected sales of $4 billion has not been without its challenges for Post Holdings, Inc. But all-in-all, the company has been satisfied with the process.

“In the last 12 months, Post Holdings has been transformed into a more diverse, consumer packaged goods holding company, competing in categories with more dynamic growth prospects, and driven by large secular themes — portability and convenience, changes in diet toward protein and more organic and natural products, and the shift in breakfast eating locations away from home,” Terry Block, president and chief operating officer, said during a May 9 conference call.

During the past year, Post acquired Attune Foods, Dakota Growers Pasta Co., Dynamite Enterprises, Golden Boy Foods and Premier Nutrition. Providing an “acquisition scorecard” to date, Mr. Block said, “Attune Foods, Premier Nutrition and Golden Boy are all meeting expectations and the promise inherent in the deals. Dakota Growers required a reset, and is taking the steps necessary for an improved outlook that will meet expectations. And Dymatize is addressing the highlighted internal business process issues that have caused near-term business results to fall short of expectations. This action should enable the Dymatize brand to fulfill consumer demand and deliver on the foundational outlook intended for this deal.

“Net, we very much like our acquisitions. The issues we have encountered are inherently fixable and are being fixed.”

The acquisitions are a major reason why net sales at Post Holdings increased sharply in the second quarter and first half. In the second quarter ended March 31, net sales were $438 million, up 76% from $248.2 million in the same period a year ago, while sales for the first half of fiscal 2014 increased 52% to $735 million from $485.1 million.

Despite the stronger sales, Post sustained a loss of $22.6 million in the second quarter and a loss of $27.6 million in the first half, which compared with earnings of $4.3 million and $11.9 million, respectively, in the year ago periods.

Segment profit within the Post Foods unit, which includes Post branded cereals, totaled $41.7 million in the second quarter, down 8% from $45.3 million a year ago. Net sales also were lower, easing to $239.5 million from $245.4 million. Mr. Block, though, remained upbeat about the unit’s performance.

“The Post Foods business showed continued consumption progress in Q2, outpacing the category and delivering strong year-over-year share increases,” he said. “Dollar share increased 0.9 points to 11.3% in Q2, due to improved demand generation efforts, increased distribution of new items and higher promotion frequency versus year-ago. Pound and package share also increased 1 point and 0.7 points, respectively, as we saw a continued reversal of the multi-year share declines. In total, Post is growing share in nearly all of our brands, a strong signal that the turnaround efforts are having an impact.”

Looking at specific brands, Mr. Block said Honey Bunches of Oats showed continued encouraging share progress as the brand grew dollar share behind improved execution of fundamentals, including pricing, shelving and merchandising. Core flavors were up 1.3% in the quarter as efforts to drive distribution gains on larger sizes delivered share gains, he added. Pebbles also continued its share and revenue growth in the quarter, driven in significant part by the launch of Pebbles in large bags, and also behind an uptick in the core box business.

“While the category remains challenged, we remain encouraged by the progress at Post Foods,” Mr. Block said. “We have successfully transitioned from share declines to share stabilization, and now to share growth. We continue to focus on demand generation efforts, improving critically important fundamentals and working to bring more incremental innovation to the category, starting with the limited introduction of three flavors of Post Goodness To Go 15-gram protein shakes in May 2014. These products, based on our studies, have taste-tested better than others available in the breakfast aisle, their development borrowed from the taste profile knowledge that exists within our Active Nutrition business.”

Attune Foods rebounded from a loss of $600,000 in the second quarter a year ago to post operating profit of $1.9 million in the second quarter of fiscal 2014. Net sales jumped to $22.2 million from $2.8 million. Mr. Block said results were driven by strength in organic, non-bioengineered, gluten-free cereals, especially Peace, Sweet Home Farm and Erewhon.

The Active Nutrition group, which now includes Premier Nutrition and Dymatize Enterprises, posted operating profit of $200,000 in the second quarter on sales of $70.6 million. Mr. Block said the Premier brand exhibited “solid base business growth” that was enhanced by the introduction of new Premier strawberry shake products. Meanwhile, severe winter weather in numerous key markets limited consumer traffic at key Dymatize retailers, depressing sales.

“Active Nutrition is a key component in the transformation and growth story at Post, and is being managed as a singular group within Post, with expected annualized sales to exceed $500 million following the closing of the PowerBar transaction,” Mr. Block said. “This business has attracted growth dynamics as the global Active Nutrition category is subjected to grow at high single-digits in the upcoming years.”

Mr. Block said Post has hired Dave Rudebusch to lead the Active Nutrition group. Mr. Rudebusch was formally chief executive officer and president of Premier Nutrition.

“This is an exciting business operating at the intersection of healthier lifestyles, activities and diets, aided by the ability to deliver protein and other nutrients to consumers in convenient, portable forms that taste good,” Mr. Block said.

The Private Brands group, which includes Dakota Growers Pasta and Golden Boy, had operating profit of $800,000 on sales of $105.7 million in the second quarter.

“The innovation of Dakota Growers and Golden Boy into one group is progressing smoothly,” Mr. Block said. “Combining these businesses will better manage the scaling of enterprises that possess similar go-to-market dynamics, management and operating opportunities, and customers, while maintaining accountability at the operating unit level. Early synergies have been identified, key future contracts are being extended and new ones signed up.

“Pasta cost-reduction programs have been announced, capacity-enhancing and productivity-oriented capital projects are about to come on-stream, and the nut butter plant network is being reconsidered to provide better geographic coverage and manufacturing capabilities. These initiatives, when combined with the ongoing business, are expected to provide a better-than-average growth outlook, with margin improvements as the Private Brands group looks to reverse and offset the guided Dakota declines, setting up and improving business outlook for FY15.”
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