Post deals with acquisition-related challenges

by Eric Schroeder
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Post Holdings said it is doing relatively well in the challenged ready-to-eat cereal category, with share gains led by Honey Bunches of Oats.

ST. LOUIS — Over the past 15 months, Post Holdings, Inc. has completed six acquisitions, transforming itself from a ready-to-eat cereal business into a diverse consumer packaged goods company. The journey has not been easy, though, and the St. Louis-based company sustained a loss of $39.3 million in the third quarter ended June 30 and a loss of $66.9 million in the nine months ended June 30. 

“During Q3, we experienced some acquisition-related challenges, as well as some of a legacy nature,” Terry Block, president and chief operating officer, said during an Aug. 8 conference call with analysts. “More specifically, some headwinds during the quarter included escalating commodity input costs within active nutrition and private brands, previously noted operational issues hampering both cost and sales within active nutrition, and greater-than-expected volume weakness in R.-T.-E. cereal category declines.”

In the third quarter ended June 30, Post sustained a loss of $39.3 million, which compared with income of $1.1 million, equal to 3c per share on the common stock, in the same period a year ago. Sales, meanwhile, improved to $633 million from $257.3 million, boosted by acquisitions, including Michael Foods, Golden Boy Foods and Dymatize Enterprises.

Segment profit within the Post Foods unit, which includes Post branded cereals, totaled $48.2 million in the third quarter, up 2% from $47.3 million a year ago. Net sales were lower, though, easing to $238.2 million from $246.6 million.

Given the environment, Mr. Block said Post actually is doing relatively well in what he described as a “challenged category.”

“We have now had five consecutive quarters of dollar share growth for Post in total,” he said. “Honey Bunches of Oats, our largest brand, accelerated share gains 0.3 share points in Q3 and has grown share in eight of the last nine months. This success has been driven by a strategic focus on core items, which grew 4.8%, as well as continued gains from realigning the pricing architecture across sizes. Pebbles also had a strong dollar share growth, growing 0.5 points this quarter, driven by strength behind our integrated marketing programming and strong performance from our Pebbles Value Bags. The brand has grown dollars almost 14%, and pounds over 21%, for fiscal year to date.

“Great Grains, our third largest brand, also grew dollar share during Q3. The brand continues to be a strong performer overall in the healthy segment. We remain committed to demand generation, executing the fundamentals and investing to drive increased consumption of our brands. Our long-range innovation pipeline is stronger than it has been in the past four years. In 2015, we have a robust lineup of new items launching both in the R.-T.-E. cereal category and Beyond the Bowl. Lastly, we have custom markets planned against multiple breakthrough innovations, focused on addressing consumer desires for fresher, leaner and more convenient foods.”

Attune Foods posted operating income of $2 million in the third quarter, up from $200,000 a year ago. Net sales jumped 119% to $23.7 million from $10.8 million.

The Active Nutrition group, which includes Premier Nutrition, Dymatize Enterprises Joint Juice and Supreme (and later this year will add PowerBar and Musashi), sustained an operating loss of $2.5 million on sales of $86.7 million.

The Private Brands group, which includes Dakota Growers Pasta and Golden Boy, had operating profit of $5.9 million on sales of $134.2 million in the third quarter. The business is expected to get a boost from the addition of American Blanching Co. (ABC), which Post agreed to acquire on Aug. 7.

“ABC is one of North America’s largest private label and contract manufacturing peanut butter producers, and one of only two commercial peanut planters in the U.S.,” Mr. Block said. “Its dynamic and experienced leadership team is focused on outstanding quality and superior service. And by doing so, they (have) built a great business, with a customer portfolio that is extremely complimentary to, and has only limited overlap with, Golden Boy’s current business. ABC is a low-cost manufacturer of conventional and flavored peanut butter, with a state-of-the-art production facility and close proximity to U.S. peanut shellers, that will enhance the combined company’s geographic footprint.

“The combination will expand our capabilities in all key category segments, including conventional peanut butter, organic peanut butter, tree nut butter, and value-added flavored nut butters. We are excited about the enhanced prospects we foresee as a result of this acquisition, and the combination of the two companies.”

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