Post in pursuit of its next acquisition

by Monica Watrous
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Post Consumer Brands
Post Holdings in the year ended Sept. 30 posted a net loss of $3.3 million.

ST. LOUIS — The past year has been a relatively quiet one for Post Holdings, Inc. in terms of merger and acquisition activity, but that doesn’t mean the St. Louis-based company wasn’t seeking to make a deal.

Rob Vitale, Post Holdings
Rob Vitale, president and c.e.o. of Post Holdings

“While not in evidence in 2016, M.&A. remains a central theme to Post’s strategy,” said Rob Vitale, president and chief executive officer, during a Nov. 18 earnings call with financial analysts. “We analyzed many opportunities this year. In fact, we spent approximately $6 million in expenses related to exploring acquisition candidates. Despite this commitment, our M.&A. during 2016 was modest. Be assured, we will continue to work to find opportunities at a sensible value.

“Our capital structure remains quite liquid. At year-end, we had cash on hand of $1.1 billion. We are more accepting of leverage than most; nevertheless, our net leverage ratio was a modest 3.7 times, and our debt is 100% fixed rate. In short, we are confident in our ability to identify and execute opportunities in a dynamic environment, (and) we have the patience to allow them to develop.”

In the first few years of its corporate evolution, Post Holdings cast a wide net for acquisition candidates, evaluating platforms and opportunities that represented new product categories and channels for the company, Mr. Vitale said.

Crystal Farms products, Post
In Post’s Michael Foods Group segment, operating profit was $40.6 million.

“As our portfolio has grown and matured and has had internal success, what we are doing is narrowing our focus to where we have the opportunity to really drive competitive advantages within our portfolio,” he said. “So it has made the M.&A. pipeline more narrow, but deeper.

“Now I don’t want to leave you with the impression that we would not add a platform opportunity; if it came along and made sense, we would do so. But the more near-in, attractive opportunities are things that have some nexus to our portfolio.”

Post Holdings in the year ended Sept. 30 posted a net loss of $3.3 million, which compared with a net loss of $115.3 million in the prior fiscal year. Adjusted EBITDA was $933.9 million, up 42% over the prior year. Net sales increased to $5,026.8 million, up 8.1% from $4,648.2 million.

Post cereals
Operating profit in Post's Consumer Brands business, which includes ready-to-eat cereal, totaled $77.6 million in the fourth quarter.

In the fourth quarter, Post had a net loss of $37 million, which compared with a net loss of $72.5 million in the comparable period. Adjusted EBITDA for the quarter was $219.5 million, up 14% from the year-ago period. Net sales for the quarter were $1,260.8 million, down 3.7% from $1,309.8 million.

Operating profit in the company’s Post Consumer Brands business, which includes ready-to-eat cereal, totaled $77.6 million in the fourth quarter, up from $65.5 million a year ago, and sales were $442 million, which were relatively flat compared to the prior year fourth quarter, with volumes up 0.7%.

“I would characterize our outlook on the cereal category as cautiously optimistic,” Mr. Vitale said. “The category declined this quarter 1.6% in dollars and 1.2% in pounds. Fewer items on shelf, lower quality promotional activity, and less depth and promoted prices contribute to lower incremental volumes for the category…

Willamette eggs, Post
Post acquired Willamette Egg Farms in Sept. 2015.

“In contrast, Post’s consumption strengthened in this quarter. Our consumption dollars increased 2.3%, and pounds increased 1.9%. We saw growth in both base and incremental sales. For the quarter, our dollar and pound share increased to 18.8% and 21.4%, respectively.”

In Post’s Michael Foods Group segment, which includes the company’s egg, potato, cheese and pasta businesses, operating profit was $40.6 million, down from $57.9 million in the year-ago quarter, and sales declined nearly 12% to $522.6 million, which included sales from the acquisition of Willamette Egg Farms. On a comparable basis, net sales fell 16%, with egg sales down nearly 21% as a result of reduced pricing in the aftermath of last year’s avian influenza outbreak, while egg volumes increased more than 8%.

“Volumes continue to improve toward pre-A.I. levels, albeit at a slower pace than expected,” Mr. Vitale said. “Despite near-term challenges, as we emerge from the impact of A.I., we continue to be highly optimistic about our egg business model and competitive positioning. Once fully through the final stages of repopulation and volume recovery, we expect the resumption of a less volatile, modestly growing business.”

Post protein brands
Segment profit for Posts's Active Nutrition business was $2.7 million.

Segment profit for the Active Nutrition business, which includes protein shakes, bars, powders and supplements, was $2.7 million, which compared with a loss of $10.9 million in the prior-year quarter, while sales increased 17% to $159 million.

“The high growth rate of the Premier Protein shake business continued in the fourth quarter, with sales growing more than 30%,” Mr. Vitale said. “Premier continues to grow velocities and distribution. PowerBar is stabilizing; we plan to continue investing in the brand to drive growth.”

Private Brands segment profit was $10.9 million for the fourth quarter, down from $13.7 million, and sales declined 2.2% to $137.2 million. Peanut and other nut butter and dried fruit and nuts sales declined 5.1%, which was partially offset by granola and cereal sales increasing 9.1% in the quarter.

Post private label products
Within Post Private Brands, granola performed well, but nut butters have declined.

“Within Private Brands, our granola business continues to perform well,” Mr. Vitale said. “Our capacity expansion is on track to come on-line in the back half of F.Y. ’17, and we expect this to drive margin leverage. We also just recently brought on new capacity in our nut butter business.” 

Looking ahead, the company expects adjusted EBITDA for fiscal year 2017 to range between $910 million and $950 million, reflecting a significant decline in Michael Foods Group segment adjusted EBITDA offset by phasing in of incremental cost reductions with the Post Consumer Brands segment, Active Nutrition growth and cycling approximately $50 million related to incremental investments in brand building and incentive compensation.

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