Ralcorp profit surges 82% in second quarter

by Eric Schroeder
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ST. LOUIS — Ralcorp Holdings, Inc. continued to feel the benefits of higher pricing and the effects of the August 2008 acquisition of the Post cereals business, as earnings soared 82%. Net income in the second quarter ended March 31 totaled $70,200,000, equal to $1.25 per share on the common stock, up from $38,500,000, or $1.51 per share, in the same period a year ago. Earnings per share were adversely affected due to 30.5 million shares issued in the Post Foods acquisition, and as a result of one-time items related to Ralcorp’s investment in ski resort owner Vail Resorts, Inc.

Net sales for the quarter were $946,500,000, up sharply from $641,600,000 last year. Ralcorp said $279,400,000, or approximately 92% of the sales growth, came from Post Foods (included in the Cereals segment). Excluding Post Foods, sales rose 4%, as most of Ralcorp’s base businesses experienced volume declines.

For the first quarter, Cereals had profit contribution of $78,100,000 on sales of $473,800,000, up from $19,500,000 and $181,000,000, respectively, in the same period a year earlier. Excluding sales from the Post Foods business, net sales increased 7%.

"Compared to last year’s second-quarter data (pre-acquisition), total branded cereal volume was flat as small increases in the Honey Bunches of Oats brand and several sweet brands was offset by declines in Raisin Bran, Shredded Wheat and Grape Nuts brands, but net sales dollars for Post products were up more than 3% due to pricing actions in calendar year 2008," Ralcorp said in a May 7 filing with the Securities and Exchange Commission. "The base business net sales growth in the Cereals segment (i.e., excluding Post Foods) is attributable to both higher volumes and higher prices. We continue to increase distribution with most of our largest retail cereal customers and have also benefited from a favorable sales mix, excluding co-manufacturing."

Ralcorp said a 14% decline in nutritional bars sales volumes reflected a wide recall of peanut and peanut-related products in the quarter.

"A large portion of the nutritional bars manufactured by our Bloomfield operation (for both contract and private label customers) incorporate peanuts or peanut butter/paste and were not on shelf for a significant period of time in the company’s second fiscal quarter," the company said. "While it is difficult to quantify the full financial impact of not producing product or having product available for sale, we estimate lost volume negatively impacted sales in the quarter in the range of $5 million to $6 million."

Within the Snacks segment, profit contribution totaled $15,000,000, up from $7,200,000. Sales rose 3% to $169,700,000 behind selling price improvements and product mix, partially offset by the effects of volume declines in all categories. According to Ralcorp, crackers and cookies volume declined 8% and 6%, respectively, during the second quarter. Nuts sales volume fell 23%.

Profit contribution in the Frozen Bakery Products segment was $15,400,000, up narrowly from $15,100,000 in the same period a year ago. Ralcorp said the small uptick reflected volume declines, higher raw material costs, an unfavorable product mix and $1.8 million in costs related to the recall of peanut butter products. Total net sales of the Frozen Bakery Products segment were $176,800,000, up from $176,500,000.

Profit contribution in the Sauces and Spreads segment was $9,300,000, up sharply from $3,200,000 in the same period a year ago. Sales climbed 5% to $126,200,000.

For the six months ended March 31, net income was $135,700,000, or $2.41 per share, up from $80,900,000, or $3.16 per share. Net sales totaled $1,914,700,000, up 48% from $1,292,300,000.

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