NEW YORK — Since its 2012 spinoff from Ralcorp Holdings, Inc., Post Holdings has more than quintupled annual sales to $5.5 billion from $960 million. The company’s successful diversification and earnings diversity have prompted Moody’s Investors Service to upgrade Post’s corporate rating to B1 from B2.
Post’s credit profile has been improving for several years, Moody’s said, attributing the improvement principally to acquisitions and, to a lesser degree, growth in core earnings.
“These improvements include increased scale, broader product diversity and a more balanced financial policy,” Moody’s said.
The diversity will help Post navigate periods of high financial leverage, which are “inherent in its growth through acquisitions strategy,” Moody’s said.
Moody’s acknowledged that the diversity of the Post business diminished with the sale of the company’s private brands business to Thomas H. Lee Partners, L.P. (T.H.L.) in a transaction forming 8th Avenue Food & Provisions. The business remains well diversified, though, the ratings agency said.
“The company’s highest category concentration is in ready-to-eat cereal, which is a highly-profitable, but gradually declining category,” Moody’s said. “The divestiture caused the proportion of sales from R.-T.-E. cereal sales to rise from 36% to 40%. Notwithstanding the weak growth prospects for the cereal category, Post’s cereal brands should continue to contribute high margins and strong cash flow for the foreseeable future, which we expect will be used to support future acquisitions.”
Affected by the ratings upgrade are six loans and notes with maturities ranging from 2024 to 2028 and aggregating $6.4 billion. A $1.3 billion note due in May 2024 was upgraded to Ba1 from Ba2. The remaining debt was upgraded to B2 from B1. Additionally, an $800 million senior revolving credit facility expiring in March 2022 was upgraded to Baa1 from Baa2. The ratings outlook is stable.
The B family of ratings is considered speculative and subject to high credit risk. Baa obligations are characterized as medium-grade and subject to moderate credit risk.
Expanding on the ratings change, Moody’s said the upgrade is supported by Post’s strong cash flow and the profitability of the cereal business.
“The company's refrigerated food segment, which represents 45% of sales, is also an important contributor to earnings,” Moody’s said. “However, the large commercial egg business within this segment generates much lower margins and, periodically, high earnings volatility.”
Other pluses cited by Moody’s include the company’s moderate geographic sales diversity and its “solid brand equities in high-margin categories.”