ST. LOUIS – What has happened to the value consumer? A day after TreeHouse Foods, Inc., said its quarterly performance was negatively impacted by value consumers trading up from private label to branded products, Post Holdings, Inc., repeated the point and added the company’s value brands are being impacted as well.
“I almost thought about stealing the chart that — the slide that TreeHouse had about the discretionary blip and the impact on the value segment because I thought that was fairly illustrative of what we are seeing,” said Robert V. Vitale, president and chief executive officer of Post Holdings, Inc., during an Aug. 6 conference call to discuss third-quarter results. “I think there are some channel issues. I think there are some consumer issues, but they feel transitory. And I always hate to use the word feel, but that’s the best I’ve got right now.”
Mr. Vitale attributed weakness in the market for value products to recent increases in discretionary income from federal stimulus programs that have produced a “trade-up effect.” He added that the outlook for the cereal category is “somewhat clouded right now” by some unusual consumer behavior.
“If you look at the data going back to 2019, comparing it to 2021, I think at the category level, you can get perhaps some false conclusions because if you strip out value, which is mostly us, the branded portfolios have done very well, including ours,” he said. “We have grown substantially within our Post portfolio over that time frame and gained share …”
Mr. Vitale iterated he sees the current situation to be transitory and, “assuming that it is transitory, we feel very good about the long-term defensibility and slow profit growth and even slower volume growth of the category. But the one area we’re focused on is what is really happening (with) that value shopper?”
Post Consumer Brands business unit sales fell 11% during the quarter to $469 million.
Another challenge facing Post Holdings was in its Refrigerated Retail segment where labor and supply chain issues constrained capacity. Mr. Vitale said it was “our biggest challenge this quarter” and he expected it to continue into the fourth quarter.
“…Manufacturing constraints, resulting primarily from labor availability, have reduced internal capacity,” he said. “While we’ve expanded our use of external supply chain partners, they too face similar challenges with labor and come at a higher cost. The combined manufacturing network was not able to service the full customer demand in Q3 and will further pressure Q4 in the holiday season.”
As an example of the challenge, Mr. Vitale said Post Holdings has 22 precooked lines throughout its manufacturing footprint but is only able to staff 17. As a result, the company has had to allocate demand and absorb higher costs due to inefficiencies.
Refrigerated Retail sales fell 12% during the quarter to $221 million.
“In short, we are navigating a challenging environment reasonably well,” Mr. Vitale said. “The pandemic and the public policy reactions have stressed our supply chains and produced some really unusual results around consumer behaviors, labor availability, commodity volatility, and so forth.
“We believe many of these challenges are transitory and the most likely planning scenario for 2022 is a continuation of elevated price levels and a flattening of the rate of inflation. Regardless of the transitory or permanent nature of some of these items, we are aggressively attacking productivity opportunities.”
Two bright spots for Post Holdings during the quarter were its Foodservice business unit, which generated sales of $435 million, an 80% increase over the same period of the previous year, and the UK cereal company Weetabix, which experienced a 10% sales gain to $123 million.
The Foodservice gain was attributed to recovering away-from-home markets, and Weetabix results were aided by a favorable foreign currency exchange rate.
Post Holdings sustained a loss of $54 million in the third quarter ended June 30. The loss compared negatively to the same period of fiscal 2020 when the company earned $36 million, equal to 53¢ per share on the common stock.
Quarterly sales rose 19% to $1.59 billion.
Management attributed the loss to a variety of causes, including expenses on swaps, a United Kingdom tax reform expense, equity method losses, and net earnings attributable to noncontrolling interest.
Post Holdings lowered the top end of its earnings guidance from $620 million to $610 million and now expects earnings to fall in a range between $590 million and $610 million for fiscal 2021.