St. Louis / MO. (pfh) Post Holdings Inc. a consumer packaged goods holding company, reported results for the first fiscal quarter ended December 31, 2017. Highlights:
- Net sales of USD 1.4 billion; operating profit of USD 164.5 million; net earnings of USD 294.9 million and Adjusted Ebitda of USD 281.6 million
- Completed the acquisition of Bob Evans Farms on January 12, 2018; raised annual run-rate cost synergies to USD 35- USD 40 million by fiscal year 2020
- Updated fiscal year 2018 Adjusted Ebitda (non-GAAP) guidance range of USD 1.22- USD 1.25 billion
- US tax reform estimated to reduce fiscal year 2018 cash taxes by approximately USD 30- USD 35 million
First Quarter Consolidated Operating Results
Net sales were USD 1’433.1 million, an increase of 14.7 percent, or USD 183.3 million, compared to the prior year. Pro forma net sales (as defined later in this release under «Pro Forma Information») increased 3.9 percent, or USD 53.7 million, when compared to the same period in fiscal year 2017. Gross profit was USD 451.7 million or 31.5 percent of net sales, an increase of USD 72.5 million compared to the prior year gross profit of USD 379.2 million or 30.3 percent of net sales.
Selling, general and administrative (SG+A) expenses were USD 245.7 million or 17.1 percent of net sales, a decrease of USD 18.4 million compared to the prior year SG+A expenses of USD 264.1 million or 21.1 percent of net sales. SG+A expenses included a provision for USD 9.0 million and USD 74.5 million in legal settlements for first quarter 2018 and 2017, respectively. Excluding the impact of the legal settlement provisions, current year SG+A expenses increased USD 47.1 million driven by the inclusion of Weetabix and increased transaction and integration expenses.
Operating profit was USD 164.5 million, an increase of 115.9 percent, or USD 88.3 million, compared to the prior year. Net earnings were USD 294.9 million, an increase of 189.7 percent, or USD 193.1 million, compared to net earnings of USD 101.8 million in the prior year. Net earnings available to common shareholders were USD 291.5 million, or USD 3.82 per diluted common share. Net earnings and net earnings available to common shareholders included a USD 263.6 million one-time income tax net benefit and USD 37.3 million loss related to early extinguishment of debt, both of which are discussed later in this release. Adjusted net earnings were USD 67.9 million, or USD 0.88 per diluted common share.
Adjusted Ebitda was USD 281.6 million, an increase of 22.4 percent, or USD 51.5 million, compared to the prior year.
Post Consumer Brands
North American ready-to-eat (RTE) cereal and granola.
Net sales were USD 456.0 million for the first quarter, an increase of 1.9 percent, or USD 8.6 million, compared to the reported prior year first quarter. Pro forma net sales declined 4.2 percent, or USD 20.1 million, over the same period in fiscal year 2017, with pro forma volumes declining 2.4 percent. Volume growth from licensed products, Malt-O-Meal bag cereal and government bid business and private label was offset by declines of branded products. Pro forma net sales were negatively impacted by this unfavorable volume mix and timing of promotional activity.
Segment profit was USD 72.9 million and USD 82.9 million for first quarter 2018 and 2017, respectively. Segment Adjusted Ebitda was USD 109.1 million and USD 111.8 million for first quarter 2018 and 2017, respectively.
Weetabix
International (primarily United Kingdom) RTE cereal and muesli.
Net sales were USD 99.7 million for the first quarter. Pro forma net sales decreased 1.2 percent, or USD 1.2 million, over the same period in fiscal year 2017. Pro forma net sales benefitted from a favorable foreign exchange translation rate compared to the prior year which was offset by an unfavorable product mix. Segment profit was USD 16.8 million and segment Adjusted Ebitda was USD 25.6 million.
Michael Foods Group
Egg, potato, cheese and pasta products.
Net sales were USD 577.1 million for the first quarter, an increase of 6.9 percent, or USD 37.3 million, over the prior year first quarter. Egg sales increased 9.3 percent driven by a 3.8 percent volume increase and increased market-based pricing in the ingredient and retail shell egg channels. Net sales and volume information for potato, cheese and pasta products is disclosed in a table presented later in this release.
Segment profit (loss) was USD 74.9 million and ( USD 17.0) million for first quarter 2018 and 2017, respectively. Segment profit for the first quarter of 2017 was negatively impacted by a provision for USD 74.5 million in legal settlements related to egg antitrust class action claims. Segment Adjusted Ebitda was USD 113.4 million and USD 92.3 million for first quarter 2018 and 2017, respectively.
Active Nutrition
Protein shakes, bars and powders and nutritional supplements.
Net sales were USD 186.0 million for the first quarter, an increase of 20.9 percent, or USD 32.1 million, over the prior year first quarter. Net sales growth was primarily driven by strong growth for shake and powder products which were partially offset by declines of bar products. Segment profit was USD 19.8 million and USD 24.9 million for first quarter 2018 and 2017, respectively. Segment profit for the first quarter of 2018 was negatively impacted by a provision for USD 9.0 million for a legal settlement. Segment Adjusted Ebitda was USD 35.3 million and USD 31.1 million for first quarter 2018 and 2017, respectively.
Private Brands
Peanut and other nut butters and dried fruit and nut products.
Net sales were USD 114.3 million for the first quarter, an increase of 5.2 percent, or USD 5.6 million, compared to the prior year first quarter, with volumes declining 1.6 percent. Volume growth in tree nut butter and organic peanut butter was offset by declines in certain lower margin dried fruit and nut products. Segment profit was USD 8.4 million and USD 5.7 million for first quarter 2018 and 2017, respectively. Segment Adjusted Ebitda was USD 13.5 million and USD 10.6 million for first quarter 2018 and 2017, respectively.
Interest, Loss on Extinguishment of Debt, Other Income and Income Tax
Interest expense, net was USD 90.5 million for the first quarter compared to USD 72.9 million for the prior year first quarter. The increase primarily related to an increase in the outstanding amount of debt principal, partially offset by a decrease in the weighted-average interest rate.
Loss on extinguishment of debt of USD 37.3 million was recorded in the first quarter of 2018 in connection with Post’s redemption of its 6.00 percent senior notes due 2022.
Other income, net relates to non-cash mark-to-market adjustments and cash settlements on interest rate swaps. Other income, net was USD 2.7 million for the first quarter of 2018, compared to USD 144.5 million for the first quarter of 2017.
Income tax benefit was USD 255.8 million in the first quarter of 2018, compared to an expense of USD 46.0 million and an effective income tax rate of 31.1 percent in the first quarter of 2017. In the first quarter of 2018, as a result of the recently enacted U.S. Tax Cuts and Jobs Act, Post recorded a USD 263.6 million one-time income tax net benefit which included (i) a USD 270.7 million benefit related to an estimate of the remeasurement of Post’s existing deferred tax assets and liabilities considering both the expected fiscal year 2018 blended U.S. federal corporate tax rate of approximately 24.5 percent and a 21 percent rate for subsequent fiscal years and (ii) a USD 7.1 million expense related to an estimate of the transition tax on unrepatriated foreign earnings.
Share Repurchases
During the first quarter of fiscal year 2018, Post repurchased 0.7 million shares for USD 56.0 million at an average price of USD 78.01 per share. At the end of the first quarter of 2018, Post had USD 176.3 million remaining under its share repurchase authorization.
Recent Announcements
On January 10, 2018, Post announced it gave notice for the redemption of all outstanding shares of its 3.75 percent Series B Cumulative Perpetual Convertible Preferred Stock with a redemption date of February 15, 2018.
On January 11, 2018, Post announced it plans to combine its private brands businesses, which produce nut butter, dried fruit and nut, pasta and granola products, and explore a range of structural alternatives for these businesses, including an initial public offering, a placement of private equity, a sale of the businesses or a strategic combination.
On January 12, 2018, Post completed the acquisition of Bob Evans Farms, Inc., a leading producer and distributor of refrigerated potato, pasta and vegetable-based side dishes, pork sausage, and a variety of refrigerated and frozen convenience food items. Upon close of the acquisition, Post formed a refrigerated retail business unit and a foodservice business unit.
Outlook
Post management has updated its fiscal year 2018 Adjusted Ebitda range to be between USD 1.22- USD 1.25 billion, inclusive of Bob Evans.
Post management estimates U.S. income tax reform will reduce its fiscal year 2018 cash taxes by approximately USD 30- USD 35 million.
Post today announced it now expects to realize USD 35- USD 40 million in annual run-rate cost synergies related to the acquisition of Bob Evans by fiscal year 2020, an increase from Post’s initial expectation of USD 25 million.
In fiscal year 2018, Post management now expects to incur integration costs (which are an adjustment to non-GAAP measures) for the integration of Weetabix and Bob Evans of approximately USD 30 million comprised of severance, retention and third party consulting expenses, an increase from Post’s initial expectation of approximately USD 25 million.
Post management expects fiscal year 2018 capital expenditures, inclusive of Bob Evans, to range between USD 235- USD 245 million. This includes approximately USD 50 million related to the previously announced cage-free housing conversion at the Bloomfield, Nebraska facility.
The Company provides Adjusted Ebitda guidance only on a non-GAAP basis and does not provide a reconciliation of its forward-looking Adjusted Ebitda non-GAAP guidance measure to the most directly comparable GAAP measure due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, including adjustments that could be made for non-cash mark-to-market adjustments and cash settlements on interest rate swaps, provision for legal settlement, transaction and integration costs, restructuring and plant closure costs, assets held for sale, mark-to-market adjustments on commodity hedges and other charges reflected in the Company’s reconciliation of historical numbers, the amounts of which, based on historical experience, could be significant.
Use of Non-GAAP Measures
The Company uses certain non-GAAP measures in this release to supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP). These non-GAAP measures include total segment profit, Adjusted net earnings, Adjusted diluted earnings per common share, Adjusted Ebitda and segment Adjusted Ebitda.
Management uses certain of these non-GAAP measures, including Adjusted Ebitda and segment Adjusted Ebitda, as key metrics in the evaluation of underlying Company and segment performance, in making financial, operating and planning decisions, and, in part, in the determination of cash bonuses for its executive officers and employees. Management believes the use of these non-GAAP measures provides increased transparency and assists investors in understanding the underlying operating performance of the Company and its segments and in the analysis of ongoing operating trends. Non-GAAP measures are not prepared in accordance with GAAP, as they exclude certain items as described later in this release. These non-GAAP measures may not be comparable to similarly titled measures of other companies.
