St. Louis / MO. (pfh) Post Holdings Inc. a consumer packaged goods holding company, today reported results for the fourth quarter and fiscal year ended September 30, 2017. Highlights:
- Fourth Quarter net sales of USD 1.45 billion; operating profit of USD 116.1 million; net earnings of USD 14.2 million and Adjusted Ebitda of USD 286.4 million
- Fiscal Year net sales of USD 5.23 billion; operating profit of USD 520.3 million; net earnings of USD 48.3 million and Adjusted Ebitda of USD 989.1 million
- Fiscal Year 2018 Adjusted Ebitda (non-GAAP) guidance range of USD 1.14 to USD 1.18 billion, exclusive of Bob Evans
Fourth Quarter Consolidated Operating Results
Net sales were USD 1,448.5 million, an increase of 14.9 percent, or USD 187.7 million, compared to the prior year. Pro forma net sales (as defined later in this release under «Pro Forma Information») increased 1.4 percent, or USD 20.7 million, when compared to the same period in fiscal year 2016. Gross profit was USD 437.1 million or 30.2 percent of net sales, an increase of USD 59.7 million compared to the prior year gross profit of USD 377.4 million or 29.9 percent of net sales. Gross profit for the fourth quarter of 2017 was negatively impacted by an inventory adjustment of USD 18.2 million resulting from purchase accounting.
Selling, general and administrative (SG+A) expenses were USD 251.8 million or 17.4 percent of net sales, an increase of USD 20.7 million compared to the prior year SG+A of USD 231.1 million or 18.3 percent of net sales. SG+A expenses for the fourth quarter of 2017 included USD 23.0 million of transaction costs, which primarily related to success fees paid in conjunction with the close of the acquisition of Weetabix Limited («Weetabix») in July 2017 and were treated as an adjustment for non-GAAP measures. SG+A expenses for the fourth quarter of 2016 included a provision for USD 24.0 million in legal settlements.
Operating profit was USD 116.1 million, an increase of 7.2 percent, or USD 7.8 million, compared to the prior year, and was negatively impacted by goodwill impairment of USD 26.5 million, which is discussed later in this release. Net earnings were USD 14.2 million, an increase of 138.4 percent, or USD 51.2 million, compared to a net loss of USD 37.0 million in the prior year. Net earnings available to common shareholders were USD 10.9 million, or USD 0.16 per diluted common share. Net earnings and net earnings available to common shareholders included a loss of USD 8.5 million primarily related to non-cash mark-to-market adjustments on interest rate and cross-currency swaps, which is discussed later in this release. Adjusted net earnings were USD 67.9 million, or USD 0.88 per adjusted diluted common share.
Adjusted Ebitda was USD 286.4 million, an increase of 30.5 percent, or USD 66.9 million, compared to the prior year.
Fiscal Year 2017 Consolidated Operating Results
Net sales were USD 5,225.8 million, an increase of 4.0 percent, or USD 199.0 million, compared to the prior year. Gross profit was USD 1,574.1 million or 30.1 percent of net sales, an increase of USD 26.7 million compared to the prior year gross profit of USD 1,547.4 million or 30.8 percent of net sales.
SG+A expenses were USD 867.4 million or 16.6 percent of net sales, an increase of USD 27.7 million compared to the prior year SG+A of USD 839.7 million or 16.7 percent of net sales. SG+A expenses for fiscal year 2017 and 2016 included a provision for USD 73.6 million and USD 34.0 million, respectively, in legal settlements. SG+A expenses for fiscal year 2017 included USD 30.0 million of net foreign currency gains related to pounds sterling (GBP) held to fund the purchase price of Weetabix and USD 29.1 million of transaction costs primarily related to success fees paid in conjunction with the close of the acquisition of Weetabix, both of which were treated as adjustments for non-GAAP measures.
Operating profit was USD 520.3 million, a decrease of 4.7 percent, or USD 25.4 million, compared to the prior year, and was negatively impacted by goodwill impairment of USD 26.5 million, which is discussed later in this release. Net earnings were USD 48.3 million, an increase of 1,563.6 percent, or USD 51.6 million, compared to a net loss of USD 3.3 million in the prior year. Net earnings available to common shareholders were USD 34.8 million, or USD 0.50 per diluted common share. Net earnings and net earnings available to common shareholders include a USD 222.9 million loss related to early extinguishment of debt and a USD 91.8 million net gain primarily related to non-cash mark-to-market adjustments on interest rate and cross-currency swaps, both of which are discussed later in this release. Adjusted net earnings were USD 211.0 million, or USD 2.67 per adjusted diluted common share.
Adjusted Ebitda was USD 989.1 million, an increase of 5.9 percent, or USD 55.2 million, compared to the prior year.
Segment Results
Effective as of the quarter ended September 30, 2017, Post has changed its reportable segments. See the historical segment information tables presented later in this release for the presentation aligned with this segment reporting structure.
Post Consumer Brands
Includes the North American ready-to-eat («RTE») cereal and granola businesses, inclusive of the recently acquired Weetabix North American RTE cereal business.
Net sales were USD 492.2 million for the fourth quarter, an increase of 4.0 percent, or USD 19.1 million, compared to the reported prior year fourth quarter. Pro forma net sales (as defined later in this release under «Pro Forma Information») declined 2.9 percent, or USD 14.7 million, over the same period in fiscal year 2016, with pro forma volumes (as defined later in this release under «Pro Forma Information») declining 2.7 percent. Pro forma net sales were negatively impacted by timing of promotional activity during the quarter, which were partially offset by net sales from new licensed products and an increase in net sales for Malt-O-Meal bag cereal.
Segment profit was USD 86.5 million and USD 81.1 million for fourth quarter 2017 and 2016, respectively. Segment profit for the fourth quarter of 2017 was negatively impacted by an inventory adjustment of USD 3.0 million resulting from purchase accounting. Segment Adjusted Ebitda was USD 124.9 million and USD 111.9 million for fourth quarter 2017 and 2016, respectively.
For fiscal year 2017, net sales were USD 1,851.5 million, an increase of 0.7 percent, or USD 13.0 million, compared to the reported prior year. Segment profit was USD 359.0 million, compared to USD 302.9 million in the prior year. Fiscal year 2017 and 2016 segment profit was negatively impacted by integration expenses of USD 8.8 million and USD 19.3 million, respectively. Segment Adjusted Ebitda was USD 488.6 million, compared to USD 433.7 million in the prior year.
Michael Foods Group
Includes the egg, potato, cheese and pasta businesses.
Net sales were USD 537.2 million for the fourth quarter, an increase of 2.8 percent, or USD 14.6 million, over the reported prior year fourth quarter. Pro forma net sales (as defined later in this release under «Pro Forma Information») declined 2.1 percent, or USD 11.6 million, over the same period in fiscal year 2016. The pro forma net sales decline was driven by a 20.4 percent decline in cheese related to branded cheese distribution losses and the exit of certain private label business. Pro forma egg sales (as defined later in this release under «Pro Forma Information») were relatively flat. Pro forma egg volumes (as defined later in this release under «Pro Forma Information») increased 3.5 percent. Net sales and volume information for potato, cheese and pasta products is disclosed in a table presented later in this release.
Segment profit was USD 61.0 million and USD 40.6 million for fourth quarter 2017 and 2016, respectively. Segment Adjusted Ebitda was USD 99.0 million and USD 97.5 million for fourth quarter 2017 and 2016, respectively. Segment profit for the fourth quarter of 2016 was negatively impacted by a provision for USD 18.5 million in legal settlements related to egg antitrust class action claims.
For fiscal year 2017, net sales were USD 2,116.2 million, a decline of 3.1 percent, or USD 68.5 million, over the reported prior year. Segment profit was USD 133.1 million, compared to USD 276.6 million in the prior year. Segment profit for fiscal year 2017 and 2016 was negatively impacted by a provision for USD 74.5 million and USD 28.5 million, respectively, in legal settlements related to egg antitrust class action claims. Segment Adjusted Ebitda was USD 353.2 million, compared to USD 446.6 million in the prior year.
Active Nutrition
Includes protein shakes, bars and powders and nutritional supplements.
Net sales were USD 193.3 million for the fourth quarter, an increase of 21.6 percent, or USD 34.3 million, over the prior year fourth quarter. Net sales growth was primarily driven by strong growth for shake products which was partially offset by declines of powder and bar products. Segment profit was USD 22.3 million and USD 2.7 million for fourth quarter 2017 and 2016, respectively. Segment profit for the fourth quarter of 2016 was negatively impacted by a provision for USD 5.5 million in a potential legal settlement. Segment Adjusted Ebitda was USD 28.8 million and USD 14.4 million for fourth quarter 2017 and 2016, respectively.
For fiscal year 2017, net sales were USD 713.2 million, an increase of 24.1 percent, or USD 138.5 million, over the prior year. Segment profit was USD 96.4 million, compared to USD 44.7 million in the prior year. Segment profit for fiscal year 2016 was negatively impacted by a provision for USD 5.5 million in a potential legal settlement. Segment Adjusted Ebitda was USD 121.7 million, compared to USD 75.2 million in the prior year.
Private Brands
Includes peanut and other nut butters and dried fruit and nuts.
Net sales were USD 113.4 million for the fourth quarter, an increase of 6.9 percent, or USD 7.3 million, compared to the prior year fourth quarter, with volumes increasing 2.6 percent. Volume growth was driven by growth in traditional peanut butter and tree nut butter and was partially offset by declines for certain lower margin dried fruit and nut products. Segment profit was USD 10.9 million and USD 7.4 million for fourth quarter 2017 and 2016, respectively. Segment Adjusted Ebitda was USD 15.9 million and USD 12.3 million for fourth quarter 2017 and 2016, respectively.
For fiscal year 2017, net sales were USD 432.5 million, an increase of 0.8 percent, or USD 3.4 million, over the prior year. Segment profit was USD 31.5 million, compared to USD 28.0 million in the prior year. Segment Adjusted Ebitda was USD 51.6 million, compared to USD 46.9 million in the prior year.
Weetabix
Includes the international (primarily United Kingdom) RTE cereal and muesli business.
Net sales were USD 112.4 million for the fourth quarter and fiscal year 2017. Fourth quarter pro forma net sales (as defined later in this release under «Pro Forma Information») increased 5.0 percent, or USD 5.4 million, over the same period in fiscal year 2016. Pro forma net sales benefitted primarily from increased volumes for core Weetabix products. For the fourth quarter and fiscal year 2017, segment profit was USD 14.5 million and segment Adjusted Ebitda was USD 37.2 million. Segment profit was negatively impacted by an inventory adjustment of USD 15.2 million resulting from purchase accounting.
Impairment of Goodwill
Non-cash goodwill impairment charges of USD 26.5 million were recorded in the fourth quarter of 2017 within the Active Nutrition segment. The goodwill impairment charge resulted from a reassessment of long-term expectations for Dymatize.
Interest, Loss on Extinguishment of Debt, Other Expense (Income) and Income Tax
Interest expense, net was USD 85.2 million for the fourth quarter compared to USD 74.2 million for the prior year quarter. For fiscal year 2017, interest expense, net was USD 314.8 million, compared to USD 306.5 million for fiscal year 2016.
Loss on extinguishment of debt, net of USD 222.9 million was recorded in fiscal year 2017 and USD 86.4 million was recorded in the fourth quarter of 2016 and fiscal year 2016. The fiscal year 2017 loss resulted from payments made in connection with Post’s tender offer and redemption of its 7.75 percent senior notes due 2024, Post’s tender offer for its 8.00 percent senior notes due 2025, and Post’s redemption of its 6.75 percent senior notes due 2021 and 7.375 percent senior notes due 2022. The fourth quarter of 2016 and fiscal year 2016 loss resulted from payments made in connection with Post’s tender offer for its 7.375 percent senior notes due 2022 and repayment of Post’s term loan in August 2016.
Other expense (income), net relates to non-cash mark-to-market adjustments and cash settlements on interest rate and cross-currency swaps. Other expense, net was USD 8.5 million for the fourth quarter of 2017, compared to USD 13.5 million for the fourth quarter of 2016. For fiscal year 2017, other income, net was USD 91.8 million, compared to an expense of USD 182.9 million for fiscal year 2016.
Income tax expense was USD 8.2 million, or an effective income tax rate of 36.6 percent, in the fourth quarter of 2017, compared to a benefit of USD 28.8 million and an effective income tax rate of 43.8 percent in the fourth quarter of 2016. For fiscal year 2017, income tax expense was USD 26.1 million, or an effective income tax rate of 35.1 percent, compared to a benefit of USD 26.8 million and an effective income tax rate of 89.0 percent for fiscal year 2016.
Share Repurchases
During fiscal year 2017, Post repurchased 4.0 million shares for USD 317.7 million at an average price of USD 79.51 per share. At the end of the fourth quarter of 2017, Post had USD 232.3 million remaining under its share repurchase authorization.
Acquisition
On September 19, 2017, Post announced it has agreed to acquire Bob Evans Farms («Bob Evans») for USD 77.00 per share. Bob Evans is 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. The transaction is expected to be completed in the first calendar quarter of 2018, Post’s second quarter of fiscal year 2018, subject to customary closing conditions including the expiration of waiting periods under U.S. antitrust laws and approval of Bob Evans’s stockholders.
Outlook
Post management expects fiscal year 2018 Adjusted Ebitda to range between USD 1.14- USD 1.18 billion, exclusive of the pending acquisition of Bob Evans, with modest sequential quarterly growth throughout fiscal year 2018.
In fiscal year 2018, Post management expects to incur integration costs (which are an adjustment to non-GAAP measures) for the integration of Weetabix and Bob Evans of approximately USD 25 million comprised of severance, retention and third party consulting expenses.
Post management expects fiscal year 2018 capital expenditures, exclusive of Bob Evans, to range between USD 220- USD 230 million. This includes approximately USD 50 million related to the previously announced cage-free housing conversion at the Bloomfield, Nebraska facility and between USD 30- USD 40 million for growth initiatives and productivity.
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, net foreign currency gains for purchase price of acquisition, 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. For additional information regarding Post’s non-GAAP measures, see the related explanations presented under «Use of Non-GAAP Measures.»
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. The reconciliation of each of these non-GAAP measures to the most directly comparable GAAP measure is provided later in this release under «Explanation and Reconciliation of Non-GAAP Measures.»
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.
