Post Holdings: Reports Q4 and FY-2019 Results

St. Louis / MO. (pfh) Post Holdings Inc., a consumer packaged goods holding company, reported results for the fourth quarter and fiscal year ended September 30, 2019.

Highlights

  • Fourth quarter net sales of USD 1.4 billion; operating profit of USD 102.6 million; net loss of USD 61.1 million and Adjusted Ebitda of USD 303.6 million
  • Fiscal year net sales of USD 5.7 billion; operating profit of USD 781.0 million; net earnings of USD 124.7 million and Adjusted Ebitda of USD 1,210.4 million
  • Completed the initial public offering of a minority interest in BellRing Brands (Post’s historical Active Nutrition business) on October 21, 2019
  • Fiscal year 2020 Adjusted Ebitda (non-GAAP) expected to range between USD 1.22-USD 1.27 billion including the results of BellRing Brands

Basis of Presentation

Financial results reflect the separate capitalization of 8th Avenue Food + Provisions Inc., the holding company for Post’s historical Private Brands business, with Post’s retained interest in 8th Avenue’s common equity accounted for using equity method accounting, effective October 1, 2018. Additionally, financial results include results from Bob Evans Farms Inc. as of its acquisition date of January 12, 2018.

Fourth Quarter Consolidated Operating Results

Net sales were USD 1,442.8 million, a decrease of 11.5 percent, or USD 187.1 million, compared to the prior year period. Pro forma net sales (as defined later in this release under «Pro Forma Information») increased 2.4 percent, or USD 33.7 million, when compared to the same period in fiscal year 2018. Gross profit was USD 452.2 million, or 31.3 percent of net sales, a decrease of USD 22.7 million compared to the prior year period gross profit of USD 474.9 million, or 29.1 percent of net sales.

Selling, general and administrative (SG+A) expenses were USD 245.5 million, or 17.0 percent of net sales, an increase of USD 5.6 million compared to the prior year period SG+A expenses of USD 239.9 million, or 14.7 percent of net sales.

Operating profit was USD 102.6 million, an increase of 52.0 percent, or USD 35.1 million, compared to the prior year period operating profit of USD 67.5 million, which included segment profit of USD 17.0 million attributable to Post’s historical Private Brands business. Operating profit included non-cash goodwill and other intangible asset impairments of USD 63.3 million and USD 124.9 million in the fourth quarter of 2019 and 2018, respectively, which are discussed later in this release and were treated as adjustments for non-GAAP measures.

Net loss was USD 61.1 million compared to the prior year period net loss of USD 15.6 million. Net loss included expense on swaps, net of USD 105.7 million in the fourth quarter of 2019 and income on swaps, net of USD 25.2 million in the fourth quarter of 2018, both of which are discussed later in this release and were treated as adjustments for non-GAAP measures. Net loss attributable to common shareholders was USD 61.1 million, or USD 0.84 per diluted common share, compared to the prior year period net loss attributable to common shareholders of USD 17.6 million, or USD 0.26 per diluted common share. Adjusted net earnings were USD 103.8 million, or USD 1.39 per adjusted diluted common share, compared to the prior year period Adjusted net earnings of USD 90.8 million, or USD 1.21 per adjusted diluted common share.

Adjusted Ebitda was USD 303.6 million compared to the prior year period Adjusted Ebitda of USD 320.6 million, which included USD 30.5 million attributable to Post’s historical Private Brands business.

Fiscal Year 2019 Consolidated Operating Results

Net sales were USD 5,681.1 million, a decrease of 9.2 percent, or USD 576.1 million, compared to the prior year. Gross profit was USD 1,792.1 million, or 31.5 percent of net sales, a decrease of USD 61.9 million compared to the prior year gross profit of USD 1,854.0 million, or 29.6 percent of net sales.

SG+A expenses were USD 911.6 million, or 16.0 percent of net sales, a decrease of USD 64.8 million compared to the prior year SG+A expenses of USD 976.4 million, or 15.6 percent of net sales. SG+A expenses for fiscal year 2019 included USD 25.5 million of transaction costs, which primarily related to the separate capitalization of 8th Avenue and the initial public offering (the «IPO») of BellRing Brands Inc., and USD 13.5 million of integration expenses, both of which were treated as adjustments for non-GAAP measures. SG+A expenses for fiscal year 2018 included USD 35.6 million of transaction expenses, which primarily related to success fees paid in conjunction with the close of the acquisition of Bob Evans, USD 28.8 million of integration expenses and a provision for USD 17.3 million in legal settlements, all of which were treated as adjustments for non-GAAP measures.

Operating profit was USD 781.0 million, an increase of 36.2 percent, or USD 207.5 million, compared to the prior year operating profit of USD 573.5 million, which included segment profit of USD 60.8 million attributable to the historical Private Brands business. Operating profit for fiscal year 2019 included a USD 126.6 million gain related to the separate capitalization of 8th Avenue, which was treated as an adjustment for non-GAAP measures. Operating profit included non-cash goodwill and other intangible asset impairments of USD 63.3 million and USD 124.9 million for fiscal year 2019 and 2018, respectively, which are discussed later in this release and were treated as adjustments for non-GAAP measures.

Net earnings were USD 124.7 million, a decrease of 73.3 percent, or USD 342.6 million, compared to the prior year net earnings of USD 467.3 million. Net earnings included expense on swaps, net of USD 306.6 million in fiscal year 2019 and income on swaps, net of USD 95.6 million in fiscal year 2018, both of which are discussed later in this release and were treated as adjustments for non-GAAP measures. Net earnings for fiscal year 2018 included a USD 270.9 million one-time income tax net benefit and a USD 31.1 million loss related to early extinguishment of debt, both of which are discussed later in this release and were treated as adjustments for non-GAAP measures. Net earnings available to common shareholders were USD 121.7 million, or USD 1.66 per diluted common share, compared to the prior year net earnings available to common shareholders of USD 457.3 million, or USD 6.16 per diluted common share. Adjusted net earnings were USD 368.8 million, or USD 4.91 per diluted common share, compared to the prior year Adjusted net earnings of USD 318.9 million, or USD 4.20 per diluted common share.

Adjusted Ebitda was USD 1,210.4 million, a decrease of 1.6 percent, or USD 20.3 million, compared to the prior year Adjusted Ebitda of USD 1,230.7 million, which included USD 111.5 million attributable to Post’s historical Private Brands business.

Post Consumer Brands

North American ready-to-eat (RTE) cereal.

For the fourth quarter, net sales were USD 487.4 million, an increase of 3.5 percent, or USD 16.4 million, compared to the prior year period. Volumes increased 1.6 percent as growth in private label and Pebbles was partially offset by declines in Canada, Honey Bunches of Oats, certain licensed products and adult classic brands. Segment profit was USD 87.2 million, an increase of 3.1 percent, or USD 2.6 million, compared to the prior year period. Segment Adjusted Ebitda was USD 121.1 million, an increase of 6.2 percent, or USD 7.1 million, compared to the prior year period.

For fiscal year 2019, net sales were USD 1,875.9 million, an increase of 2.4 percent, or USD 44.2 million, compared to the prior year. Segment profit was USD 337.1 million, an increase of 2.4 percent, or USD 7.9 million, compared to the prior year. Segment Adjusted Ebitda was USD 463.1 million, an increase of 1.1 percent, or USD 4.9 million, compared to the prior year.

Weetabix
International (primarily United Kingdom) RTE cereal and muesli.

For the fourth quarter, net sales were USD 104.8 million, a decrease of 2.6 percent, or USD 2.8 million, compared to the prior year period, reflecting 12.5 percent improved average net pricing which was partially offset by an 8.5 percent volume decline and an unfavorable foreign exchange rate headwind of approximately 550 basis points. Segment profit was USD 25.5 million, a decrease of 10.8 percent, or USD 3.1 million, compared to the prior year period. Segment Adjusted Ebitda was USD 33.8 million, a decrease of 8.2 percent, or USD 3.0 million, compared to the prior year period.

For fiscal year 2019, net sales were USD 418.2 million, a decrease of 1.2 percent, or USD 5.2 million, compared to the prior year. Segment profit was USD 94.8 million, an increase of 8.7 percent, or USD 7.6 million, compared to the prior year. Segment Adjusted Ebitda was USD 128.5 million, an increase of 2.1 percent, or USD 2.6 million, compared to the prior year.

Foodservice

Primarily egg and potato products.

For the fourth quarter, net sales were USD 417.6 million, an increase of 4.5 percent, or USD 17.8 million, compared to the prior year period. Volumes increased 3.7 percent, driven by increases of 4.2 percent in egg volumes and 5.9 percent in potato volumes, which were partially offset by declines in all other products. Segment profit was USD 39.8 million, an increase of 4.7 percent, or USD 1.8 million, compared to the prior year period. Segment Adjusted Ebitda was USD 77.5 million, an increase of 6.0 percent, or USD 4.4 million, compared to the prior year period.

For fiscal year 2019, net sales were USD 1,627.4 million, an increase of 5.1 percent, or USD 79.2 million, compared to the prior year. Segment profit was USD 198.4 million, an increase of 25.9 percent, or USD 40.8 million, compared to the prior year. Segment Adjusted Ebitda was USD 310.0 million, an increase of 12.4 percent, or USD 34.2 million, compared to the prior year.

Refrigerated Retail

Side dishes and egg, cheese and sausage products.

For the fourth quarter, net sales were USD 219.1 million, an increase of 2.0 percent, or USD 4.2 million, compared to the prior year period. Volumes increased 3.1 percent, led by a 9.4 percent increase in side dish volumes. Volume information for additional products is disclosed in a table presented later in this release. Segment profit was USD 22.3 million, an increase of 4.7 percent, or USD 1.0 million, compared to the prior year period. Segment Adjusted Ebitda was USD 41.4 million, an increase of 3.8 percent, or USD 1.5 million, compared to the prior year period.

For fiscal year 2019, net sales were USD 907.3 million, an increase of 14.7 percent, or USD 116.4 million, compared to the prior year. Segment profit was USD 95.1 million, an increase of 5.7 percent, or USD 5.1 million, compared to the prior year. Segment profit for fiscal year 2018 was negatively impacted by integration expenses of USD 11.6 million, an inventory adjustment of USD 4.1 million resulting from purchase accounting and transaction expenses of USD 2.4 million, each of which was treated as an adjustment for non-GAAP measures. Segment Adjusted Ebitda was USD 174.6 million, an increase of 5.2 percent, or USD 8.6 million, compared to the prior year.

Active Nutrition

Post’s historical ready-to-drink (RTD) protein shakes, other RTD beverages, powders and nutrition bars business, which became the BellRing Brands business in conjunction with the completion of the IPO in October 2019 (as discussed later in this release).

For the fourth quarter, net sales were USD 214.5 million, a decrease of 2.5 percent, or USD 5.4 million, compared to the prior year period, with volumes declining 4.3 percent. As expected, net sales in the fourth quarter of 2019 were negatively impacted by the early delivery of RTD shakes requested by a large customer in the third quarter of 2019 to support promotional activity, resulting in a net sales headwind of approximately USD 15 million. Segment profit was USD 40.3 million, an increase of 5.2 percent, or USD 2.0 million, compared to the prior year period. Segment Adjusted Ebitda was USD 46.9 million, an increase of 4.7 percent, or USD 2.1 million, compared to the prior year period.

For fiscal year 2019, net sales were USD 854.4 million, an increase of 3.3 percent, or USD 26.9 million, compared to the prior year. Segment profit was USD 175.1 million, an increase of 40.8 percent, or USD 50.7 million, compared to the prior year. Segment profit for fiscal year 2018 was negatively impacted by a provision of USD 9.0 million for a legal settlement, which was treated as an adjustment for non-GAAP measures. Segment Adjusted Ebitda was USD 200.8 million, an increase of 26.1 percent, or USD 41.5 million, compared to the prior year.

For further information, please refer to the BellRing fourth quarter 2019 earnings release and conference call (the details of which are included later in this release).

Impairment of Goodwill and Other Intangible Assets

Non-cash goodwill and other intangible asset impairments of USD 63.3 million and USD 124.9 million were recorded in the fourth quarter of 2019 and 2018, respectively, within the Refrigerated Retail and Weetabix segments, respectively. The goodwill impairment charge of USD 48.7 million in the fourth quarter of 2019 related to the cheese business and primarily resulted from lost distribution with customers and a shift in supplier and consumer preferences to private label cheese products and away from branded cheese products. The intangible asset impairment charge of USD 14.6 million in the fourth quarter of 2019 related to the All Whites trademark and resulted from a strategic decision to discontinue use of All Whites as all products previously sold under All Whites are now being marketed and sold under Bob Evans Egg Whites. The intangible asset impairment charge of USD 124.9 million in the fourth quarter of 2018 related to the Weetabix trademark and resulted from reduced branded cereal volumes related to Weetabix’s pricing reset and shifting consumer preferences to private label products.

Interest, (Gain) Loss on Extinguishment of Debt, Expense (Income) on Swaps and Income Tax

Interest expense, net was USD 91.9 million for the fourth quarter of 2019, compared to USD 99.1 million for the fourth quarter of 2018. For fiscal year 2019, interest expense, net was USD 322.4 million, compared to USD 387.3 million for fiscal year 2018. Interest expense, net for fiscal year 2019 included a gain of USD 31.0 million resulting from the reclassification of gains previously recorded in accumulated other comprehensive income to interest expense. The remaining decrease for both periods was primarily driven by reductions in the principal balance of debt outstanding resulting from repayments and repurchases of certain debt in fiscal years 2019 and 2018. Interest expense, net included interest expense payable, under certain circumstances, to former holders of shares of Bob Evans common stock who demanded appraisal of their shares of Bob Evans common stock under Delaware law and had not withdrawn their demands, of USD 1.2 million and USD 4.9 million in the fourth quarter of 2019 and 2018, respectively, and USD 5.9 million and USD 13.4 million in fiscal year 2019 and 2018, respectively.

Gain on extinguishment of debt, net of USD 0.4 million was recorded in the fourth quarter of 2018 in connection with Post’s open market purchases of USD 6.5 million in total principal value of certain senior notes. Loss on extinguishment of debt, net of USD 6.1 million was recorded in fiscal year 2019 in connection with (i) Post’s repayment of USD 863.0 million in total principal value of its term loan, (ii) the assignment of debt to 8th Avenue related to its separate capitalization and (iii) Post’s open market purchases of USD 60.0 million in total principal value of certain senior notes. Loss on extinguishment of debt, net of USD 31.1 million was recorded in fiscal year 2018 in connection with (i) Post’s redemption of its 6.00 percent senior notes, (ii) Post’s open market purchases of USD 267.8 million in total principal value of certain senior notes and (iii) an opportunistic repricing of Post’s term loan.

Expense (income) on swaps, net relates to non-cash mark-to-market adjustments and cash settlements on interest rate swaps. Expense on swaps, net was USD 105.7 million in the fourth quarter of 2019, compared to income of USD 25.2 million in the fourth quarter of 2018. In fiscal year 2019, expense on swaps, net was USD 306.6 million, compared to income of USD 95.6 million in fiscal year 2018.

Income tax benefit was USD 43.5 million in the fourth quarter of 2019, compared to an expense of USD 12.5 million in the fourth quarter of 2018. For fiscal year 2019, income tax benefit was USD 3.9 million, compared to a benefit of USD 204.0 million in fiscal year 2018. In fiscal year 2019, the effective income tax rate differed significantly from the statutory rate as a result of discrete tax benefit items, primarily relating to excess tax benefits for share-based payments and uncertain tax positions, which was partially offset by the tax impact of non-deductible goodwill impairment. In fiscal year 2018, Post recorded a USD 270.9 million one-time net income tax benefit in connection with the U.S. Tax Cuts and Jobs Act.

Share Repurchases

During the fourth quarter of 2019, Post repurchased 2.4 million shares for USD 242.1 million at an average price of USD 99.75 per share. During fiscal year 2019, Post repurchased 3.3 million shares for USD 330.8 million at an average price of USD 98.76 per share.

On September 4, 2019, Post announced that its Board of Directors had approved a new USD 400.0 million share repurchase authorization, with repurchases occurring over a two year period beginning on September 4, 2019. At the end of the fourth quarter of 2019, Post had USD 338.5 million remaining under its new share repurchase authorization.

BellRing

On October 21, 2019, the IPO of 39.4 million shares of BellRing Class A common stock was completed. Upon completion of the IPO and certain transactions completed in connection with the IPO, BellRing became the holding company for BellRing Brands, LLC (which became the holding company for Post’s historical Active Nutrition business), and Post holds approximately 71 percent of the economic ownership of BellRing Brands, LLC. BellRing’s Class A common stock began trading on October 17, 2019 on the New York Stock Exchange under the symbol «BRBR». Post will continue to fully consolidate BellRing’s results within Post’s financial statements. Effective October 21, 2019, Post will allocate approximately 29 percent of BellRing’s consolidated net earnings and net assets to noncontrolling interest within Post’s consolidated income statement and balance sheet.

Outlook

Post management expects fiscal year 2020 Adjusted Ebitda, including 100 percent contribution from BellRing and excluding any contribution from 8th Avenue and the acquisition of TreeHouse Foods’ private label RTE cereal business, to range between USD 1.22-USD 1.27 billion, with modest favorability to the second half of fiscal 2020.

Post management expect Post’s fiscal year 2020 capital expenditures to range between USD 240-USD 260 million, including approximately USD 4 million attributable to BellRing.

Post 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 gain/loss on sale of business, income/expense on swaps, net, transaction and integration costs, restructuring and facility closure costs, provision for legal settlements, mark-to-market adjustments on commodity and foreign exchange hedges and other charges reflected in Post’s reconciliations 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.»

BellRing Outlook

BellRing management expects fiscal year 2020 net sales to range between USD 1.0-USD 1.05 billion, Adjusted Ebitda to range between USD 192-USD 202 million and capital expenditures of approximately USD 4 million.

BellRing 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 separation costs, provision for legal settlement and other charges reflected in BellRing’s reconciliation of historical numbers, the amounts of which, based on historical experience, could be significant. For additional information regarding BellRing’s non-GAAP measures, see the related explanations presented under «Use of Non-GAAP Measures» in BellRing’s fourth quarter 2019 earnings release. BellRing, as a separate publicly traded company, releases guidance regarding its future performance. These statements are prepared by BellRing’s management, and Post does not accept any responsibility for any such statements.

8th Avenue Standalone Financial Information and Outlook

A business separately capitalized by Post and Thomas H. Lee Partners, L.P. (THL), in which Post owns 60.5 percent, and affiliates of THL and members of the 8th Avenue management team collectively own 39.5 percent, of the common equity of 8th Avenue, the holding company for Post’s historical Private Brands business (nut butter, dried fruit and nut, granola and pasta).

For the fourth quarter of 2019, net sales were USD 208.0 million, net loss was USD 8.9 million and Adjusted Ebitda was USD 20.6 million. For fiscal year 2019, net sales were USD 838.5 million, net loss was USD 17.6 million and Adjusted Ebitda was USD 90.5 million. Fiscal year 2019 results were impacted by weak manufacturing performance and volume softness in the pasta business. As of September 30, 2019, 8th Avenue is capitalized with USD 659.1 million of senior secured debt, USD 250.0 million in principal amount of preferred equity and USD 29.1 million of accumulated, but unpaid, preferred dividends. Summarized financial information for 8th Avenue is disclosed later in this release.

For 8th Avenue, Post management expects fiscal year 2020 Adjusted Ebitda to range between USD 100-USD 105 million.

Post provides Adjusted Ebitda guidance for 8th Avenue 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 transaction and integration costs, non-cash stock based compensation and other charges reflected in 8th Avenue’s reconciliation of historical numbers, the amounts of which, based on historical experience, could be significant.

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