Post Holdings: Reports Results for Q1/2013

St. Louis / MO. (pfh) Post Holdings Inc., a leading manufacturer, marketer and distributor of branded ready to eat cereals, reported results for the fiscal quarter ended December 31, 2012. Highlights:

  • Net sales of 236,9 million USD
  • Adjusted Ebitda up 15 percent year over year to 52,5 million USD
  • U.S. Dollar market share for expanded all outlets combined (xAOC) of 10,2 percent for the thirteen weeks ended December 29, 2012

Post net sales increased eight percent for the quarter ended December 31, 2012 as compared to the prior year, primarily driven by a six percent improvement in overall volumes and a two percent increase in average net selling prices. For the quarter ended December 31, 2012, the improved volumes were driven by increases in the Honey Bunches of Oats, Grape Nuts and Pebbles brands which increased three percent, 15 percent and five percent, respectively, as well as increases from the recently introduced Good Morenings value brand and co-manufacturing agreements. Average net selling prices increased primarily due to lower overall trade and promotional spending despite incrementally higher slotting fees for new product introductions.

Gross profit increased by 7,9 percent for the first quarter versus prior year on improved net sales, gross profit margin percentage decreased by 0,1 percent primarily due to higher raw materials costs (primarily grains, fruit and packaging), partially offset by improved fixed cost absorption. Production volume increased with sales volumes, but also reflected inventory build-up as a contingency plan in anticipation of work stoppage at one of our manufacturing facilities. We were successful in reaching an agreement with the labor union without a work stoppage. We anticipate lower production volumes aimed at reducing inventory may unfavourably impact fixed cost absorption in future periods.

Excluding the effect of 2,8 million USD and 2,7 million USD of costs related to the transition and separation from Ralcorp incurred during the first quarter of fiscal 2013 and 2012, respectively, selling, general and administrative expenses as a percentage of net sales increased from 27,7 percent in the first quarter of fiscal 2012 to 29,3 percent in the first quarter of fiscal 2013. This increase was primarily driven by incremental holding company costs, non-cash mark to market adjustments on deferred compensation liabilities and higher operating company overhead for the new direct sales force.

Adjusted Ebitda for the quarter was 52,5 million USD versus 45,6 million USD for the same time period a year ago.

Income tax expense was 3,5 million USD, which represents an effective income tax rate of 31,5 percent, for the first quarter, compared to an effective income tax rate of 32,3 percent for the same period a year ago.

Net earnings were 7,6 million USD or 0,23 USD per diluted share, for the first quarter. Adjusted net earnings and Adjusted diluted earnings per share for the quarter were 10,0 million USD and 0,31 USD, respectively.

Operating cash flow was 23,6 million USD and 26,2 million USD in the first quarters of 2013 and 2012, respectively. The current year amount was favourably impacted by a 15,0 million USD premium on our 250 million USD high yield bond offering completed in October 2012. Increases in inventory and accounts receivable unfavourably impacted operating cash flow for the 2013 quarter in the aggregate amount of approximately 28,8 million USD. Inventory increased for the aforementioned work stoppage contingency plan and the increase in accounts receivable resulted from large pipeline shipments of new products during the last two weeks of the 2013 first quarter.

According to Nielsen, ready to eat cereal category revenues were down slightly, minus 0,8 percent, for the thirteen weeks ended December 29, 2012 as compared to the prior year and category volumes, measured in pounds, declined minus 1,9 percent. Category Dollars for the quarter were not down as significantly as consumption volume due to slight increases in every day and promoted average selling prices. The current year Nielsen data referenced in this release is as of December 29, 2012.

Post´s U.S. xAOC Dollar market share was 10,2 percent for the thirteen weeks ended December 29, 2012, down 0,5 share points versus the same prior year time period. Post´s xAOC pounds share was steady at 10,4 percent for the thirteen week period ended December 29, 2012.

Post and Ralcorp entered into a Transition Services Agreement in connection with the spin-off of Post from Ralcorp, covering over 20 different services areas. The most critical service area, information technology, is on track to go live and on an independent basis this summer. Management does not expect the recent merger of Ralcorp with ConAgra Foods Inc. to materially impact Post´s information technology transition plans.

Outlook

Post management confirms its previously provided guidance for fiscal 2013 Adjusted Ebitda to be between 210 million USD and 225 million USD, after considering the estimated year-over-year unfavourable commodity cost effect of between ten million USD and 15 million USD. Post management continues to expect that capital expenditures will be in the range of 30 to 35 million USD, inclusive of between eleven and 13 million USD of capital costs associated with establishing stand-alone information systems separate from Ralcorp. Finally, management expects net interest expense to be between 80 and 83 million USD in fiscal 2013.

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