Post Holdings: Reports Results for Q2/2013

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 March 31, 2013. In a separate release the Company announced that it has signed a definitive agreement to acquire the private label and branded cereal, granola and snack business of Hearthside Food Solutions. The acquisition is expected to be completed by June 2013, subject to regulatory approval and other limited closing conditions. Second quarter 2013 highlights:

• Net sales of 248,2 million USD
• U.S. Dollar market share of 10,5 percent for the thirteen weeks ended March 30, 2013, according to Nielsen
• Completed convertible preferred stock offering in February 2013 with net proceeds of approximately 234,1 million USD

Post net sales decreased slightly for the quarter ended March 31, 2013 as compared to the prior year resulting from a four percent decrease in average selling prices partially offset by three percent higher volumes. For the six months ended March 31, 2013, net sales were 485,1 million USD, up 15,3 million USD or three percent over the prior year, driven by five percent higher volumes and a slight decrease in average net selling prices. Fiscal 2013 volume improvements have been driven by growth in our Great Grains, Grape Nuts and Good Morenings brands. Additionally, the Company has had meaningful growth in revenue from co-manufacturing agreements.

Gross profit decreased 8,5 million USD or eight percent, to 102,5 million USD for the second quarter versus prior year. Gross profit margin decreased by 300 basis points to 41,3 percent, as a result of unfavourable product mix and higher trade spending, including higher slotting fees for new product introductions. Gross profit for the six months ended March 31, 2013 decreased 0,8 million USD to 208,2 million USD compared to the six months ended March 31, 2012. Gross profit margin decreased 160 basis points to 42,9 percent, as a result of unfavourable product mix and higher trade spending, including higher slotting fees for new product introductions and higher raw material costs (primarily grains).

Selling, general and administrative (SG+A) expenses decreased 4,1 million USD to 70,1 million USD for the second quarter versus prior year. As a percentage of net sales, SG+A decreased 140 basis points to 28,2 percent. This decrease was driven by reduced advertising and promotion costs that were partially offset by incremental holding company costs. For the six months ended March 31, 2013, SG+A increased 4,5 million USD to 142,2 million USD. As a percentage of net sales, SG+A was flat to prior year at 29,3 percent. The drivers were primarily incremental holding company costs which were partially offset by decreased advertising and promotion spending.

Adjusted Ebitda for the quarter was 51,0 million USD versus 54,1 million USD for the same time period a year ago. For the six months ended March 31, 2013, Adjusted Ebitda was 103,5 million USD versus 99,7 million USD for the same time period a year ago.

Interest expense was 21,6 million USD for the quarter ended March 31, 2013, compared to 15,1 million USD for the quarter ended March 31, 2012. The increase is driven primarily by the 250,0 million USD increase in outstanding debt through the issuance of senior notes in October 2012 and the increased debt incurred at the time of the spin-off from Ralcorp in February 2012. Additionally, interest expense for the quarter ended March 31, 2013 includes the write-off of approximately 1,6 million USD of deferred financing costs associated with the company´s term loan, the balance of which was paid in full on February 28, 2013. Management estimates the company incurred after tax carrying costs related to its average cash balances of approximately 4,4 million USD or approximately 0,13 USD per diluted share, during the second quarter of fiscal 2013. This estimate was calculated based on the average cash balance at the beginning and the end of the quarter or 338,2 million USD, the Company´s effective tax rate during the quarter and an interest rate of 7,375 percent, which is the interest rate on the Company´s senior notes.

Income tax expense was 2,2 million USD, which represents an effective income tax rate of 30,1 percent for the second quarter, compared to an effective income tax rate of 45,0 percent for the same period a year ago. For the six months ended March 31, 2013, income tax expense was 5,7 million USD, an effective income tax rate of 31,0 percent, compared to an expense of 14,7 million USD and an effective income tax rate of 38,7 percent, for the six months ended March 31, 2012. The decreases in the current quarter and year to date effective income tax rate versus the same time periods a year ago are primarily the result of certain non-deductible transaction costs incurred the prior year. Additionally, the effective tax rate for the 2013 second fiscal quarter benefited from an estimated fiscal year 2012 research and development credit which was retroactively reinstated by legislation enacted during January 2013. Excluding this retroactive credit, the effective tax rate for the second quarter would have been approximately 32,9 percent. Management anticipates that the effective income tax rate will be in the range of 32 percent to 34 percent for the remainder of fiscal 2013.

On February 26, 2013, Post issued approximately 2,4 million shares of 3,75 percent cumulative perpetual convertible preferred stock. Post received net proceeds of 234,1 million USD which was used to pay the remaining principal balance of a 168,4 million USD on the company´s term loan. For both the three and six months ended March 31, 2013, the accumulated preferred stock dividend was 0,8 million USD and represents a reduction of net earnings available to common stockholders.

Net earnings available to common stockholders were 4,3 million USD or 0,13 USD per diluted common share, for the second quarter. For the six months ended March 31, 2013, net earnings available to common stockholders were 11,9 million USD or 0,36 USD per diluted common share. Adjusted net earnings available to common stockholders and Adjusted diluted earnings per common share for the quarter were 6,3 million USD and 0,19 USD, respectively. Adjusted net earnings available to common stockholders and Adjusted diluted earnings per common share for the six months ended March 31, 2013 were 16,3 million USD and 0,50 USD, respectively.

According to Nielsen, U.S. ready to eat cereal category Dollars were down 2,4 percent for the 13 weeks ended March 30, 2013, compared to prior year and category pounds declined 2,0 percent. Category pounds for the quarter were not down as significantly as consumption Dollars due to slight declines in everyday non-promoted selling prices.

Post´s Dollar market share was 10,5 percent for the thirteen weeks ended March 30, 2013, down 0,1 share point versus the same prior year time period. Nielsen´s data for the 13 weeks ending March 30, 2013 includes Post´s recent acquisition of Attune Foods which was not part of the prior year. Compared to the first quarter, Post´s Dollar market share grew 0,3 share points, driven by new item introductions, increased trade and in-store promotional activity and the Attune acquisition. Post´s pounds share was 10,7 percent, down 0,1 compared to prior year.

Modesto Plant Closure Update

As announced in April, Post management has decided to close its manufacturing facility in Modesto, California. The transfer of production capabilities and closure of the plant is expected to be complete by September 2014. Upon completion of the transfer and start-up of production to other facilities, which is estimated to require capital expenditures of approximately 29,8 million USD, Post expects to achieve net pre-tax annual cash manufacturing cost savings of approximately 14,0 million USD. Approximately 20 percent of the savings are expected to be achieved in fiscal 2014 and the remainder of the savings are expected to be fully phased-in by fiscal 2015.

Outlook

Including the partial year expected results of the cereal, granola and snacks business of Hearthside and Attune Foods, Post management now expects fiscal 2013 Adjusted Ebitda to be between 216 million USD and 225 million USD.