Home > Global Industry > Post Holdings: Reports Results for Q3 of FY 2017

Post Holdings: Reports Results for Q3 of FY 2017

St. Louis / MO. (pfh) Post Holdings Inc., a consumer packaged goods holding company in the United States, reported results for the third fiscal quarter ended June 30, 2017. Highlights:

  • Net sales of USD 1.27 billion
  • Operating profit of USD 190.5 million and net loss of USD 59.5 million; Adjusted Ebitda of USD 244.1 million
  • Completed the acquisition of Weetabix, a UK based RTE cereal manufacturer
  • Updated Adjusted Ebitda (non-GAAP) guidance range for fiscal year 2017 of USD 975-USD 990 million, inclusive of Weetabix

Third Quarter Consolidated Operating Results

Net sales were USD 1’272.1 million, an increase of 2.1 percent, or USD 26.0 million, compared to the prior year. Pro forma net sales were flat when compared to the same period in fiscal 2016.

Gross profit was USD 393.7 million or 30.9 percent of net sales, a decrease of USD 4.5 million compared to the prior year gross profit of USD 398.2 million or 32.0 percent of net sales. Selling, general and administrative (SG+A) expenses were USD 164.2 million or 12.9 percent of net sales, a decrease of USD 51.8 million compared to the prior year SG+A of USD 216.0 million or 17.3 percent of net sales. SG+A expenses for the third quarter of 2017 included USD 33.5 million of net foreign currency gains related to pounds sterling (GBP) held to fund the purchase price of Weetabix Limited. SG+A expenses for the third quarter of 2016 included a provision for USD 10.0 million in legal settlements related to egg antitrust class action claims.

Operating profit was USD 190.5 million, an increase of 34.2 percent, or USD 48.5 million, compared to the prior year and benefitted from USD 33.5 million of net foreign currency gains as discussed above. Net loss was USD 59.5 million, a decline of USD 62.8 million compared to net earnings of USD 3.3 million in the prior year. Net loss attributable to common shareholders was USD 62.9 million, or USD 0.93 per diluted common share. Net loss and net loss attributable to common shareholders included losses of USD 160.4 million related to early extinguishment of debt and USD 45.2 million 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 49.0 million, or USD 0.63 per adjusted diluted common share.

Adjusted Ebitda was USD 244.1 million, an increase of 5.7 percent, or USD 13.1 million, compared to the prior year.

Nine Month Consolidated Operating Results

Net sales for the nine months ended June 30, 2017 were USD 3’777.3 million, an increase of 0.3 percent, or USD 11.3 million, compared to the prior year. Gross profit for the nine month period was USD 1’137.0 million or 30.1 percent of net sales, a decrease of USD 33.0 million compared to the prior year gross profit of USD 1’170.0 million or 31.1 percent of net sales.

SG+A expenses for the nine month period were USD 615.6 million or 16.3 percent of net sales, an increase of USD 7.0 million compared to the prior year SG+A of USD 608.6 million or 16.2 percent of net sales. SG+A expenses for the nine months ended June 30, 2017 and June 30, 2016 included a provision for USD 74.5 million and USD 10.0 million, respectively, in legal settlements related to egg antitrust class action claims. SG+A expenses for the nine months ended June 30, 2017 included USD 33.5 million of net foreign currency gains related to pounds sterling (GBP) held to fund the purchase price of Weetabix.

Operating profit was USD 404.2 million for the nine month period, a decrease of 7.6 percent, or USD 33.2 million, compared to the prior year and was negatively impacted by a provision for USD 74.5 million in legal settlements and benefitted from USD 33.5 million of net foreign currency gains, both of which are discussed above. Net earnings were USD 34.1 million for the nine month period, an increase of 1.2 percent, or USD 0.4 million, compared to the prior year. For the nine months ended June 30, 2017, net earnings available to common shareholders were USD 23.9 million, or USD 0.34 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 100.3 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 143.1 million, or USD 1.81 per adjusted diluted common share.

Adjusted Ebitda was USD 702.7 million for the nine month period, a decrease of 1.6 percent, or USD 11.7 million, compared to the prior year period.

Post Consumer Brands

Post Consumer Brands includes the ready-to-eat (RTE) cereal business.

Net sales were USD 427.3 million for the third quarter, a decline of 1.7 percent, or USD 7.2 million, compared to the prior year third quarter, with volumes declining 1.1 percent. Net sales benefitted from new licensed products Oreo O’s and Honey Maid S’mores and growth in Malt-O-Meal branded bags and Pebbles, offset by declines for government bid business, Honey Bunches of Oats and Great Grains. Segment profit was USD 96.9 million and USD 75.2 million for third quarter 2017 and 2016, respectively. Segment Adjusted Ebitda was USD 125.3 million and USD 104.7 million for third quarter 2017 and 2016, respectively.

For the nine months ended June 30, 2017, net sales were USD 1’279.0 million, a decline of 0.6 percent, or USD 7.2 million, compared to the prior year period. Segment profit was USD 268.6 million, compared to USD 212.8 million in the prior year period. Segment profit for the nine months ended June 30, 2017 and June 30, 2016 was negatively impacted by integration expenses of USD 5.8 million and USD 17.0 million, respectively. Segment Adjusted Ebitda was USD 355.0 million, compared to USD 308.2 million in the prior year period.

Michael Foods Group

Michael Foods Group includes the egg, potato, cheese and pasta businesses.

Net sales were USD 524.2 million for the third quarter, an increase of 1.2 percent, or USD 6.2 million, over the reported prior year third quarter. Pro forma net sales declined 4.2 percent, or USD 22.7 million, over the same period in fiscal 2016. The pro forma net sales decline was primarily driven by a 20.3 percent decline in cheese related to branded cheese distribution losses and the exit of certain private label business. Pro forma egg sales declined 2.0 percent as a result of reduced pricing related to the roll back of the temporary component of avian influenza pricing and reduced market-based pricing in the ingredient channel. Pro forma egg volumes increased 6.0 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 46.4 million and USD 65.6 million for third quarter 2017 and 2016, respectively. Segment Adjusted Ebitda was USD 82.9 million and USD 109.2 million for third quarter 2017 and 2016, respectively. Segment profit for the third quarter of 2016 was negatively impacted by a provision for USD 10.0 million in legal settlements as discussed above.

For the nine months ended June 30, 2017, net sales were USD 1’579.0 million, a decline of 5.0 percent, or USD 83.1 million, over the reported prior year period. Segment profit was USD 72.1 million, compared to USD 236.0 million in the prior year period. Segment profit for the nine months ended June 30, 2017 and June 30, 2016 was negatively impacted by a provision for USD 74.5 million and USD 10.0 million, respectively, in legal settlements as discussed above. Segment Adjusted Ebitda was USD 254.2 million, compared to USD 349.1 million in the prior year period.

Active Nutrition

Active Nutrition includes protein shakes, bars and powders and nutritional supplements.

Net sales were USD 188.7 million for the third quarter, an increase of 20.9 percent, or USD 32.6 million, over the prior year third quarter. Net sales growth was primarily driven by strong growth for shake products which was partially offset by declines of bar and powder products. Segment profit was USD 28.0 million and USD 17.7 million for third quarter 2017 and 2016, respectively. Segment Adjusted Ebitda was USD 34.3 million and USD 24.1 million for third quarter 2017 and 2016, respectively.

For the nine months ended June 30, 2017, net sales were USD 519.9 million, an increase of 25.1 percent, or USD 104.2 million, over the prior year period. Segment profit was USD 74.1 million, compared to USD 42.0 million in the prior year period. Segment Adjusted Ebitda was USD 92.9 million, compared to USD 60.8 million in the prior year period.

Private Brands

Private Brands primarily includes peanut and other nut butters, dried fruit and nuts, and granola.

Net sales were USD 132.0 million for the third quarter, a decline of 4.3 percent, or USD 5.9 million, compared to the prior year third quarter. Growth in net sales and volume for traditional and organic peanut butter was offset by lower net pricing for almond products and volume declines for dried fruit and nut and granola. Segment profit was USD 8.0 million and USD 9.0 million for third quarter 2017 and 2016, respectively. Segment Adjusted Ebitda was USD 14.7 million and USD 15.2 million for third quarter 2017 and 2016, respectively.

For the nine months ended June 30, 2017, net sales were USD 399.7 million, a decline of 0.9 percent, or USD 3.5 million, over the prior year period. Segment profit was USD 24.5 million, compared to USD 29.6 million in the prior year period. Segment Adjusted Ebitda was USD 44.4 million, compared to USD 48.2 million in the prior year period.

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

Interest expense, net was USD 76.5 million for the third quarter compared to USD 77.3 million for the prior year quarter. For the nine months ended June 30, 2017, interest expense, net was USD 229.6 million, compared to USD 232.3 million for the nine months ended June 30, 2016.

Loss on extinguishment of debt of USD 160.4 million was recorded in the third quarter of fiscal 2017 and resulted from payments made during the third quarter related to Post’s tender offer for its 7.75 percent senior notes due 2024 and its 8.00 percent senior notes due 2025 and Post’s redemption of the 7.75 percent senior notes that remained outstanding following the expiration of the tender offer. Loss on extinguishment of debt of USD 222.9 million was recorded in the nine months ended June 30, 2017 and resulted from the payments made in the third quarter as described above and payments made in March 2017 to redeem Post’s 6.75 percent senior notes due 2021 and 7.375 percent senior notes due 2022.

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 45.2 million for the third quarter of fiscal 2017, compared to USD 62.6 million for the third quarter of fiscal 2016. For the nine months ended June 30, 2017, other income, net was USD 100.3 million, compared to an expense of USD 169.4 million for the nine months ended June 30, 2016.

Income tax benefit was USD 32.1 million, or an effective income tax rate of 35.0 percent, in the third quarter of fiscal 2017, compared to USD 1.2 million and an effective income tax rate of negative 57.1 percent in the third quarter of fiscal 2016. For the nine months ended June 30, 2017, income tax expense was USD 17.9 million, or an effective income tax rate of 34.4 percent, compared to USD 2.0 million and an effective income tax rate of 5.6 percent for the nine months ended June 30, 2016.

Share Repurchases

On June 6, 2017, the Board of Directors approved an additional USD 250 million share repurchase authorization over the next two years, which was in addition to the previous share repurchase authorization of USD 300 million over a two year period beginning on February 2, 2016. During the third quarter of fiscal 2017, Post repurchased 2.2 million shares for USD 180.6 million at an average price of USD 81.92 per share. During the nine months ended June 30, 2017, Post repurchased 3.9 million shares for USD 313.7 million at an average price of USD 79.45 per share. At the end of the third quarter of fiscal 2017, Post had USD 236.3 million remaining under its June 2017 share repurchase authorization.

Acquisition

On July 3, 2017, Post completed the acquisition of Weetabix, a leading United Kingdom based packaged food company that primarily produces RTE cereal products.

Outlook

Post management has updated its fiscal 2017 Adjusted Ebitda range to be between USD 975-USD 990 million, inclusive of Weetabix.

Post management expects fiscal 2017 capital expenditures, inclusive of Weetabix, to range between USD 200-USD 220 million, including approximately USD 60-USD 70 million related to growth activities, of which approximately USD 30-USD 35 million is related to the previously announced cage-free housing conversion at the Bloomfield, Nebraska facility. Maintenance capital expenditures for fiscal 2017 are expected to range between USD 140-USD 160 million.

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 and cross-currency 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 historic 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 (loss), Adjusted diluted earnings (loss) 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.