Home > Market + Management > Post Holdings: Reports Results for Q3 of FY 2019

Post Holdings: Reports Results for Q3 of FY 2019

St. Louis / MO. (pfh) Post Holdings Inc., a consumer packaged goods holding company, reported results for the third fiscal quarter ended June 30, 2019. Highlights:

  • Net sales of USD 1.4 billion
  • Operating profit of USD 198.2 million; net earnings of USD 16.2 million and Adjusted Ebitda of USD 315.4 million
  • Fiscal year 2019 Adjusted Ebitda (non-GAAP) expected to range between USD 1.205 and USD 1.215 billion

Basis of Presentation

Financial results reflect the separate capitalization of 8th Avenue Food + Provisions Inc. («8th Avenue»), 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. («Bob Evans») as of its acquisition date of January 12, 2018.

Third Quarter Consolidated Operating Results

Net sales were USD 1,439.2 million, a decrease of 10.5 percent, or USD 168.9 million, compared to the prior year period. Pro forma net sales (as defined later in this release under «Pro Forma Information») increased 2.9 percent, or USD 40.2 million, when compared to the same period in fiscal year 2018. Gross profit was USD 462.1 million, or 32.1 percent of net sales, an increase of USD 3.9 million compared to the prior year period gross profit of USD 458.2 million, or 28.5 percent of net sales.

Selling, general and administrative (SG+A) expenses were USD 223.2 million, or 15.5 percent of net sales, a decrease of USD 2.7 million compared to the prior year period SG+A expenses of USD 225.9 million, or 14.0 percent of net sales.

Operating profit was USD 198.2 million, an increase of 7.5 percent, or USD 13.9 million, compared to the prior year period operating profit of USD 184.3 million, which included segment profit of USD 12.7 million attributable to the historical private brands business.

Net earnings were USD 16.2 million, a decrease of 83.2 percent, or USD 80.3 million, compared to the prior year period net earnings of USD 96.5 million. Net earnings included expense on swaps, net of USD 86.2 million in the third quarter of 2019 and income on swaps, net of USD 17.2 million in the third quarter of 2018, 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 16.2 million, or USD 0.21 per diluted common share, compared to the prior year period net earnings available to common shareholders of USD 94.5 million, or USD 1.29 per diluted common share. Adjusted net earnings were USD 90.0 million, or USD 1.19 per diluted common share, compared to the prior year period Adjusted net earnings of USD 79.6 million, or USD 1.06 per diluted common share.

Adjusted Ebitda was USD 315.4 million, an increase of 0.4 percent, or USD 1.2 million, compared to the prior year period Adjusted Ebitda of USD 314.2 million, which included USD 24.7 million attributable to the historical private brands business.

Nine Month Consolidated Operating Results

Net sales were USD 4,238.3 million, a decrease of 8.4 percent, or USD 389.0 million, compared to the prior year period. Gross profit was USD 1,339.9 million, or 31.6 percent of net sales, a decrease of USD 39.2 million compared to the prior year period gross profit of USD 1,379.1 million, or 29.8 percent of net sales.

SG+A expenses were USD 666.1 million, or 15.7 percent of net sales, a decrease of USD 70.4 million compared to the prior year period SG+A expenses of USD 736.5 million, or 15.9 percent of net sales. SG+A expenses for the nine months ended June 30, 2019 included USD 18.3 million of transaction costs, which primarily related to the separate capitalization of 8th Avenue and the previously announced proposed initial public offering of Post’s Active Nutrition business and USD 7.4 million of integration expenses, both of which were treated as adjustments for non-GAAP measures. SG+A expenses for the nine months ended June 30, 2018 included USD 26.3 million of transaction expenses, which primarily related to success fees paid in conjunction with the close of the acquisition of Bob Evans, USD 27.0 million of integration expenses and a provision for USD 11.3 million in legal settlements, all of which were treated as adjustments for non-GAAP measures.

Operating profit was USD 678.4 million, an increase of 34.1 percent, or USD 172.4 million, compared to the prior year period operating profit of USD 506.0 million, which included segment profit of USD 43.8 million attributable to the historical private brands business. Operating profit for the nine months ended June 30, 2019 included a USD 127.3 million gain related to the separate capitalization of 8th Avenue, which was treated as an adjustment for non-GAAP measures.

Net earnings were USD 185.8 million, a decrease of 61.5 percent, or USD 297.1 million, compared to the prior year period net earnings of USD 482.9 million. Net earnings included expense on swaps, net of USD 200.9 million in the nine months ended June 30, 2019 and income on swaps, net of USD 70.4 million in the nine months ended June 30, 2018, both of which are discussed later in this release and were treated as adjustments for non-GAAP measures. Net earnings for the nine months ended June 30, 2018 included a USD 276.0 million one-time income tax net benefit and a USD 31.5 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 182.8 million, or USD 2.47 per diluted common share, compared to the prior year period net earnings available to common shareholders of USD 474.9 million, or USD 6.34 per diluted common share. Adjusted net earnings were USD 269.8 million, or USD 3.58 per diluted common share, compared to the prior year period Adjusted net earnings of USD 228.1 million, or USD 2.99 per diluted common share.

Adjusted Ebitda was USD 906.8 million, a decrease of 0.4 percent, or USD 3.3 million, compared to the prior year period Adjusted Ebitda of USD 910.1 million, which included USD 81.0 million attributable to the historical private brands business.

Post Consumer Brands

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

Net sales were USD 474.1 million, an increase of 1.7 percent, or USD 7.7 million, compared to the prior year period. Volumes increased 0.4 percent as growth in private label and Honey Bunches of Oats was partially offset by declines in certain licensed products, Pebbles, Great Grains and Malt-O-Meal bag cereal. Segment profit was USD 82.7 million, a decrease of 0.7 percent, or USD 0.6 million, compared to the prior year period. Segment Adjusted Ebitda was USD 115.3 million, a decrease of 0.3 percent, or USD 0.3 million, compared to the prior year period.

For the nine months ended June 30, 2019, net sales were USD 1,388.5 million, an increase of 2.0 percent, or USD 27.8 million, compared to the prior year period. Segment profit was USD 249.9 million, an increase of 2.2 percent, or USD 5.3 million, compared to the prior year period. Segment Adjusted Ebitda was USD 342.0 million, a decrease of 0.6 percent, or USD 2.2 million, compared to the prior year period.

Weetabix

International (primarily United Kingdom) RTE cereal and muesli.

Net sales were USD 108.4 million, an increase of 1.2 percent, or USD 1.3 million, compared to the prior year period, reflecting 11.0 percent improved average net pricing which was partially offset by a 3.4 percent volume decline and an unfavorable foreign exchange rate headwind of approximately 600 basis points. Segment profit was USD 26.8 million, an increase of 2.7 percent, or USD 0.7 million, compared to the prior year period. Segment Adjusted Ebitda was USD 35.6 million, an increase of 0.8 percent, or USD 0.3 million, compared to the prior year period.

For the nine months ended June 30, 2019, net sales were USD 313.4 million, a decrease of 0.8 percent, or USD 2.4 million, compared to the prior year period. Segment profit was USD 69.3 million, an increase of 18.3 percent, or USD 10.7 million, compared to the prior year period. Segment Adjusted Ebitda was USD 94.7 million, an increase of 6.3 percent, or USD 5.6 million, compared to the prior year period.

Foodservice

Primarily egg and potato products.

Net sales were USD 412.6 million, an increase of 3.3 percent, or USD 13.3 million, compared to the prior year period. Volumes increased 2.7 percent, driven by increases of 3.0 percent in egg volumes and 4.7 percent in potato volumes, which was partially offset by a decline in all other products. Segment profit was USD 58.5 million, an increase of 89.9 percent, or USD 27.7 million, compared to the prior year period. Segment Adjusted Ebitda was USD 79.5 million, an increase of 23.8 percent, or USD 15.3 million, compared to the prior year period.

For the nine months ended June 30, 2019, net sales were USD 1,209.8 million, an increase of 5.3 percent, or USD 61.4 million, compared to the prior year period. Segment profit was USD 158.6 million, an increase of 32.6 percent, or USD 39.0 million, compared to the prior year period. Segment Adjusted Ebitda was USD 232.5 million, an increase of 14.7 percent, or USD 29.8 million, compared to the prior year period.

Refrigerated Retail

Side dishes, egg, cheese and sausage products.

Net sales were USD 207.1 million, a decrease of 3.4 percent, or USD 7.4 million, compared to the prior year period. Volumes increased 0.5 percent, as an 8.4 percent increase in side dish volumes was nearly offset by declines in other products (disclosed in a table presented later in this release). Segment profit was USD 15.8 million, a decrease of 38.5 percent, or USD 9.9 million, compared to the prior year period. Segment Adjusted Ebitda was USD 37.9 million, a decrease of 15.2 percent, or USD 6.8 million, compared to the prior year period. Financial results for the third quarter of 2019 were impacted by unfavorable price/cost relationships within the more commodity-exposed portions of the segment, including sausage, shell eggs and cheese, which together represent approximately 35 percent of the segment’s volumes.

For the nine months ended June 30, 2019, net sales were USD 688.2 million, an increase of 19.5 percent, or USD 112.2 million, compared to the prior year period. Segment profit was USD 72.8 million, an increase of 6.0 percent, or USD 4.1 million, compared to the prior year period. Segment profit for the nine months ended June 30, 2018 was negatively impacted by integration expenses of USD 10.5 million, an inventory adjustment of USD 4.1 million resulting from purchase accounting and transaction expenses of USD 2.5 million, each of which was treated as an adjustment for non-GAAP measures. Segment Adjusted Ebitda was USD 133.2 million, an increase of 5.6 percent, or USD 7.1 million, compared to the prior year period.

Active Nutrition

Ready-to-drink («RTD») protein shakes, other RTD beverages, powders and nutrition bars.

Net sales were USD 237.6 million, an increase of 9.8 percent, or USD 21.2 million, compared to the prior year period, as growth in RTD protein shakes and other RTD beverages was partially offset by declines in nutrition bars and powders. RTD protein shake net sales grew 19 percent, with volumes up 13 percent. Segment profit was USD 55.6 million, an increase of 38.3 percent, or USD 15.4 million, compared to the prior year period. Segment Adjusted Ebitda was USD 61.9 million, an increase of 32.5 percent, or USD 15.2 million, compared to the prior year period.

For the nine months ended June 30, 2019, net sales were USD 639.9 million, an increase of 5.3 percent, or USD 32.3 million, compared to the prior year period. Segment profit was USD 134.8 million, an increase of 56.6 percent, or USD 48.7 million, compared to the prior year period. Segment profit for the nine months ended June 30, 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 153.9 million, an increase of 34.4 percent, or USD 39.4 million, compared to the prior year period.

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

Interest expense, net was USD 85.6 million for the third quarter of 2019, compared to USD 98.9 million for the third quarter of 2018. For the nine months ended June 30, 2019, interest expense, net was USD 230.5 million, compared to USD 288.2 million for the nine months ended June 30, 2018. Interest expense, net for the nine months ended June 30, 2019 included a gain of USD 30.9 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 2018 and 2019. 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 under Delaware law and had not withdrawn their demands, of USD 4.7 million in the third quarter of 2018 and USD 4.7 million and USD 8.5 million in the nine months ended June 30, 2019 and June 30, 2018, respectively.

Gain on extinguishment of debt, net of USD 6.1 million was recorded in the third quarter of 2018 in connection with Post’s open market purchases of USD 149.3 million in total principal value of certain senior notes. Loss on extinguishment of debt, net of USD 6.1 million was recorded in the nine months ended June 30, 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 31.5 million was recorded in the nine months ended June 30, 2018 in connection with (i) Post’s redemption of its 6.00 percent senior notes, (ii) Post’s open market purchases of USD 261.3 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 86.2 million for the third quarter of 2019, compared to income of USD 17.2 million for the third quarter of 2018. For the nine months ended June 30, 2019, expense on swaps, net was USD 200.9 million, compared to income of USD 70.4 million in the nine months ended June 30, 2018.

Income tax expense was USD 7.4 million in the third quarter of 2019, an effective income tax rate of 24.6 percent, compared to an expense of USD 15.4 million in the third quarter of 2018, an effective income tax rate of 13.7 percent. For the nine months ended June 30, 2019, income tax expense was USD 39.6 million, an effective income tax rate of 15.7 percent, compared to a benefit of USD 216.5 million in the nine months ended June 30, 2018. In the the nine months ended June 30, 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. In the nine months ended June 30, 2018, Post recorded a USD 276.0 million one-time net income tax benefit in connection with the U.S. Tax Cuts and Jobs Act.

Share Repurchases

During the third quarter of 2019, Post repurchased 0.2 million shares for USD 22.9 million at an average price of USD 103.83 per share. During the nine months ended June 30, 2019, Post repurchased 0.9 million shares for USD 88.6 million at an average price of USD 96.16 per share. At the end of the third quarter of 2019, Post had USD 219.4 million remaining under its share repurchase authorization.

Recent Announcements

On July 22, 2019, Post and TreeHouse Foods announced that Post’s previously announced acquisition of TreeHouse Foods’ private label RTE cereal business (the «TreeHouse RTE cereal business») is being reviewed by the Federal Trade Commission, and closing of the transaction will be delayed beyond July 2019.

Outlook

Post management now expects its fiscal year 2019 Adjusted Ebitda to range between USD 1.205 to USD 1.215 billion, which excludes the results of 8th Avenue and any contribution from the acquisition of the TreeHouse RTE cereal business.

In fiscal year 2019, Post management expects to incur USD 19 to USD 21 million of restructuring and facility closure costs associated with the closure of certain cereal facilities, which are treated as adjustments to non-GAAP measures and comprised of severance, retention and related expenses, adjustments on assets held for sale and accelerated depreciation.

Post management continues to expect fiscal year 2019 capital expenditures to range between USD 300 to USD 310 million, including the following:

  • approximately USD 80 million related to the previously announced new precooked egg facility in Norwalk, Iowa, which is on schedule to open in October 2019;
  • approximately USD 30 million related to the previously announced cage-free housing conversion at the Bloomfield, Nebraska facility; and
  • approximately USD 25 million to upgrade certain manufacturing product lines in Corby, U.K. into a single facility and to complete the start-up and transfer of production to other facilities related to the Clinton, Massachusetts cereal facility closure.

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 gain on sale of business, expense (income) 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, assets held for sale 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.»

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 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 third quarter of 2019, net sales were USD 202.7 million, net earnings were USD 0.0 million and Adjusted Ebitda was USD 22.4 million. For the nine months ended June 30, 2019, net sales were USD 630.5 million, net loss was USD 8.7 million and Adjusted Ebitda was USD 69.9 million. As of June 30, 2019, 8th Avenue is capitalized with USD 660.4 million of senior secured debt, USD 250 million in principal amount of preferred equity and USD 21.4 million of accumulated, but unpaid, preferred dividends. Summarized financial information for 8th Avenue is disclosed later in this release.

For 8th Avenue, Post management now expects fiscal year 2019 Adjusted Ebitda to range between USD 95 to USD 100 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. For additional information regarding Post’s non-GAAP measures, see the related explanations presented under «Use of Non-GAAP Measures.»