Charges bog down Post profit

by Eric Schroeder
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The maker of Grape Nuts and Raisin Bran stabilized its cereal business during the fiscal year but remains cautious of a category decline looking ahead.

 

ST. LOUIS — Post Holdings, Inc. sustained a loss of $358.6 million in the fiscal year ended Sept. 30, which compared with income of $9.8 million, equal to 30c per share on the common stock, in fiscal 2013. Adjusted EBITDA, however, increased 59% to $344.5 million from $216.7 million.

Net sales increased 133% to $2,411.1 million from $1,034.1 million. Acquisitions contributed $1,448 million to sales during fiscal 2014, Post said.

Within the Post Foods unit, which includes the Post branded ready-to-eat cereal business, segment profit was $186.7 million, down from $187.4 million, in fiscal 2013. Net sales for the segment eased 2% to $963.1 million from $982.8 million. For the 52 weeks ended Sept. 27, Post Foods’ U.S. dollar market share was 11%, up 0.6 share points compared with the prior year. For the same time period, Post Foods said its U.S. dollar consumption sales were up 1% compared with the prior year.

“While we have stabilized our cereal business, the category itself remains challenged, and it resulted in a reduction in the long-term growth rates that underlie the fair value calculation,” Rob Vitale, president and chief executive officer, said during a Nov. 25 conference call with analysts. “In fact, our F.Y. 15 plan assumes a 4% category decline.”

Post completed its final production run out of its Modesto, Calif., facility at the end of August and is on track to achieve total net pre-tax annual cash savings of approximately $14 million, fully phased in with fiscal year 2015.

Post said it sustained a segment loss of $1.8 million in its Active Nutrition unit during fiscal 2014, which compared with a profit of $1 million in fiscal 2013. Net sales jumped to $293.3 million from $13.9 million during the year.

“The Active Nutrition brands … had mixed performances in the quarter,” Mr. Vitale said. “Premier Nutrition continues to grow rapidly with sales up 24% year over year. However, profitability was hit by high milk protein concentrate costs. While these costs have declined recently, our inventory cycle takes 60 to 90 days before the lower priced inventory is realized in the P&L.

“We continue to struggle with Dymatize. The business has been reestablished as a standalone unit to get the maximum focus, and we have named a general manager dedicated solely to this business. At the start of the fourth quarter, we moved a significant portion of the Dymatize international production to a co-manufacturer. We are continuing to make investments to improve Dymatize’s manufacturing and supply chain processes. We expect to move the co-manufactured production back in-house in mid F.Y. 15. This should improve margins, but we expect Dymatize to underperform until the end of F.Y. 15.”

Attune Foods, which manufactures and distributes branded and private label premium natural and organic cereals, snacks and granola, had an operating profit of $8.7 million in fiscal 2014, up 248% from $2.5 million in fiscal 2013. Net sales also were sharply higher, climbing to $93.9 million from $37.8 million.

Michael Foods, which manufactures and distributes value-added egg products and refrigerated potato products, posted a profit of $17.4 million in fiscal 2014 on sales of $684.8 million. Meanwhile, Post’s Private Brands segment had a profit of $14.8 million on sales of $377.4 million. Neither segment had results to compare to fiscal 2013.

“Michael had a solid quarter coming in with adjusted EBITDA just under $65 million,” Mr. Vitale said. “We saw strong volume growth across products and channels. Michael’s strong quarter comes despite a modest shortfall in grain-based supply versus grain-based demand. Grain-based demand has grown faster than expected, a very positive sign for the prospects of the company. However, in the near term, we are sourcing grain-based demand on the spot market, which currently is higher than our grain-based price. We are adding grain-based supply, and it will come on-line late fiscal year. Again, while this puts a very near-term pressure on margins, it is a very healthy sign for the business.”

Post completed the acquisition of the PowerBar and Musashi brands and related worldwide assets from Nestle S.A. on Oct. 1, and on Nov. 3 closed the acquisition of American Blanching Co.

On Oct. 9, Post announced it had realigned its organization for fiscal 2015 and now operates three distinct groups: Consumer Brands, Michael Foods and Private Label. The Consumer Brands Group includes the Post Foods cereal and active nutrition brands of the Premier Nutrition and Dymatize businesses, as well as PowerBar and Musashi. The Michael Foods Group includes the Michael Foods egg, potato and cheese businesses as well as the Dakota Growers pasta business. The Private Label Group includes the Golden Boy and American Blanching peanut and tree nut butter and fruit and nut businesses, as well as the cereal, granola and snack businesses of Attune Foods. Post expects to incur one-time expenses between $5 million and $6 million in the first quarter of fiscal 2015 associated with the reorganization.

Looking ahead to fiscal 2015, Post said it expects fiscal 2015 adjusted EBITDA to be between $540 million and $580 million, with adjusted EBITDA in the first quarter of fiscal 2015 expected to be between $115 million and $120 million. The company said it expects to be adversely affected by several factors during the first quarter, including weakness in R.-T.-E. cereal net sales, which are expected to decline between $15 million and $20 million, compared to the first quarter of fiscal 2014.

But Post management expects to meaningfully outperform the prior year on a comparable basis in the last nine months of fiscal 2015. The company said it expects to benefit from several factors, including Michael Foods cycling weak prior-year periods with volumes continuing to grow while input costs moderate; phasing in anticipated synergies associated with Michael Foods; and R.-T.-E. cereal adjusted EBITDA is expected to be flat, as continued category volume declines will be offset by lower operational expenses.

Post management expects fiscal 2015 capital expenditures to be between $115 million and $125 million. This reflects approximately $40 million related to growth activities, mostly at Michael Foods for projects carried over from the prior year, which are expected to be completed in the first half of fiscal 2015. Maintenance capital expenditures are expected to be between $75 million and $85 million.
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