Post 'not banking on growth' in cereal

by Monica Watrous
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Honey Bunches of Oats cereal, Post Holdings
Honey Bunches of Oats is Post's largest brand.

ST. LOUIS — Post Holdings, Inc. executives remain “cautiously optimistic on the cereal category,” said Rob Vitale, president and chief executive officer. The St. Louis-based maker of Honey Bunches of Oats, Grape Nuts and Fruity Pebbles said the category continued to modestly improve in the recent quarter, showing dollar growth of 0.2%, while lbs declined 0.5%.

Rob Vitale, Post Holdings
Rob Vitale, president and c.e.o. of Post

“Notably, exiting the quarter December saw both dollar and lb growth of 0.9% and 0.3%, respectively,” Mr. Vitale said during a Feb. 5 earnings call with financial analysts. “This is the first measured monthly increase in both lbs and dollars in more than four years.”

But despite improving trends, Mr. Vitale said he doesn’t expect the ready-to-eat cereal category to return to growth in 2016.

“We have, in all of our long-range planning, assumed a zero category growth,” he said. “So we view the actions that we are taking, as well as the actions that our competition is taking, as upside if the category were to grow. But we are not banking on growth.”

For the first quarter ended Dec. 31, 2015, Post recorded net earnings of $25.5 million, equal to 16c per share on the common stock, which compared with a net loss of $97.3 million in the prior-year period. Net sales increased 16% to $1,248.8 million from year-ago sales of $1,073.9 million.

Segment profit for the Post Consumer Brands, which includes Post’s ready-to-eat cereal businesses, advanced 67% to $62.9 million from $37.6 million the year before, and net sales climbed 89% to $411.6 million from prior-year sales of $217.5 million. On a comparable basis, Post said the segment’s net sales fell 0.9%, reflecting growth in net sales and volume for Pebbles, Honey Bunches of Oats and co-manufacturers that was offset by declines for MOM branded products.

MOM cereal brands, RTE, Post Holdings
MOM branded products declined in the quarter.

“Our largest brand, Honey Bunches of Oats, grew base volumes 3%, while incremental volumes declined 12%, resulting in flat performance for the brand,” Mr. Vitale said. “Pebbles and Honeycomb continued to see solid growth in large bags. On the other hand, distribution declines for Great Grains and Grape-Nuts weighed on results, and MOM branded products lapped a heavily promoted quarter last year.”

Michael Foods Group, which includes food service and food ingredient egg, potato and pasta businesses and the retail cheese business, posted segment profit of $80.8 million, marking an increase of 92% over year-ago profit of $42.1 million. Sales declined 2.2% to $586.4 million from $599.3 million, due to volume declines in eggs resulting from the impact of avian influenza, which reduced the company’s supply. Declines in refrigerated potato products, cheese and other dairy case products sales and volumes offset gains in pasta products.

“With regard to the repopulation, we did definitely start repopulation in our fiscal first quarter, but not much in the way of supply because the hens need to get to egg-producing age,” Mr. Vitale said. “So we should begin to see volume coming back more significantly in our second fiscal quarter as we have largely brought back on-line our owned farms. But we are still not expecting them to reach their pre-AI production levels until sometime in our third quarter.”

Premier Protein products, Post Holdings
Premier Protein’s sales performance was driven by increased distribution.

The Active Nutrition segment, which includes protein shakes, bars, powders and supplements under the PowerBar, Premier Protein and Dymatize brands, reported profit of $10.5 million, which compared with a loss of $6.3 million for the prior-year period. Net sales fell 11% to $115.8 million from $130.4 million the year before, as growth for Premier Protein shakes offset expected declines for Dymatize and PowerBar.

Jeff Zadoks, Post
Jeff Zadoks, c.f.o. of Post

“Premier Protein’s sales performance was driven by increased distribution and organic growth predominantly in the club channel,” said Jeff Zadoks, chief financial officer. “Dymatize sales, as anticipated, declined significantly as a result of reduced product supply related to the exit from our manufacturing facility and the corresponding ramp up of production at co-manufacturers. Last, as expected, PowerBar sales declined year-over-year, primarily resulting from continued soft sales in North America.”

Segment profit for Private Brands, which includes nut butters, dried fruit and nuts and granola, was $12.9 million, representing an 87% increase over profit of $6.9 million. Earnings in the segment benefited from Post’s acquisition of American Blanching Co. and higher peanut butter volumes. Net sales advanced to $135.6 million, rising 6.1% over year-ago profit of $127.8 million. On a comparable basis, Post said sales fell 3.3%, reflecting declines in tree nut butters, dried fruit and nuts and granola and cereal.

“The tree nut butter category continues to perform nicely,” Mr. Vitale said. “Our specific situation was that we had gotten meaningfully ahead of the category, and we’re the sole source to several retailers who, given growth in the category, decided they needed to add some second sourcing. So we didn’t lose any customers, but we lost some dedicated relationships as they brought in some secondary sourcing. So we had a temporary setback in the tree nut segment as some competition came in on secondary sourcing.”

Jar of tree nut butter
Post's Private Brands saw growth, especially in the tree nut butter category.

Post raised its full-year guidance for adjusted EBITDA to a range of $810 million to $840 million, up from the previous target of $780 million to $820 million.

“This revised guidance contemplates an anticipated increase in expenses aimed at brand building and driving incremental cost savings and is inclusive of achieving $50 million in run rate cost synergies by the end of FY16 within our Post Consumer Brands segment,” Mr. Zadoks said.
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