ST. LOUIS — Softer results in the company’s Consumer Brands, Foodservice and Refrigerated Retail business units weighed on first-quarter financials at Post Holdings, Inc.
Net income for the quarter ended Dec. 31, 2019, was $99.2 million, equal to $1.40 per share on the common stock, down 20% from $123.6 million, or $1.85 per share, in the same period a year ago.
First-quarter net income included a gain of $61.4 million related to non-cash mark-to-market adjustments on interest rate swaps, which compared with an expense of $51.7 million in the first quarter of 2019, according to the company.
On an adjusted basis, Post Holding’s first-quarter net income totaled $54.7 million, or 76c per share, which compared with $83.3 million, or $1.11 per share, during the same period of the previous year.
Sales for the quarter rose 3% to $1,456.8 million from $1,411.3 million.
Despite the softer results, Robert V. Vitale, president and chief executive officer of Post, said the first-quarter financials were largely in line with the company’s 2020 expectations, and management expects modest second-half favorability.
“We expect the acceleration into the second half for the following reasons: A cereal promotional calendar that is weighted to the second half, navigating potato side dish production constraints that have resulted in customer allocations, the timing of pricing moves, cycling start-up costs for our Norwalk (Iowa) plant, back-half cost reductions versus first-half investment in cost reductions and the timing of key promotional events for BellRing (sports nutrition business unit) customers, coupled with heavy Premier Protein advertising spend in Q2,” Mr. Vitale said during a Feb. 7 conference call with analysts.
Operating profit in the Consumer Brands business, which includes the company’s ready-to-eat cereal business in North America, totaled $80.6 million, down 4% from $84 million in the same period a year ago. Net sales fell 3% to $441.2 million from $455.3 million. Volume fell 3.4% during the quarter.
“Our domestic cereal had an expected decline in consumption as we lapped aggressive promotional events in grocery and club,” Mr. Vitale said. “As I mentioned, our promotional calendar this year favors the second half. …we were early in licensed sweets, and we are seeing the impact of competitive reactions. We have a promising innovation pipeline and continue to be confident in the near and longer-term trajectory of the business.”
During the quarter, the Federal Trade Commission voiced objection to Post’s planned acquisition of the ready-to-eat cereal business of TreeHouse Foods, Inc. Ultimately, the two companies opted to terminate their proposed deal. Asked during the conference call whether the F.T.C.’s objections could foreshadow any potential issues with other cereal transactions, Mr. Vitale said no, stating his belief that the concerns were 100% private label specific.
“(We believe) they felt that the combination of Post and TreeHouse would effectively eliminate competition in the private label subsegment,” he said. “And what we felt was novel and, in our opinion, inappropriate was having such a narrow definition of the market, that 7% of the market and drive competition in that big a category we found counterintuitive. We argued that it was actually consumer-friendly, but to no avail.”
Operating profit in the Foodservice business unit eased 11% to $47 million from $52.7 million, while sales increased 3% to $420.6 million from $408.1 million. Volumes increased 3% during the quarter boosted by a 2% increase in egg volumes and 8.8% increase in potato volumes.
Post’s Refrigerated Retail business unit, which includes side dishes, egg, cheese and sausage products, had operating profit of $26 million in the first quarter, down 15% from $30.5 million in the same period a year ago. Sales of $249.9 million were down 4% from $261.6 million the previous year.
“Overall side dish volumes declined 5.2%, driven by capacity constraints, which led to customer allocations,” said Jeff A. Zadoks, executive vice-president and chief financial officer. “However, Bob Evans branded side dishes grew 5.4%, as we prioritized allocations to this faster-growing portion of our business. Retail egg and cheese volume declined approximately 10% and 9%, respectively. Segment-adjusted EBITDA declined 8.8% this quarter, driven by overall volume declines, higher integrated supply chain costs as previously mentioned and lower contribution from our cheese business caused by lower sales volumes and higher commodity costs. These items were partially offset by an improved price/cost relationship for sausage products.”
Operating profit in the Weetabix unit increased 25% to $23.7 million from $18.9 million, while sales rose to $101.5 million from $100.9 million.
Operating profit in the BellRing Brands business, which includes ready-to-drink protein shakes, beverages, powders and nutrition bars, increased 40% to $49.3 million from $35.2 million. Sales rose 31% to $244 million from $185.8 million.