Michael Foods eggs
Results for the Michael Foods segment dragged down first-quarter performance for Post Holdings.

ST. LOUIS — First-quarter results for the Michael Foods segment came in about as expected, which dragged down Post Holdings, Inc. overall. The segment reported a $17 million loss for the quarter ended Dec. 31, 2016, as low egg prices and a legal settlement had a negative effect.

“Michael Foods performed as expected this quarter,” said Rob Vitale, president and chief executive officer of St. Louis-based Post Holdings, in a Feb. 3 earnings call. “We continue to expect to lap the impact of avian influenza during the second half of F.Y. ‘17. Market egg supply has returned to pre-A.I. levels while low shell egg market prices have delayed some customers’ return to value-added egg products.

“As a result, the normalization of our demand has lagged the return to normal supply conditions. This timing difference was baked into our 2017 plan and has developed as we expected.”

The Michael Foods segment’s loss compared to a profit of $80.8 million in the previous year’s first quarter. Net sales in Michael Foods dropped 8% to $539.8 million from $586.4 million. First-quarter expenses included a provision for $74.5 million in legal settlements related to agreements to settle egg anti-trust class-action claims.

Egg sales, on a comparable basis, declined 13% as a result of reduced pricing related to the rollback of the temporary component of avian influenza pricing and reduced market-based pricing in the ingredient and retail shell egg channels. Egg volumes, on a comparable basis, increased 12%. The impact of the avian influenza reduced egg inventory available for sale in the previous year’s first quarter.

Mr. Vitale said an avian influenza outbreak in South Korea last November, which led to the United States being allowed to export shell eggs to that country, should have a positive impact on U.S. egg prices.

“What the timing is, and whether it will be impactful in the next couple of quarters or a longer tail than that, is hard to evaluate,” Mr. Vitale said.

Jeff Zadoks, chief financial officer for Post, said Michael Foods is more or less back to the supply levels the business was at before last year’s U.S avian influenza outbreak. Post anticipates egg prices increasing throughout 2017, he said.

“The prices during the first quarter were actually a little bit lower than our plan had anticipated, and therefore there was some headwind in the quarter,” he said in the earnings call.

Post Holdings overall posted net earnings of $97.6 million, or $1.36 per share on the common stock, which was an increase of 283% from $25.5 million, or 16c per share on the common stock, in the previous year’s first quarter. Net earnings included a gain of $144.5 million primarily related to non-cash, mark-to-market adjustments on interest rate swaps. First-quarter net sales of $1,249.8 million were up 0.1% from $1,248.8 million.

The Active Nutrition segment recorded operating profit of $24.9 million, up from $10.5 million in the previous year’s first quarter. Sales jumped 33% to $153.9 million from $115.8 million in the first quarter for Active Nutrition.

“Active Nutrition continues to show great growth, driven by Premier Protein shakes and bars,” Mr. Vitale said. “It is now a material contributor to our portfolio and a large component for the confidence we have that declines of Michael will be offset.”

Active Nutrition offers the most opportunity for acquisitions because a larger number of small businesses are being formed in the category, he said.

“We tend to look at M.&A. as an opportunity to look at two different types of opportunities,” Mr. Vitale said. “One, picking larger businesses that have less volatility, usually lower multiples, but less potential to grow hyperbolically, and then, in contrast, the situations like Premier, where you have hyperbolic growth, but the downside of that product lifecycle could be equally steep.”

The Post Consumer Brands segment recorded first-quarter profit of $81.6 million, up 30% from $62.9 million. Net sales of $420.6 million were up 2% from $411.6 million. Volumes declined 0.5%. Net sales and volume grew for Malt-O-Meal branded bags, Pebbles and Honey Bunches of Oats. The growth was offset partially by reduced volumes for lower margin co-manufacturing and government bid business.

The Private Brands segment had operating profit of $7 million, down from $12.9 million. Sales were $135.6 million, the same as the previous year’s first quarter. Net sales benefited from volume growth for both granola and organic peanut butter, which was offset by lower net pricing for almond and walnut products and volume declines for regular peanut butter and fruit and nut.