ST. LOUIS — Post Holdings Inc. remains “quite optimistic” about its pending acquisition of Weetabix, a transaction the company’s top executive said sets the stage for a diversification of Post’s portfolio and an expansion into the world’s second-largest active nutrition market.
|Robert Vitale, president and c.e.o. of Post|
“It creates optionality for us in the U.K. and in Europe to grow organically and through M.&A.,” Robert V. Vitale, president and chief executive officer of Post, said during a May 9 conference call with analysts.
Once the transaction is finalized, Weetabix U.K. and Ireland will be a stand-alone business within Post’s portfolio, while Weetabix North American operations will be combined into Post Consumer Brands, he said.
“Additionally, it’s the right time to bring all our cereal brands under one unit,” Mr. Vitale said. “With this in mind, we will also move the Attune Foods cereal and granola business into Post Consumer Brands. Attune and Weetabix North America are both tightly focused on the health and wellness segment of ready-to-eat cereal. This will allow each business to share best practices, manage costs on a combined basis and leverage the capabilities and strengths of the combined business. Beyond the U.K. and North America, the Weetabix acquisition creates holding companywide scale in certain international markets. In these key markets, we will create a consolidated presence to support resources in each market.”
In making changes to how its cereal brands are organized Post will look to improve its positioning in the cereal category, where Mr. Vitale said trends have worsened.
“This quarter, the category declined 3.2% in dollars and 2.1% in pounds,” he said. “The more segmented analysis shows that in comparison to category averages, declines are most pronounced in the adult brands, about average in all family brands but kids cereals growing in pounds with dollars flat. Our consumption performance was strong with dollars increasing 1.1% and pounds increasing 1.4%. We grew both base and incremental consumption. Post dollar and pound share increased to 19.2% and 22.1%, respectively.”
Mr. Vitale said Post’s performance benefited from a promotional plan more heavily weighted to the first half of fiscal 2017.
He said both Pebbles and Malt-O-Meal bags had “a great quarter,” while Great Grains was softer as the brand dealt with products that were discontinued in 2016.
Mr. Vitale said the company’s Michael Foods business performed as expected during the second quarter. The unit posted an operating profit of $42.7 million on sales of $515 million, which compared with profit of $89.6 million and sales of $557.7 million in the same period a year ago.
“We continue to expect to lap the impact of avian influenza during the second half of fiscal 2017,” he said. “Recall, we plan for reduction in the Michael Foods Group EBITDA, resulting from an A.I. driven imbalance of oversupplied grain-based egg versus grain-based demand. Essentially, we are selling higher-costing grain-based eggs at persistently low market prices. We now estimate the decline in this segment’s EBITDA at the high side of our previous range of $50 million to $100 million, which has been factored into our guidance.”
Operating profit in the Active Nutrition unit increased 54% to $21.2 million from $13.8 million while sales increased 23% to $177.3 million from $143.8 million.
Mr. Vitale said the Active Nutrition segment has experienced strong growth in its Premier Protein shakes and bars, while PowerBar continues to be weighed down by distribution losses.
Overall, Post sustained a loss of $7.4 million in the second quarter ended March 31, which compared with income of $1.5 million, equal to 2c per share on the common stock, in the same period a year ago. Net sales fell 1.3% to $1,255.4 million from $1,271.1 million.
For the six months ended March 31, net income was $86.8 million, or $1.26 per share, up sharply from $12 million, or 18c per share, in the same period a year ago. Net sales for the six months were $2,505.2 million, down from $2,519.9 million.
Looking ahead, Mr. Vitale said Post hopes to allocate capital to more attractive options than debt reduction.“Over time we will tend to invest in larger, slower-growing companies — in smaller faster-growing companies,” he said. “In this manner, we can maintain both the capacity to leverage our cash flow and the potential to grow it. With Weetabix, we will acquire a slow-growth business with synergies and enormous amount of optionality. We will finance it without incremental equity. In fact, we are increasing our leverage and reducing our cost of capital. The transformative diversification of our cash flow, including Weetabix, produces this outcome and enables us to continue seeking attractive investment opportunities.”