Post Holdings, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2023, the three months ended December 31, 2022. Amounts are in millions of dollars except per-share data. The filing is unaudited.
Business context
Post is a consumer packaged goods holding company with four reporting segments: Post Consumer Brands, Weetabix, Foodservice and Refrigerated Retail. Results are presented from continuing operations. BellRing was spun off in March 2022, so the prior-year comparison includes BellRing in discontinued operations and is not fully like-for-like.
Financial results and liquidity
| Metric | Q1 FY2023 | Prior-year quarter |
|---|---|---|
| Net sales | $1,566.3 | $1,337.5 |
| Gross profit | $414.9 | $331.7 |
| Operating profit | $149.9 | $78.2 |
| Net earnings (loss) | $91.9 | $(20.8) |
| Diluted earnings (loss) per share | $1.52 | $(0.25) |
| Operating cash flow, continuing operations | $98.3 | $115.2 |
| Capital expenditures | $52.3 | $57.3 |
Gross margin was approximately 26.5%, compared with 24.8% a year earlier; operating margin was approximately 9.6%, compared with 5.8%. Operating cash flow declined $16.9, mainly due to higher net tax and interest payments. Cash and cash equivalents were $606.8 at quarter-end. Total current assets were $2,197.4 and current liabilities were $788.2.
Debt principal was $5,898.3, compared with $5,969.3 at September 30, 2022; the balance-sheet carrying value of long-term debt was $5,886.8. The $750.0 revolving facility had $730.3 of available capacity after letters of credit. The company reported a 4.8% weighted-average interest rate on total debt for the quarter. Its secured-net-leverage covenant was not applicable at quarter-end because revolving-related obligations were below the covenant trigger.
Material changes and segment performance
- Sales rose 17% and operating profit rose 92%. Management attributed the improvement primarily to higher segment profit at Foodservice, Post Consumer Brands and Refrigerated Retail, as well as lower corporate expenses.
- Foodservice sales increased 37% to $600.5 and segment profit increased to $79.1 from $15.1. Higher prices and improved demand contributed, while egg input inflation remained substantial.
- Post Consumer Brands sales increased 9% to $554.7 and segment profit rose 11% to $79.3. Pricing and lower advertising costs helped offset raw-material and manufacturing cost increases; volumes declined 1%.
- Refrigerated Retail sales increased 7% to $293.0 and segment profit rose to $21.0 from $13.6. Higher prices and volume gains in some products were partly offset by input-cost inflation, manufacturing costs and egg-supply constraints.
- Weetabix sales were essentially flat at $118.1, while segment profit declined 21% to $21.5, reflecting inflation, product mix and unfavorable currency effects.
- Post transferred its remaining BellRing shares to repay debt in November 2022 and held no BellRing shares at quarter-end.
Outlook, risks and unusual items
- No quantified earnings or sales guidance is provided in the supplied filing text. Management expects inflationary pressures to continue through fiscal 2023 and says pricing, cost savings and hedging have largely mitigated them to date.
- Management expects elevated energy and raw-material costs related to the Ukraine conflict to persist in fiscal 2023. The U.K. energy price cap was scheduled to expire in April 2023, potentially increasing costs for U.K. operations.
- Avian influenza has constrained egg supply and increased egg costs. The company intends to mitigate the effects through customer-volume management and pricing, but further outbreaks could materially affect its egg business.
- Other stated risks include labor and supply-chain disruption, further input-cost increases, consumers’ response to price increases, high leverage, interest and foreign-exchange exposure, and demand or competitive changes. Management said it believed cash, operating cash flow and credit facilities would meet foreseeable needs, while noting additional financing might not be available on acceptable terms if needed.
- Net earnings included an $8.7 gain on debt extinguishment, a $5.1 gain related to BellRing investment remeasurement and $12.3 of net swap income. These items affect comparability; the prior-year quarter also included $18.6 of equity-method losses and $23.9 of discontinued-operation earnings.
- The company repurchased 0.3 million shares for $24.0, including unsettled repurchases. Management reported disclosure controls were effective and no significant change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- How much of the quarter’s profit improvement reflects recurring segment performance versus debt, swap and investment gains, and the non-comparable BellRing spin-off.
- Whether pricing and cost actions can continue to offset inflation without materially weakening volumes or product mix.
- Developments in avian influenza, egg availability and costs, and the potential effect of the U.K. energy price cap’s expiration.
- Debt repayment plans, interest-rate exposure, and liquidity availability; distinguish cash on hand from PHPC trust assets held for public-stockholder redemptions.
- Progress and any material developments regarding PHPC’s required partnering transaction deadline and the tax treatment intended for BellRing-related transactions.