Post Holdings, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended December 31, 2021, compared with the three months ended December 31, 2020. Financial statements are unaudited. Post is a consumer packaged goods holding company with five reportable segments: Post Consumer Brands, Weetabix, Foodservice, Refrigerated Retail and BellRing Brands. Amounts below are in millions of dollars except per-share data.
Financial performance and liquidity
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $1,643.7 | $1,458.0 |
| Gross profit / gross margin | $424.0 / 25.8% | $455.4 / 31.2% |
| Operating profit / operating margin | $128.7 / 7.8% | $166.3 / 11.4% |
| Net earnings (loss) attributable to Post | $(20.8) | $81.2 |
| Basic and diluted EPS | $(0.25) | $1.24 basic; $1.21 diluted |
| Cash provided by operating activities | $106.1 | $114.5 |
| Capital expenditures | $57.9 | $53.9 |
- Net sales grew 13%, while gross profit fell $31.4 and operating profit fell 23%. Higher input, freight and manufacturing costs, weaker volumes and supply constraints pressured margins.
- The quarter’s $36.9 expense on swaps compared with $41.6 of swap income a year earlier. Net interest expense was $91.2, down from $96.6. The effective tax rate was negative 161.1%, reflecting discrete tax benefits; Post also recorded an $18.6 equity-method loss, primarily related to 8th Avenue.
- Cash and cash equivalents were $1,158.0 at December 31, 2021, versus $817.1 at September 30, 2021. Cash, cash equivalents and restricted cash increased $335.9 during the quarter. Investing activities provided $3.2 and financing activities provided $227.4.
- Debt principal was $7,467.5, compared with $7,057.6 at September 30, 2021; balance-sheet debt, net of issuance costs and other adjustments, was $7,429.0 long-term and $36.1 current. Post issued $500.0 principal of 5.50% notes, while BellRing repaid $90.1 of term debt. Post’s revolving facility had $728.6 available; BellRing’s had $200.0 available, with no borrowings outstanding on either facility at quarter-end.
- Post repurchased 1.5 million common shares for $155.0, including commissions; BellRing repurchased shares for $18.1. Working capital included $621.6 of inventory and $941.4 of current liabilities.
Material changes and segment results
- Sales growth reflected Foodservice, BellRing and Weetabix, as well as contributions from prior-year acquisitions. Sales declined, excluding acquisition impacts, in Post Consumer Brands and Refrigerated Retail.
- Post Consumer Brands sales rose 14% to $507.3, but segment profit was nearly flat at $71.3; volume weakness and higher costs offset pricing and acquisitions.
- Weetabix sales increased 4% to $118.6, while segment profit fell 3% to $27.2, reflecting lower volume and inflation.
- Foodservice sales rose 24% to $438.6 and segment profit increased 40% to $15.1, as volumes recovered from pandemic-affected comparisons; raw-material and freight costs remained significant.
- Refrigerated Retail sales increased 4% to $273.4, including acquisition effects, but segment profit fell 60% to $13.6. Supply constraints, lower volume and higher costs weighed on results.
- BellRing sales increased 9% to $306.5 and segment profit rose 6% to $50.6. Pricing and lower promotional spending helped offset supply constraints and higher product costs.
- Post sold Willamette Egg Farms on December 1, recording a $6.7 loss on sale. It also recorded a $9.8 gain from selling Klingerstown Foodservice equipment.
Outlook, commentary and risks
- Management said labor shortages, raw-material, packaging and freight inflation, and supply disruptions were affecting all segments, reducing service levels and inventories and causing missed sales. Post expected these pressures to persist in fiscal 2022; pricing actions had been taken and further actions were expected.
- Management expected Foodservice to return to pre-pandemic profitability in fiscal 2023. Refrigerated Retail volume growth, particularly in side dishes, was expected to remain constrained until supply-chain performance stabilized. BellRing supply constraints and inflation were also expected to persist through fiscal 2022.
- Post stated that cash on hand, operating cash flows and available credit facilities should be sufficient for foreseeable requirements, while noting that financing or covenant difficulties could require additional financing or waivers. Post was not required to test its revolving-credit financial covenant at quarter-end; BellRing was within its stated leverage covenant.
- Post planned a separation and distribution of BellRing: at least 80.1% of New BellRing was to be distributed to Post shareholders, with Post expected to retain approximately 14.2%. The transactions were anticipated in the second quarter of fiscal 2022, subject to conditions, and were not complete at December 31, 2021. Post expected to use New BellRing debt and shares to repay certain Post creditors; cash consideration for existing BellRing public shareholders was still to be determined.
- Three opt-out plaintiffs’ egg-products antitrust claims remained unresolved. Post had accrued $3.5 and said a material adverse outcome remained possible, although it considered the likelihood reduced following prior settlements. Management reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether sales growth and pricing can offset cost inflation, supply constraints and weaker volumes, especially in Refrigerated Retail and cereal.
- How much of the earnings decline reflects non-cash swap and market-value movements versus underlying operating performance.
- Completion, timing, cash consideration, debt issuance and creditor repayment effects of the BellRing separation and distribution.
- Debt levels, interest costs, available borrowing capacity and compliance with applicable covenant requirements.
- Developments in the remaining egg-products litigation and any change in the recorded accrual.