Post Holdings, Inc. — Q3 FY2021 Form 10-Q
Reporting period: Three and nine months ended June 30, 2021; comparative periods ended June 30, 2020. Amounts are in millions of dollars unless stated otherwise. The filing is unaudited.
Business context
Post is a consumer packaged goods holding company with five reportable segments: Post Consumer Brands, Weetabix, Foodservice, Refrigerated Retail and BellRing Brands. Fiscal 2021 acquisitions included the Peter Pan brand, Almark Foods, Egg Beaters and TreeHouse Foods’ private-label ready-to-eat cereal business. Post also consolidated newly formed SPAC Post Holdings Partnering Corporation (PHPC), despite holding 31% of its equity, because its subsidiary sponsor was determined to be PHPC’s primary beneficiary.
Financial performance
| Metric | Q3 FY2021 | Q3 FY2020 | Nine months FY2021 | Nine months FY2020 |
|---|---|---|---|---|
| Net sales | $1,589.8 | $1,336.4 | $4,531.1 | $4,287.4 |
| Gross profit | $479.4 | $436.8 | $1,385.8 | $1,347.1 |
| Operating profit | $206.5 | $172.1 | $517.9 | $521.6 |
| Net earnings (loss) attributable to Post | $(54.3) | $36.0 | $136.8 | $(56.2) |
| Diluted EPS | $(0.95) | $0.52 | $1.99 | $(0.81) |
| Cash from operating activities | Not separately stated | Not separately stated | $395.3 | $408.4 |
Quarterly sales rose 19%, while nine-month sales rose 6%. Gross margin was approximately 30.2% for the quarter versus 32.7% a year earlier, and 30.6% for the nine months versus 31.4%. Operating profit increased 20% in the quarter but declined 1% for the nine months. Quarterly net loss reflected, among other items, a $121.6 loss on swaps and $28.5 of income tax expense, including the impact of U.K. tax-rate changes. Nine-month results included a $105.6 net gain on swaps and $94.8 of debt extinguishment and refinancing losses.
| Segment | Q3 sales, year over year | Q3 segment profit |
|---|---|---|
| Post Consumer Brands | $468.7; down 11% | $87.8; down 31% |
| Weetabix | $123.4; up 10% | $28.6; down 12% |
| Foodservice | $435.1; up 80% | $27.9, versus $(40.3) |
| Refrigerated Retail | $220.8; down 12% | $14.3; down 66% |
| BellRing Brands | $342.6; up 68% | $51.5; up 68% |
Foodservice’s quarterly rebound largely reflected recovery from pandemic-related weakness in the prior-year period. BellRing sales also grew substantially. Cereal and refrigerated retail results faced lower volumes, higher costs and comparisons against pandemic-driven at-home demand.
Financial position, liquidity and capital allocation
- At June 30, 2021, cash and cash equivalents were $775.9, down from $1,187.9 at September 30, 2020. Current assets were $2,099.2 and current liabilities $930.9.
- Principal debt was $7,066.4, compared with $7,049.7 at September 30, 2020. Post issued $1,800 of 4.50% senior notes due 2031 and used proceeds to redeem its 5.00% notes. Post reported $730.8 of available capacity on its $750 revolving facility; BellRing had $200 available on its revolver.
- Nine-month investing cash outflow was $737.4, including $290.3 net cash paid for acquisitions, $142.7 in capital expenditures and $345 placed in PHPC’s trust account. Financing cash outflow was $75.2, including $322.7 of treasury-stock purchases.
- Post repurchased 3.3 million shares during the nine months for $315.3, at an average price of $95.78. No shares were repurchased during the quarter.
Management said it expects positive operating cash flows and believes cash, operating cash generation and available credit facilities will be sufficient for foreseeable needs, while noting financing access and cash generation could be affected by business conditions and the pandemic.
Material changes, outlook and risks
- Management reported foodservice volumes recovering, but still below pre-pandemic levels overall. Labor and freight shortages were disrupting Foodservice and Refrigerated Retail operations, reducing service levels and increasing costs; some products were allocated. Management said volume recovery and refrigerated retail growth would depend partly on stabilizing supply-chain performance and hiring, training and retaining staff.
- Post Consumer Brands’ nine-month sales fell 6%, with lower volumes as pandemic pantry loading unwound, softness in value and private-label cereal, and the exit of some low-margin business. The company also cited production shutdowns and employee absences at its Battle Creek facility.
- U.K. legislation raising the corporate tax rate from 19% to 25% from April 2023 led Post to remeasure deferred tax balances and record $39.3 of tax expense. The quarter’s reported effective tax rate was an unusual (678.6)% because of the pretax loss and discrete tax effects.
- Acquisitions contributed to growth and increased goodwill; the TreeHouse cereal acquisition generated a preliminary $12.7 bargain-purchase gain. Purchase allocations remained preliminary. PHPC’s $305 redeemable noncontrolling interest was presented outside permanent equity.
- BellRing discontinued the Supreme Protein brand; accelerated amortization was $11.8 for the quarter and $29.9 for the nine months. Post also disclosed an intention to distribute a significant portion of its BellRing interest, subject to conditions and approvals; completion is not assured.
- Three egg-product opt-out plaintiffs remain in antitrust litigation against subsidiary Michael Foods. Post had a $3.5 accrual and cautioned that the remaining claims could still result in a material adverse outcome. Management stated other pending legal matters were not expected to be material.
- Principal risks include high leverage and debt service, COVID-19 effects, labor and supply-chain disruption, commodity and freight cost volatility, competition and consumer shifts, acquisition integration, litigation, PHPC’s ability to complete a partnering transaction, and the proposed BellRing distribution.
The filing provides no specific consolidated earnings or sales guidance for the coming period. Management’s outlook is mainly qualitative, including expectations for positive operating cash flow and continued uncertainty around pandemic effects, supply-chain capacity and foodservice recovery.
Investor verification priorities
- Separate underlying operating trends from acquisition contributions, pandemic comparison effects, swap mark-to-market movements and discrete U.K. tax expense.
- Track labor availability, fill rates, freight and input costs, and whether foodservice volumes continue to recover without renewed service constraints.
- Review debt maturities, interest costs, covenant headroom and use of liquidity, including the effect of further buybacks or acquisitions.
- Monitor final purchase accounting for fiscal 2021 acquisitions, PHPC’s proposed partnering transaction and the potential BellRing distribution.
- Follow the remaining egg-product antitrust claims and any changes to the recorded accrual or management’s assessment.