Post Holdings, Inc. — Q1 FY2016 Form 10-Q
Reporting period: Three months ended December 31, 2015; comparisons are with the three months ended December 31, 2014. Amounts are in millions except per-share data. Post is a consumer packaged goods holding company with four reportable segments: Post Consumer Brands, Michael Foods Group, Active Nutrition and Private Brands.
Financial performance
| Metric | Q1 FY2016 | Q1 FY2015 |
|---|---|---|
| Net sales | $1,248.8 | $1,073.9 |
| Gross profit | $362.5 | $249.1 |
| Operating profit | $132.9 | $40.9 |
| Net earnings (loss) | $25.5 | $(97.3) |
| Net earnings (loss) available to common shareholders | $10.5 | $(101.6) |
| Diluted EPS | $0.15 | $(2.04) |
| Cash from operations | $88.7 | $57.2 |
- Sales increased 16%; gross margin was approximately 29.0%, versus 23.2% a year earlier. Operating margin was approximately 10.6%, versus 3.8%.
- Interest expense, net, rose 29% to $77.8. The weighted-average interest rate on outstanding debt was 6.9%, versus 6.1%.
- Other expense was $15.9, primarily a non-cash loss on interest-rate-swap mark-to-market adjustments, compared with a $54.6 loss in the prior-year quarter.
- At December 31, cash and cash equivalents were $802.4; current assets were $1,716.6 and current liabilities $564.4. Balance-sheet debt was $4,522.4, including current maturities and unamortized premium/discount; principal debt was $4,481.5.
- Operating cash flow less property additions was $70.2. Investing activities used $107.9, including $94.4 for acquisitions; financing activities used $19.4. Cash declined $39.0 during the quarter.
Material changes and segment results
Higher reported sales and operating profit primarily reflect contributions from recent acquisitions, alongside performance improvements in the segments. Acquisitions included MOM Brands (May 2015), Willamette Egg Farms (October 2015), American Blanching and PowerBar/Musashi (both in fiscal 2015). The filing cautions that some acquired-business data are not separately available because of integration.
| Segment | Sales | Segment profit | Key change |
|---|---|---|---|
| Post Consumer Brands | $411.6, up 89% | $62.9, up 67% | MOM Brands contributed $183.1 in sales; integration costs were $7.9. Margin declined to 15% from 17%, mainly due to the acquired business’s lower margin. |
| Michael Foods Group | $586.4, down 2% | $80.8, up 92% | Excluding WEF, sales fell 7%, with egg-product volume affected by avian influenza; profit improved across the segment. |
| Active Nutrition | $115.8, down 11% | $10.5, versus a $6.3 loss | Premier Nutrition shake growth was offset by lower Dymatize and PowerBar sales and the absence of Musashi sales. |
| Private Brands | $135.6, up 6% | $12.9, up 87% | Growth included an additional month of American Blanching results. |
Net sales growth also reflected growth in Post-branded ready-to-eat cereal and Premier ready-to-drink shakes, partly offset by declines in egg, potato, cheese, Private Brands and other protein products.
Liquidity, outlook and risks
- The $400.0 revolving credit facility had $12.1 of letters of credit and $387.9 of available borrowing capacity. The company reported compliance with credit-agreement financial covenants and said it did not expect noncompliance in the foreseeable future.
- Management stated that cash on hand, operating cash flow and current and possible future credit facilities should be sufficient for foreseeable working-capital, interest, capital-expenditure and other financing needs. This is subject to economic conditions, competition and other business risks; the filing gives no specific earnings or revenue guidance.
- Key risks include substantial leverage and debt service, acquisition integration and realization of MOM Brands synergies, commodity and energy cost volatility, consumer demand and competition, reliance on third-party manufacturing, supply-chain disruption, product liability, regulatory matters, and foreign-exchange and disease-outbreak risks.
- Michael Foods remains involved in egg-industry antitrust litigation. The company said the loss could not be estimated and its impact could not be predicted. Management said other pending legal matters were not expected to be material based on information then available.
- Restructuring included the Dymatize facility closure and transfer to third-party manufacturing and planned cereal-office consolidation. The company recorded $4.0 of losses on assets held for sale in the quarter; remaining expected restructuring charges were $0.1.
Important facts for investors to verify
- How much of sales and profit growth is attributable to acquisitions versus organic performance, particularly MOM Brands and WEF.
- Whether integration costs and lower acquired-business margins affect future Post Consumer Brands profitability, and whether anticipated synergies are achieved.
- Whether Michael Foods can sustain improved profitability amid ongoing effects of avian influenza, egg supply and market-price changes.
- Debt-service capacity, interest costs, covenant headroom and refinancing requirements given principal debt of $4,481.5 and substantial leverage.
- Developments in egg-industry antitrust litigation and any resulting financial exposure; the filing does not provide a clear loss estimate.