Post Holdings, Inc. — Q3 FY2015 Form 10-Q
Reporting period: Quarter and nine months ended June 30, 2015. Amounts are in millions of dollars except per-share data. Results are unaudited. Post is a consumer packaged goods holding company with cereal, refrigerated and food-ingredient, active nutrition, and private-brand businesses.
Financial results
| Metric | Three months 2015 | Three months 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Net sales | $1,211.8 | $633.0 | $3,338.4 | $1,368.0 |
| Gross profit | $316.5 | $148.6 | $841.1 | $392.5 |
| Operating profit | $81.3 | $8.0 | $171.9 | $32.9 |
| Net earnings (loss) | $24.0 | $(35.1) | $(42.8) | $(55.8) |
| Common earnings (loss) per diluted share | $0.33 | $(0.92) | $(1.02) | $(1.84) |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $261.7 | $74.5 |
- Quarterly gross margin was approximately 26.1% versus 23.5%; operating margin was approximately 6.7% versus 1.3%. For the nine-month periods, gross margin was approximately 25.2% versus 28.7%, while operating margin was approximately 5.1% versus 2.4%.
- Sales increased 91% in the quarter and 144% year to date. Management attributed the increases primarily to acquisitions; excluding acquisition contributions, sales rose 9% and 5%, respectively. Operating profit rose 67% for the quarter and 2% year to date excluding acquisition segment-profit contributions.
- The quarter’s $41.9 million gain on interest-rate-swap mark-to-market adjustments boosted other income; the nine-month period instead recorded a $41.5 million loss on those adjustments. These are non-cash items.
Liquidity, debt, and capital
- At June 30, cash and cash equivalents were $274.3; current assets were $1,269.3 and current liabilities $585.6. Restricted cash was $10.7.
- Balance-sheet current and long-term debt totaled approximately $4,528.0, compared with $3,856.1 at September 30, 2014. The debt note reports $4,489.9 of outstanding indebtedness before balance-sheet premium/discount and current classification adjustments. The company reported $4,495.9 of long-term debt on the balance sheet.
- The $1,181.5 MOM Brands purchase was funded with cash on hand, a $700.0 incremental term loan, and 2.45 million newly issued shares valued at $114.4. A February share offering generated $341.4 of net proceeds. Nine-month financing cash inflow was $984.2; cash increased $5.9.
- Operating cash flow increased to $261.7, supported by acquired operations, favorable working-capital movements including collection of a $55.5 tax receivable, and lower income-tax payments; higher interest payments partly offset the increase. Capital expenditures were $74.3.
- The $400.0 revolving facility had $395.8 available after letters of credit. Post said it complied with its financial covenants at quarter-end and believed it had adequate liquidity for foreseeable requirements, while noting cash generation and financing access depend on business conditions. No formal earnings guidance was provided.
Business changes, outlook, and risks
- Post completed its MOM Brands acquisition on May 4, 2015. MOM Brands contributed $122.6 of reported quarter sales and an operating loss of $0.5; results used a June 27 quarter close rather than Post’s fiscal calendar. The purchase-price allocation remained preliminary.
- Reported segment sales and profit reflect substantial acquisition and period-comparability effects. In the quarter, segment profit was $51.6 for Post Consumer Brands, $48.4 for Michael Foods Group, $7.9 for Active Nutrition, and $10.5 for Private Brands. Active Nutrition’s nine-month segment result was a $2.9 loss.
- Organic cereal sales declined 2% in the quarter and 3% year to date, reflecting lower volumes and, year to date, lower selling prices. Active Nutrition benefited from strong Premier Nutrition shake growth. Michael Foods faced lower egg and potato volumes; egg operations incurred avian-influenza-related costs and higher market egg prices, which management said it mitigated through cost controls, customer-volume management, and pricing.
- Management announced cereal-office consolidation, ceased production at the Boise PowerBar plant, and recorded restructuring costs. Assets held for sale generated losses of $27.4 year to date; the Portales facility and Australian business/Musashi trademark sales were completed after quarter-end, in July 2015.
- Other notable items included a $17.0 MOM Brands inventory valuation adjustment, elevated acquisition-related amortization, and $10.7 of quarterly restructuring and plant-closure costs. The effective tax rate was 58.8% for the quarter, which management said was affected by estimates of full-year earnings and permanent tax differences.
- Risks highlighted include substantial leverage and debt covenants, integration and synergy execution, continued weakness in the mature ready-to-eat cereal market, commodity and foreign-exchange volatility, customer concentration, and avian influenza. The outbreak affected an estimated 25% of annualized egg-volume commitments. Michael Foods is also involved in egg-industry antitrust litigation; the company said a loss could not be estimated.
Important facts for investors to verify
- How much of future growth and profitability depends on acquisitions versus organic performance, and whether MOM Brands synergies materialize.
- Whether debt levels, interest expense, and covenant headroom remain manageable as the company integrates acquisitions.
- The duration and financial consequences of avian influenza, including effects on egg supply, costs, pricing, and customers.
- Whether cereal volume and pricing trends improve, and whether Active Nutrition and other acquired businesses sustain profitability.
- Final MOM Brands purchase-price adjustments, held-for-sale transaction outcomes, and the eventual resolution or potential exposure from antitrust litigation.