Post Holdings, Inc. — Form 10-Q, Fiscal Q3 2022
Reporting period: Three and nine months ended June 30, 2022; filed August 5, 2022. All amounts are in millions of dollars except per-share data. Post operates Post Consumer Brands, Weetabix, Foodservice and Refrigerated Retail. The March 10, 2022 BellRing spin-off is presented as discontinued operations for prior periods, so comparisons reflect a changed business perimeter.
Financial performance
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Net sales, 2022 / 2021 | $1,524.9 / $1,247.5; up 22% | $4,272.1 / $3,624.8; up 18% |
| Gross profit, 2022 / 2021 | $364.7 / $368.1 | $1,074.9 / $1,095.6 |
| Operating profit, 2022 / 2021 | $105.5 / $155.0 | $283.7 / $403.0 |
| Net earnings (loss), 2022 / 2021 | $170.2 / $(54.3) | $672.7 / $136.8 |
| Diluted EPS, 2022 / 2021 | $2.72 / $(0.95) | $10.82 / $1.99 |
| Operating cash flow, continuing operations | Not presented for the quarter | $219.7 / $249.4 |
Gross margin was approximately 23.9% in the quarter versus 29.5% a year earlier; operating margin was approximately 6.9% versus 12.4%. Higher sales did not translate into higher operating profit, principally due to input, freight, manufacturing and corporate costs. Reported earnings benefited substantially from non-cash gains: $35.1 on the retained BellRing investment and $131.6 from swap mark-to-market gains in the quarter; for nine months, those gains were $482.8 and $222.9, respectively. These items make reported net earnings less indicative of underlying operating performance.
Nine-month operating cash flow was $218.1 including discontinued operations, versus $395.3 in 2021. Continuing-operations investing cash use was $132.3, including $167.3 of capital expenditures; financing cash use was $486.4. Cash, cash equivalents and restricted cash ended the period at $267.5.
Segments: quarter ended June 30, 2022
| Segment | Sales | Segment profit | Change in profit vs. 2021 |
|---|---|---|---|
| Post Consumer Brands | $574.7 | $81.8 | Down 7% |
| Weetabix | $124.9 | $27.8 | Down 3% |
| Foodservice | $579.0 | $45.9 | Up 65% |
| Refrigerated Retail | $246.4 | $10.4 | Down 27% |
Foodservice sales rose 33%, reflecting higher pricing and recovering away-from-home demand; profit increased despite substantial egg-cost inflation. Post Consumer Brands and Refrigerated Retail faced inflation and higher manufacturing and freight costs. Weetabix sales benefited from pricing, but volumes were affected by supply constraints and lower cereal demand.
Financial position, debt and liquidity
At June 30, 2022, total assets were $11,560.2, current assets $2,291.0 and current liabilities $757.7. Cash and cash equivalents were $263.5; the separate $345.5 of current investments held in trust relates to PHPC and should not be assumed to be unrestricted operating cash. Long-term debt, net, was $6,032.4 (principal value $6,032.7), compared with $6,441.6 net at September 30, 2021. Available revolving-credit capacity was $728.8, net of letters of credit. The company reported that its leverage covenant was not applicable at quarter-end because specified revolver and letter-of-credit obligations were below the trigger threshold.
Post repurchased 3.8 million shares for $339.0 during the nine months. It also completed debt repayments and issuances, including redemption of $840.0 of 5.75% notes. After quarter-end, Post borrowed $450.0 under a short-term incremental term loan and used the proceeds to fund a $450.0 cash tender offer that retired $521.6 aggregate principal amount of 4.625% and 4.50% notes.
Outlook, commentary and risks
- Management expected Foodservice profitability to return to pre-pandemic levels in fiscal 2023, while noting volumes remained slightly below pre-pandemic levels.
- Inflation across segments, labor shortages, supply-chain disruptions and constrained input availability were expected to continue into fiscal 2023. The company cited higher energy, fuel and commodity costs associated with the Ukraine conflict.
- Avian influenza increased egg costs and constrained supply. Post said it was using customer volume management and pricing actions to mitigate the impact, but expected effects on egg volumes until supply recovered.
- Management said cash on hand, operating cash flows and credit facilities should be sufficient for foreseeable needs, while cautioning that weaker cash generation or inability to comply with financing terms could require additional financing or waivers.
- Three opt-out plaintiffs’ egg-product antitrust claims remained pending, with a trial scheduled for October 2022. Post had accrued $3.5; it said a material adverse outcome remained possible. Management considered other pending legal matters not expected to be material.
- Post intended to divest its remaining 14.2% BellRing stake within 12 months of the spin-off. The reported fair value and related gains could fluctuate with BellRing’s share price; the intended tax treatment and related indemnities are also relevant.
Most important facts for investors to verify
- Underlying operating trends and margin recovery, separating pricing and acquisition contributions from volume, inflation and one-time or mark-to-market gains.
- Whether Foodservice and Refrigerated Retail can manage egg supply and avian-influenza costs, and whether pricing actions offset continuing cost pressure.
- Post-spin-off debt, interest costs, liquidity and the cash and covenant effects of the post-quarter $450.0 loan and tender offer.
- The timing, market value and tax treatment of the planned BellRing stake divestiture.
- Developments in the remaining egg antitrust litigation and any change to the recorded reserve.