Post Holdings, Inc. — Form 10-Q Summary
Reporting period: Second quarter and six months ended March 31, 2017; fiscal year ends September 30. Unaudited results are compared with the corresponding 2016 periods. Amounts are in millions except per-share data.
Financial performance
| Metric | Three months 2017 | Three months 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Net sales | $1,255.4 | $1,271.1 | $2,505.2 | $2,519.9 |
| Gross profit | $364.1 | $409.3 | $743.3 | $771.8 |
| Operating profit | $137.5 | $162.5 | $213.7 | $295.4 |
| Net earnings (loss) | $(4.0) | $4.9 | $93.6 | $30.4 |
| Net earnings (loss) available to common shareholders | $(7.4) | $1.5 | $86.8 | $12.0 |
| Diluted EPS | $(0.11) | $0.02 | $1.18 | $0.17 |
| Cash from operating activities | Not presented quarterly | $(26.5) | $196.4 |
- Sales declined 1% in both the quarter and six-month period. Gross margin was approximately 29.0% for the quarter (32.2% prior year) and 29.7% for six months (30.6% prior year); operating margin was approximately 11.0% and 8.5%, respectively, versus 12.8% and 11.7%.
- Six-month earnings included a $145.5 gain on interest-rate swaps, largely noncash, compared with a $106.8 loss in the prior-year period. The quarter included a $62.5 debt-extinguishment loss and $80.2 net interest expense.
- Cash and cash equivalents were $1,484.9 at March 31, 2017, up from $1,143.6 at September 30, 2016. Total assets were $9,825.6; total liabilities were $6,837.4.
- Debt principal was $5,334.7; balance-sheet debt, net of issuance costs and other adjustments, was $5,270.5. The $800 revolving facility had $790 available after letters of credit. The company reported covenant compliance. Current liabilities were $456.4 against current assets of $2,525.1.
Material changes and segment results
- Michael Foods Group: Sales fell 8% in both periods; segment profit fell 52% in the quarter and 85% for six months. Drivers included lower egg prices after supply normalized following avian influenza, weaker cheese and dairy demand, and pasta production and volume issues. Six-month results included $74.5 of egg-antitrust settlement expense.
- Post Consumer Brands: Quarterly sales decreased 2%, while segment profit rose 21% for the quarter and 25% for six months, supported by lower advertising and promotional spending and material costs. Branded Pebbles and Malt-O-Meal volumes increased, while several other cereal lines declined.
- Active Nutrition: Sales increased 23% in the quarter and 28% for six months; segment profit rose 54% and 90%, respectively. Growth was led by Premier Protein ready-to-drink products and higher volumes, partly offset by promotional and advertising spending.
- Private Brands: Sales increased 2% in the quarter and 1% for six months. Segment profit rose 23% in the quarter but declined 20% for six months, reflecting capacity-related costs and lower volumes.
- The October 2016 National Pasteurized Eggs acquisition contributed $46.9 of six-month sales and $2.7 of operating losses. The company repurchased 1.7 million shares for $133.1 during the first quarter.
Liquidity, outlook, risks and unusual items
- Operating cash flow was a $26.5 outflow for six months, versus $196.4 provided a year earlier. The filing attributes the deterioration principally to $103.0 of legal-settlement payments, increased advertising and incentive payments, higher interest payments, and working-capital movements, including increased income taxes receivable. Investing cash outflow was $141.6, including $63.9 of capital expenditures and $90.2 for acquisitions.
- In February, Post issued $1,750 of 5.50% notes due 2025 and 5.75% notes due 2027, using much of the proceeds to repay approximately $1,008 of higher-coupon notes. The refinancing generated a $62.5 extinguishment loss. Weighted-average interest rate on outstanding debt was 6.0% at March 31, versus 6.9% a year earlier.
- Management said cash on hand, operating cash flows and current or possible future credit facilities should be sufficient for foreseeable needs, while noting dependence on operating cash generation and access to financing. No specific earnings or revenue guidance was provided.
- After quarter-end, Post agreed to acquire Weetabix for approximately £1.4 billion, subject to adjustments and regulatory approvals, with closing expected in fiscal fourth quarter 2017. In May, it announced tender offers for $1.2 billion of notes and intended to borrow approximately $2.0 billion under an incremental term loan, together with cash on hand, to fund the offers and acquisition. Financing, regulatory, closing and integration risks are significant; the agreement includes a potential £30 million termination fee in specified circumstances.
- Michael Foods’ direct-purchaser egg-antitrust settlement of $75.0 was paid into escrow pending court approval; a separate confidential opt-out settlement was paid. Remaining claims, including indirect-purchaser claims and certain appeals, remain unresolved, and the company said potential losses could not be estimated.
- Management warned that continued weakness in the specialty sports-nutrition channel could require reassessment of Dymatize’s outlook and could lead to a potentially material goodwill impairment. Other risks include high leverage, commodity and input-cost volatility, competition, supply disruption, and acquisition execution. Management reported disclosure controls were effective.
Key facts for investors to verify
- Whether the direct-purchaser antitrust settlement receives court approval and the outcome of remaining egg-litigation claims.
- Weetabix closing conditions, final purchase price and funding terms, including the proposed incremental term loan and note tenders.
- Underlying segment trends—especially egg pricing and Michael Foods recovery, cereal volumes, and Active Nutrition growth—separating operating performance from unusual and noncash items.
- Cash conversion and working-capital developments after the six-month operating cash outflow, as well as debt covenant headroom and refinancing costs.
- Dymatize performance against impairment assumptions and any resulting goodwill impairment assessment.