Post Holdings, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021; this is an annual report, not a quarterly filing. Comparisons below are primarily with FY2020. Unless stated otherwise, amounts are in millions of dollars.
Business context
Post is a consumer packaged goods holding company with five reportable segments: Post Consumer Brands (North American cereal and Peter Pan nut butter), Weetabix (primarily U.K. cereal), Foodservice (primarily egg and potato products), Refrigerated Retail (side dishes, eggs, cheese and sausage), and BellRing Brands (protein beverages, powders and nutrition bars). Post also holds a 60.5% equity-method investment in 8th Avenue, which is not consolidated.
FY2021 included acquisitions of Peter Pan, Almark Foods, Egg Beaters and TreeHouse Foods’ private-label RTE cereal business. Post also consolidated PHPC, its SPAC affiliate, while allocating the public investors’ economic interest to redeemable noncontrolling interest.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change / context |
|---|---|---|---|
| Net sales | $6,226.7 | $5,698.7 | Up $528.0, or 9% |
| Gross profit / gross margin | $1,814.3 / 29.1% | $1,787.4 / 31.4% | Margin contracted about 2.2 percentage points |
| Operating profit / operating margin | $655.7 / 10.5% | $700.5 / 12.3% | Profit down 6%; margin contracted about 1.8 points |
| Net earnings attributable to Post | $166.7 | $0.8 | Basic EPS $2.42 vs. $0.01; diluted EPS $2.38 vs. $0.01 |
| Cash provided by operating activities | $588.2 | $625.6 | Down $37.4 |
| Capital expenditures | $192.5 | $234.6 | Operating cash flow less capex was $395.7 vs. $391.0 |
| Cash and cash equivalents at year-end | $817.1 | $1,187.9 | Down $370.8; separately, $345.0 was held in PHPC’s trust account |
| Total debt principal | $7,057.6 | $7,049.7 | Weighted-average interest rate was 5.1% vs. 5.3% |
| Current assets / current liabilities | $2,086.1 / $1,049.2 | $2,287.8 / $974.4 | Current ratio approximately 2.0 vs. 2.35 |
FY2021 net earnings included a $122.8 million gain on swaps, while FY2020 included a $187.1 million swap expense. The FY2021 effective tax rate was 25.7%, including $40.0 million of tax expense from remeasurement following U.K. tax law changes. These items make the sharp year-over-year increase in net earnings a poor standalone measure of underlying operating improvement.
Post issued $1.8 billion of 4.50% senior notes due 2031 and used the proceeds to redeem $1.697 billion of 5.00% notes. It recorded a $94.8 million net loss on debt extinguishment and refinancing. The company repurchased $393.7 million of its common stock during the year and paid no common dividends.
Material changes versus FY2020
- Post Consumer Brands: Sales fell 2% to $1,915.3 and segment profit fell 20% to $316.6. Excluding acquisitions, sales declined 8%, reflecting lapping of pandemic pantry loading, weakness in value/private-label cereal and exits from low-margin business. Higher manufacturing and freight costs, a $15.0 million legal-settlement provision and lost production at a facility also weighed on profit.
- Weetabix: Sales rose 8% to $477.5, aided by foreign exchange and pricing; excluding exchange effects, sales increased 1%. Segment profit rose 3% to $115.4.
- Foodservice: Sales rose 19% to $1,615.6 as demand partially recovered and acquisitions contributed. Segment profit increased to $61.7 from $25.6, but remained well below FY2019’s $198.4. Higher raw-material and freight costs constrained recovery.
- Refrigerated Retail: Sales increased 1% to $974.5, including acquisition contributions, while segment profit dropped 40% to $75.9. Higher sow, cheese and egg costs, manufacturing costs and freight were key pressures.
- BellRing Brands: Sales increased 26% to $1,247.1 on strong Premier Protein and Dymatize demand, but segment profit rose only 2% to $168.0. Input, freight and manufacturing inflation, promotional spending, restructuring and $29.9 million of accelerated amortization for the discontinued Supreme Protein brand offset sales growth.
Outlook, management commentary and risks
- Management expected labor shortages, input and freight inflation, equipment delays and supply disruptions to continue into FY2022, contributing to below-normal service levels, low inventories, product allocation and missed sales. Impacts were especially pronounced in Foodservice, Refrigerated Retail and BellRing.
- Management expected Foodservice to return to pre-pandemic profitability in FY2023. Refrigerated Retail side-dish volume was expected to remain constrained until supply-chain performance stabilized. BellRing supply constraints were expected to improve but persist through FY2022.
- Retail demand, which had benefited from pandemic-related at-home consumption, generally returned toward pre-pandemic growth rates in the second half of FY2021. Aggregate Foodservice volumes remained below pre-pandemic levels.
- On October 26, 2021, after year-end, Post agreed to separate and distribute a significant portion of its BellRing interest. The transaction was anticipated in the first calendar quarter of 2022, subject to customary conditions; Post said it expected to use New BellRing debt and shares to repay Post creditors. Completion and expected benefits were not assured.
- Principal risks include high leverage and debt-service needs; supply-chain, labor and commodity-cost volatility; reliance on contract manufacturers and major customers; COVID-19-related demand and operating uncertainty; competition and changing consumer preferences; food safety and litigation; and execution risks relating to acquisitions, BellRing separation and PHPC’s search for a transaction.
- Other notable matters: approximately 60 Weetabix employees were on strike at filing, without material production impact reported; three egg-product antitrust opt-out claims remained pending, with a $3.5 million accrual; and Post retained lease guarantees on 129 former Bob Evans restaurant properties. Management reported no goodwill or intangible-asset impairment in FY2021. The Foodservice reporting unit, the auditor’s critical audit matter, had $1,355.0 million of goodwill and estimated fair value at least 11% above carrying value.
- Management said it believed cash on hand, operating cash flow and available credit facilities would meet expected needs. Post had $730.8 million available under its revolver and BellRing had $200.0 million available under its revolver at year-end. Post’s secured net leverage covenant was not triggered; BellRing was below its 6.00-to-1.00 total net leverage limit.
Important facts for investors to verify
- Whether operating margins and segment profitability recover as input inflation, labor shortages and production constraints ease; assess actual performance against the stated FY2023 Foodservice recovery expectation.
- Underlying earnings excluding swap mark-to-market effects, refinancing losses, the U.K. deferred-tax remeasurement and other unusual charges or gains.
- Debt maturities, interest expense, covenant headroom and liquidity available to Post itself; PHPC trust assets are restricted and BellRing debt is not guaranteed by Post.
- Completion terms and timing of the BellRing separation, including the amount of New BellRing debt, cash consideration and the resulting use of proceeds to repay Post creditors.
- Acquisition integration and returns, plus the final purchase-price allocations for FY2021 acquisitions; reported allocations were preliminary at year-end.
- Customer concentration and remaining legal, labor and guarantee exposures, including the three unresolved egg-product antitrust claims and Bob Evans lease guarantees.