Post Holdings, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended September 30, 2020. The filing also reports fourth-quarter results; this is an annual report, not a standalone quarterly filing. Amounts are in millions of dollars unless noted.
Business context
Post is a packaged-food holding company with five reportable segments: Post Consumer Brands (North American cereal), Weetabix (primarily U.K. cereal), Foodservice (primarily eggs and potatoes), Refrigerated Retail, and BellRing Brands (convenient nutrition). Post consolidated BellRing while allocating 28.8% of its earnings and net assets to noncontrolling interests. Its 60.5% investment in 8th Avenue is accounted for under the equity method and is not consolidated.
Key financial results
| Metric | FY2020 | FY2019 |
|---|---|---|
| Net sales | $5,698.7 | $5,681.1 |
| Gross profit / gross margin | $1,787.4 / 31.4% | $1,792.1 / 31.5% |
| Operating profit / operating margin | $700.5 / 12.3% | $781.0 / 13.7% |
| Net earnings attributable to Post | $0.8 | $124.7 |
| Diluted earnings per share | $0.01 | $1.66 |
| Cash from operating activities | $625.6 | $688.0 |
| Capital expenditures | $234.6 | $273.9 |
| Cash and cash equivalents at year-end | $1,187.9 | $1,050.7 |
| Total debt principal | $7,049.7 | $7,119.3 |
Operating cash flow less capital expenditures was $391.0, compared with $414.1 in FY2019. Working capital, excluding cash, restricted cash and current debt, was $184.9 versus $282.4. Available borrowing capacity at year-end was $731.2 under Post’s revolving facility and $170.0 under BellRing’s facility. Post reported no cash dividends and said it had no plans to pay them in the foreseeable future.
Material changes and segment performance
- Consolidated sales rose less than 1%; operating profit fell 10%. Excluding FY2019’s $126.6 gain on the 8th Avenue transaction and $63.3 impairment charge, FY2020 operating profit was down $17.2, or 2%.
- Post Consumer Brands sales increased 4% and segment profit rose 17% to $393.5, benefiting from higher retail demand, pricing and manufacturing efficiencies.
- Weetabix sales increased 5% and segment profit rose 18% to $112.3, with higher at-home cereal demand and favorable manufacturing and raw-material costs.
- Foodservice sales declined 16% and segment profit fell 87% to $25.6 as restaurant, education and other away-from-home demand weakened during the pandemic. The segment incurred inventory write-offs and other pandemic-related costs.
- Refrigerated Retail sales increased 6% and segment profit rose 32% to $125.6, supported by demand for side dishes, sausage and dairy products; egg-product sales weakened.
- BellRing Brands sales increased 16%, but segment profit declined 6% to $164.0 amid higher product costs, advertising, public-company and employee expenses.
Fourth-quarter results
FY2020 fourth-quarter net sales were $1,411.3, gross profit was $440.3, net earnings were $57.0 and diluted EPS was $0.83. In FY2019’s fourth quarter, sales were $1,442.8, gross profit was $452.2, net loss was $61.1 and diluted loss per share was $0.84; the prior-year quarter included a $63.3 impairment charge.
Debt, unusual items and liquidity
- FY2020 net earnings were sharply reduced by $187.1 of net swap expense, $72.9 of debt-extinguishment losses, and a $30.9 equity-method loss. Swap expense included $117.4 of non-cash mark-to-market losses and $69.7 of cash settlements.
- Interest expense was $388.6, up 21%; the weighted-average interest rate on total debt was 5.3%. Post issued $1.65 billion of 4.625% senior notes due 2030 and repaid its term loan and certain senior notes. Debt principal was $7.05 billion at year-end.
- Post drew $500 million under its revolver and BellRing drew $65 million during the pandemic to bolster liquidity; both borrowings were repaid before fiscal year-end. Management said cash, operating cash flows and credit facilities should meet foreseeable needs, while noting that the outlook remained uncertain.
- Post recorded an $11.7 bargain-purchase gain on its July 2020 Henningsen acquisition. It recorded no goodwill or intangible-asset impairment in FY2020. However, the Foodservice reporting unit’s estimated fair value exceeded carrying value by only 4%; the auditor identified its goodwill impairment assessment as a critical audit matter.
Outlook, risks and contingencies
The filing provides no numerical FY2021 guidance. Management expected some pandemic-related retail demand gains might persist, but could not predict whether they would continue. Foodservice volumes improved from April lows but remained linked to restrictions on mobility and gatherings. Key risks include the pandemic’s effects on demand, workforce and supply chains; high leverage and refinancing access; volatile commodity and input costs; customer concentration (Walmart represented 20.9% of consolidated sales); and competition and changing consumer preferences. The company also cited potential future capital and operating costs for animal-housing requirements and continuing uncertainty around LIBOR transition.
Post remained a defendant in egg-product antitrust claims brought by three opt-out plaintiffs; it had accrued $3.5 for the matter. It also retained guarantees related to leases for 143 former Bob Evans restaurant properties; management considered their fair value immaterial at September 30, 2020. Management and the auditor concluded that internal control over financial reporting was effective, and the financial statements received an unqualified audit opinion.
Important facts for investors to verify
- Whether retail demand gains and the recovery in Foodservice volumes continued after September 30, 2020.
- Debt maturities, interest expense, available revolver capacity, covenant headroom and cash flows available for debt service and capital needs.
- Foodservice reporting-unit performance and assumptions supporting its limited goodwill valuation headroom.
- BellRing’s contribution to consolidated results, noncontrolling-interest allocation and separate debt obligations.
- Progress and potential exposure in the remaining egg antitrust claims and Bob Evans lease guarantees.