Post Holdings, Inc. — Form 10-Q Summary
Business context and reporting period. Post is a consumer packaged goods holding company with four reportable segments: Post Consumer Brands, Michael Foods Group, Active Nutrition and Private Brands. This unaudited filing covers the quarter and six months ended March 31, 2016, the second quarter of Post’s fiscal 2016, and compares results with the same periods in fiscal 2015. Post acquired Willamette Egg Farms in October 2015 and sold certain assets of its Michael Foods Canadian business in March 2016.
Financial results and liquidity
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Net sales | $1,271.1 million, up 21% from $1,052.7 million | $2,519.9 million, up 18% from $2,126.6 million |
| Operating profit | $162.5 million, versus $49.7 million | $295.4 million, versus $90.6 million |
| Net earnings (loss) | $4.9 million, versus $30.5 million | $30.4 million, versus a loss of $66.8 million |
| Net earnings (loss) available to common shareholders | $1.5 million, versus $26.3 million | $12.0 million, versus a loss of $75.3 million |
| Diluted earnings (loss) per share | $0.02, versus $0.45 | $0.17, versus a loss of $1.45 |
| Operating cash flow | Not presented as a quarterly figure | $196.4 million, versus $158.4 million |
Quarterly gross profit was $409.3 million, compared with $275.5 million; six-month gross profit was $771.8 million, compared with $524.6 million. Interest expense rose 29% in both comparison periods, to $77.2 million for the quarter and $155.0 million for six months. Other expense was $90.9 million and $106.8 million, respectively, primarily from noncash mark-to-market losses on interest rate swaps.
At March 31, 2016, cash and cash equivalents were $868.2 million and total current assets were $1,809.9 million, against current liabilities of $556.6 million. Reported current and long-term debt totaled $4,513.9 million; debt principal was $4,474.5 million. The $400 million revolving facility had $387.9 million of available capacity after letters of credit. Post reported compliance with its debt covenants and said it expected cash on hand, operating cash flow and credit facilities to meet foreseeable financing needs.
Six-month investing cash outflow was $122.0 million, including $94.4 million for acquisitions and $44.8 million of property additions. Financing used $48.5 million; cash increased $26.8 million to $868.2 million. Operating cash flow increased year over year, with management citing acquisition contributions partly offset by unfavorable working-capital changes, including higher income tax payments and the prior-year collection of a $55.5 million tax receivable.
Material changes and segment performance
- Post Consumer Brands: Quarterly sales rose 80% to $440.1 million, primarily because of MOM Brands, which contributed $194.5 million. Segment profit rose 47% to $74.7 million, while margin declined to 17% from 21%, reflecting the acquired business’s lower margin and integration costs.
- Michael Foods Group: Quarterly sales increased 1% to $557.7 million, while segment profit rose 125% to $89.6 million. Six-month sales were down slightly, but segment profit more than doubled to $170.4 million. Results reflected cost containment and pricing amid avian-influenza-related egg supply and volume pressure; WEF contributed to current-period results.
- Active Nutrition: Quarterly sales rose 7% to $143.8 million and segment profit improved to $13.8 million from a $4.5 million loss. Premier Protein growth was partly offset by declines in Dymatize and PowerBar and the absence of sold Musashi sales.
- Private Brands: Quarterly sales rose 4% to $129.7 million, but segment profit fell 26% to $7.7 million. Six-month sales and profit increased 5% and 19%, respectively, with the profit comparison benefiting in part from an additional month of ABC results.
Overall sales growth reflected acquisitions and growth in cereal, Premier Protein shakes, pasta, peanut butter, and dried fruit and nuts, partly offset by weakness in eggs, potatoes, cheese, some protein products, and other nut butters. General corporate expenses and other fell to $23.3 million for the quarter and $57.5 million for six months, mainly due to lower stock-based compensation, acquisition costs and losses on assets held for sale compared with the prior year.
Outlook, risks and unusual items
- The filing provides no numerical earnings or revenue guidance. Management said it expected to continue generating positive operating cash flow and believed available liquidity would be sufficient for foreseeable needs, while noting this depends on economic conditions, competition and other business risks.
- Post recorded $90.9 million of quarterly and $106.8 million of six-month noncash swap losses in other expense. Swap liabilities were $244.5 million at March 31, 2016, compared with $138.7 million at September 30, 2015.
- A collective bargaining agreement amendment produced a $36.1 million pretax gain in other comprehensive income from remeasurement of postretirement obligations; it was not an operating earnings gain.
- Post decided to exit its Canadian egg business and sold certain related assets. The decision contributed to discrete tax effects; the reported effective tax rate was 187.5% for the quarter and 9.5% year to date.
- Michael Foods faces federal and state antitrust litigation concerning egg production and sales, including a certified shell-egg subclass. Post said the loss cannot be estimated. Management considered other pending legal matters not expected to be material.
- Key stated risks include high leverage and debt service, acquisition integration and synergy realization, commodity and energy price volatility, supply-chain disruptions, product liability and food safety, customer and consumer demand changes, goodwill or intangible impairment, foreign exchange, and litigation. Management reported disclosure controls were effective and said there had been no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- How much of sales and profit growth is attributable to acquisitions versus organic performance, particularly MOM Brands and WEF.
- Whether Post can sustain segment improvements while addressing lower cereal margins, egg-volume constraints and weaker Private Brands quarterly profit.
- The cash-flow and earnings effects of working-capital needs, integration costs, and the tax consequences of exiting the Canadian egg business.
- The valuation and future cash-settlement exposure of interest-rate swaps, alongside debt maturities, borrowing costs and covenant capacity.
- Developments in the egg-industry antitrust cases and any resulting financial exposure, which the filing says cannot currently be estimated.