Post Holdings, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2014, the three months ended December 31, 2013. Filed February 7, 2014. Figures are in millions of dollars except per-share data. Post operates Post Foods, Attune Foods and Active Nutrition.
Financial results and position
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Net sales | $297.0 | $236.9 |
| Gross profit / margin | $114.5 / 38.6% | $105.7 / 44.6% |
| Operating profit / margin | $25.2 / 8.5% | $30.3 / 12.8% |
| Interest expense | $29.0 | $19.2 |
| Net earnings (loss) | $(2.4) | $7.6 |
| Net earnings (loss) available to common stockholders | $(5.0) | $7.6 |
| Basic and diluted EPS | $(0.15) | $0.23 |
| Cash from operations | $24.9 | $23.6 |
- Sales rose approximately 25%; the filing attributes the increase to acquisitions and higher volumes. Excluding acquired businesses, sales were flat. Attune Foods contributed $23.2 and Active Nutrition $37.2.
- Post Foods sales were $236.9, unchanged year over year. Its volume increased 4%, while average net selling prices fell 4%.
- At December 31, cash and cash equivalents were $884.9, restricted cash was $1.1, current assets were $1,114.6 and current liabilities were $151.1. Long-term debt was $1,932.9, including $1,900.0 principal amount of senior notes; total liabilities were $2,503.4.
- Operating cash flow was $24.9. Investing used $345.7, including a $366.2 cash advance for the Dakota Growers acquisition; financing provided $804.6. Cash increased $482.9 during the quarter.
Changes, drivers and unusual items
- Gross margin declined 6.0 percentage points, driven by lower Post Foods selling prices, $2.7 of accelerated depreciation related to the Modesto plant closure, and the lower margins of acquired businesses. Lower raw-material costs of $2.2 partly offset these pressures.
- Operating profit fell $5.1 despite higher sales. Higher amortization from acquired intangibles, acquisition costs, restructuring and accelerated depreciation contributed; lower SG&A as a percentage of sales partly offset the decline.
- Interest expense increased $9.8, principally reflecting additional senior notes and a change in debt mix. The company issued $525.0 of 6.75% senior notes in November 2013.
- Q1 included $4.4 of acquisition-related costs, $0.5 of restructuring expense, and $2.7 of accelerated depreciation. Modesto closure costs were $3.2 in total for the quarter. Post expected the transfer and closure to be completed by September 2014 and estimated net pretax annual cash manufacturing savings of approximately $14.0 once completed.
- Post issued Series C convertible preferred stock in December, receiving net proceeds of $290.8; preferred dividends of $2.6 reduced earnings available to common shareholders. The preferred stock is cumulative and convertible.
Outlook, risks and subsequent events
- No specific consolidated revenue or earnings guidance is provided in the supplied filing text. Management said cash on hand, operating cash flow and current and future credit facilities were expected to meet financing requirements for the foreseeable future, while noting cash generation depends on economic conditions, competition and other risks.
- Management cited high leverage and debt-service capacity, acquisition execution and integration, commodity and packaging costs, consumer demand and preferences, competition, supply-chain disruption, foreign exchange, pension funding, and potential goodwill or intangible impairments among key risks. It said there had been no material change in previously reported risk factors.
- Management reported no change in long-term expectations for certain trademarks during the quarter, but warned that unfavorable changes in valuation assumptions could cause a potentially material impairment. The filing states that litigation in the ordinary course was not expected to have a material adverse effect, based on information then known to management.
- After quarter-end, Post completed the Dakota Growers acquisition on January 1 for approximately $366.2 in cash; the quarter-end balance sheet already included the related cash advance. It also completed acquisitions of Golden Boy Foods and Dymatize on February 1, for approximately CAD$321.1 and $392.5, respectively, funded with existing cash. A $300.0 revolving credit facility was established January 29, with no amount drawn at execution. Post also announced an agreement to acquire PowerBar and Musashi assets for $150.0, subject to customary closing conditions.
Most important facts for investors to verify
- How the post-quarter Dakota Growers, Golden Boy Foods and Dymatize acquisitions affect cash, debt, integration costs and earnings.
- Whether acquired businesses and Post Foods volume growth can offset the reported selling-price and gross-margin pressures.
- Progress and realized savings from the Modesto closure, including remaining expected costs of $6.7 disclosed at December 31.
- Debt-service burden, preferred-stock dividend obligations and availability of the revolving credit facility.
- Purchase-price allocations for the Hearthside and PNC acquisitions remained subject to finalization; monitor also for impairment indicators and related valuation changes.