Post Holdings, Inc. — Q2 FY2023 Form 10-Q
Reporting period: Fiscal quarter and six months ended March 31, 2023. Amounts are in millions of dollars unless otherwise noted. Post is a consumer packaged goods company with four reportable segments: Post Consumer Brands, Weetabix, Foodservice and Refrigerated Retail. BellRing is reported as discontinued operations for periods before its March 2022 spin-off.
Financial performance
| Metric | Three months ended Mar. 31, 2023 | Prior year | Six months ended Mar. 31, 2023 | Prior year |
|---|---|---|---|---|
| Net sales | $1,619.9 | $1,409.7 | $3,186.2 | $2,747.2 |
| Gross profit | $413.8 | $378.5 | $828.7 | $710.2 |
| Operating profit | $137.7 | $100.0 | $287.6 | $178.2 |
| Net earnings from continuing operations | $54.1 | $525.6 | $146.0 | $480.9 |
| Diluted EPS from continuing operations | $0.92 | $8.44 | $2.44 | $7.74 |
| Cash from continuing operating activities | — | $198.3 | $143.6 |
- Quarterly sales rose 15%; six-month sales rose 16%. Gross margin was approximately 25.5% for the quarter, versus 26.9% a year earlier; operating margin improved to approximately 8.5% from 7.1%.
- For the six months, capital expenditures were $132.9, making operating cash flow less capital expenditures approximately $65.4. Cash, cash equivalents and restricted cash totaled $496.1 at period end; balance-sheet cash and cash equivalents were $490.7.
- At March 31, long-term debt had a carrying value of $5,837.1; outstanding principal was $5,847.7. The company had $730.3 available under its $750.0 revolving facility, after letters of credit. Current assets were $2,131.1 and current liabilities $779.5.
- Quarterly and six-month earnings comparisons are distorted by the prior-year $447.7 non-cash gain on BellRing and large prior-year gains from interest-rate swaps. The company had no BellRing shares at March 31, 2023.
Material changes and segment results
- Foodservice: Quarterly sales increased 40% to $633.2 and segment profit rose to $78.1 from $20.0. Higher egg and side-dish prices, increased volumes and lower freight costs supported results; raw-material inflation, principally eggs, was a significant offset.
- Post Consumer Brands: Quarterly sales increased 5% to $599.1, while segment profit fell 5% to $75.5. Pricing gains were partly offset by lower volumes, raw-material inflation and manufacturing costs.
- Weetabix: Quarterly sales increased 7% to $124.9, but segment profit declined 28% to $19.4. Inflation and manufacturing costs weighed on profit; foreign exchange also affected reported results.
- Refrigerated Retail: Quarterly sales decreased 2% to $262.7, while segment profit increased 7% to $18.2. Lower volumes, price elasticity and input costs affected the segment; higher prices and lower freight costs provided offsets.
- Interest expense declined 27% for the quarter to $63.8, reflecting lower average debt, a lower weighted-average interest rate and higher interest income. The reported weighted-average debt rate was 4.8%, versus 5.1%.
Outlook, risks and unusual items
- Management said inflationary pressures were expected to continue through fiscal 2023. Pricing, cost savings and hedging had largely mitigated supply-chain and input-cost pressures, but further inflation could harm margins or demand if price increases and savings prove insufficient.
- Avian influenza had increased egg costs and constrained supply; further outbreaks could materially affect the egg business. The filing also identifies labor and input availability, energy and freight costs, foreign exchange, interest rates, high leverage and consumer demand as risks.
- Management stated that cash on hand, operating cash flow and available credit facilities should be sufficient for foreseeable needs. The company was not required to meet its secured-net-leverage covenant at March 31 because relevant facility usage was below the trigger threshold.
- After quarter-end, Post borrowed $400.0 under a new term loan and completed its acquisition of part of Smucker’s pet-food business on April 28. The closing payment was $715.5, funded using cash on hand, including term-loan proceeds, and Post issued 5.4 million shares to Smucker. Purchase accounting and pro forma financial information were incomplete at filing.
- The Pet Food acquisition introduces integration, execution and new-category risks; Post also noted limited post-closing indemnification rights and continuing reliance on Smucker for certain services and manufacturing. No quantified forward earnings guidance is provided in the filing text.
- Post repurchased 1.0 million shares for $83.7 during the six months. It recorded a $14.8 net gain on debt extinguishment for the period, mainly from repurchasing senior notes at a discount. Management said routine legal matters were not expected to be material; the disclosed egg-industry antitrust claims had been settled.
Most important facts for investors to verify
- Whether price increases can offset persistent commodity, labor and manufacturing inflation without further material volume declines.
- How much Foodservice’s unusually strong profit improvement depends on egg pricing, supply conditions and the comparison with prior-year demand.
- The Pet Food acquisition’s final purchase-price allocation, pro forma contribution, integration costs and expected synergies, alongside the added debt and share dilution.
- Debt service capacity and liquidity after the post-quarter $400.0 term loan and $715.5 acquisition payment; distinguish PHPC trust investments from freely available operating cash.
- How much reported earnings and cash generation are affected by non-cash derivative marks, debt transactions and other items that can fluctuate between periods.