Post Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2017. Amounts are in U.S. dollars; financial statement amounts are in millions unless stated otherwise. The quarter’s results are not necessarily indicative of full-year results.
Business context
Post is a consumer packaged goods holding company with four reportable segments: Post Consumer Brands (cereal), Michael Foods Group (eggs, potatoes, cheese and pasta), Active Nutrition (protein products and supplements), and Private Brands (including nut butters, dried fruit, nuts and granola). On July 3, 2017, after quarter-end, Post completed its acquisition of UK-based Weetabix.
Key financial metrics
| Metric | Three months ended June 30, 2017 | Nine months ended June 30, 2017 |
|---|---|---|
| Net sales | $1,272.1; up 2% year over year | $3,777.3; up less than 1% |
| Gross profit / gross margin | $393.7 / 30.9%; prior-year margin 31.9% | $1,137.0 / 30.1%; prior-year margin 31.1% |
| Operating profit | $190.5; up 34% | $404.2; down 8% |
| Net earnings (loss) | $(59.5); diluted loss per share $(0.93) | $34.1; diluted earnings per share $0.34 |
| Operating cash flow | Not separately presented for the quarter | $208.2, versus $367.5 in prior-year period |
| Capital expenditures | Not separately presented for the quarter | $125.0, versus $81.1 in prior-year period |
At June 30, cash and cash equivalents were $2,472.7, compared with $1,143.6 at September 30, 2016. Current assets were $3,520.2 and current liabilities $547.3. Debt principal was $6,468.4; the balance sheet reported current debt of $22.7 and long-term debt of $6,368.5, net of debt issuance costs and other adjustments. The $800 million revolving facility had $790 million available after outstanding letters of credit. Post reported compliance with its applicable credit-agreement covenant.
Segment results for the quarter: Post Consumer Brands sales were $427.3 and segment profit $96.9; Michael Foods Group sales were $524.2 and segment profit $46.4; Active Nutrition sales were $188.7 and segment profit $28.0; Private Brands sales were $132.0 and segment profit $8.0. Segment profit is a company-defined measure and is not equivalent to consolidated operating profit.
Material changes versus prior comparable periods
- Quarterly sales increased $26.0, primarily from egg products, Premier Protein ready-to-drink shakes, cereal products, potatoes and peanut butter. Nine-month sales were nearly flat.
- Quarterly operating profit rose $48.5, with a significant contribution from $33.5 of foreign-currency gains on sterling held to fund Weetabix. Nine-month operating profit fell $33.2, reflecting weaker Michael Foods Group and Private Brands segment profit, partly offset by gains in Post Consumer Brands and Active Nutrition.
- Net loss for the quarter included a $160.4 debt-extinguishment loss. The nine-month period included $222.9 of such losses as Post refinanced and repaid higher-coupon notes.
- Nine-month operating cash flow declined $159.3, including the effects of $103.0 in legal settlement payments, higher advertising and incentive payments, and working-capital movements.
- Active Nutrition grew strongly: nine-month sales increased 25% and segment profit 76%, supported by ready-to-drink volume growth and favorable input costs. Michael Foods Group nine-month sales fell 5% and segment profit fell 69%, including legal settlement expense and lower egg selling prices. Post Consumer Brands segment profit improved, while Private Brands segment profit declined.
Outlook, commentary, risks and unusual items
- Weetabix: The acquisition closed July 3 for approximately £1.4 billion net of cash acquired; the final payment was reported as £1,422.3 million net of cash acquired. It was funded with cash on hand, including $1.0 billion from an incremental term loan. Purchase accounting and pro forma results were incomplete at filing. Management cited integration, synergy delivery, Brexit and cereal-category weakness as relevant risks; no numerical guidance was provided in the filing.
- Debt and liquidity: Management said cash, operating cash flow and current and possible future credit facilities should be sufficient for foreseeable needs, while noting that cash generation, financing access and covenant compliance depend on business conditions. Total debt and leverage remain significant.
- Legal contingency: Michael Foods recorded $74.5 of expense for egg-antitrust settlements during the nine months. A $75.0 direct-purchaser settlement was placed in escrow pending court approval; an opt-out settlement was paid. Appeals remain, and the company said it could not estimate any loss related to remaining claims.
- Goodwill risk: The Dymatize reporting unit had failed the first step of the prior-year goodwill impairment test but passed the second step without an impairment charge. Continued weakness in its specialty sports nutrition channel could prompt reassessment and a potentially material impairment.
- Other items: Post repurchased 3.9 million shares for $313.8 during the nine months. A small oven fire, capacity constraints and related inventory write-off affected Private Brands. The filing reports use of derivatives to manage commodity, interest-rate and foreign-currency exposures, with mark-to-market changes affecting reported results.
Most important facts for investors to verify
- Whether Weetabix delivers the anticipated integration benefits and synergies, and the resulting purchase accounting, pro forma results and financing impact.
- Whether the egg-antitrust settlement receives court approval and how remaining appeals or claims resolve.
- Whether Dymatize performance improves enough to avoid a goodwill impairment, and whether broader cereal-category weakness persists.
- Whether operating cash flow recovers after settlement payments and working-capital uses, while Post services its debt and remains within covenant requirements.
- Whether Active Nutrition growth and Post Consumer Brands margin gains continue, and whether Michael Foods and Private Brands stabilize.