Post Holdings, Inc. — Q1 FY2021 Form 10-Q
Reporting period: Three months ended December 31, 2020. Unaudited results are compared with the three months ended December 31, 2019. Post is a consumer packaged goods holding company with five reportable segments: Post Consumer Brands, Weetabix, Foodservice, Refrigerated Retail and BellRing Brands. Amounts below are in U.S. dollars; financial statement amounts are in millions unless otherwise noted.
Key financial results
| Metric | Q1 FY2021 | Q1 FY2020 | Change |
|---|---|---|---|
| Net sales | $1,458.0 | $1,456.8 | +$1.2; approximately flat |
| Gross profit | $455.4 | $471.5 | -$16.1 |
| Operating profit | $166.3 | $196.0 | -$29.7; -15% |
| Net earnings | $81.2 | $99.2 | -$18.0; -18% |
| Diluted EPS | $1.21 | $1.38 | -$0.17 |
| Cash provided by operations | $114.5 | $108.4 | +$6.1 |
| Capital expenditures | $53.9 | $77.3 | -$23.4 |
Gross margin was approximately 31.2%, compared with 32.4% a year earlier; operating margin was approximately 11.4%, compared with 13.5%. Selling, general and administrative expense rose to $251.1 million from $235.3 million. Interest expense, net, fell to $96.6 million from $102.9 million; the effective tax rate was 19.0%, versus 21.0%. Net earnings attributable to noncontrolling interests were $9.8 million, versus $7.9 million.
Operating cash flow less reported capital expenditures was approximately $60.6 million (a simple calculation, not a company-defined cash-flow measure). Cash, cash equivalents and restricted cash ended the period at $1,118.5 million, down $74.9 million from the beginning of the period. Financing activities used $154.5 million, including share repurchases and BellRing debt payments; investing activities used $41.5 million.
Balance sheet, debt and liquidity
- Total assets were $12,140.3 million and total liabilities were $9,235.8 million at December 31, 2020. Current assets were $2,256.5 million and current liabilities $890.1 million.
- Debt principal outstanding was $7,032.2 million; reported current and long-term debt carrying amounts totaled $7,008.2 million after debt-related accounting adjustments. Cash and restricted cash totaled $1,118.5 million.
- Post’s revolving facility had $730.6 million of available capacity; BellRing’s revolving facility had $150.0 million. Post was not required to test its revolver leverage covenant at quarter-end; BellRing reported compliance with its total net leverage covenant.
- Post repurchased 1.7 million shares for a reported total cost of $159.9 million, including commissions and amounts settled after quarter-end. BellRing repaid $37.5 million of term-loan principal and borrowed $20.0 million on its revolver.
Material changes and segment performance
Consolidated sales were nearly unchanged, but operating profit and earnings declined. The largest offset to growth was Foodservice, while higher corporate results and growth in several other segments partly cushioned the decline.
| Segment | Sales | Sales change | Segment profit | Profit change |
|---|---|---|---|---|
| Post Consumer Brands | $445.0 | +1% | $70.5 | -$10.1; -13% |
| Weetabix | $113.5 | +12% | $28.1 | +$4.4; +19% |
| Foodservice | $354.5 | -16% | $10.8 | -$36.2; -77% |
| Refrigerated Retail | $263.1 | +5% | $33.7 | +$7.7; +30% |
| BellRing Brands | $282.4 | +16% | $47.8 | -$1.5; -3% |
Foodservice weakness reflected pandemic-related lower away-from-home demand, lower volumes, reduced fixed-cost absorption, inventory write-offs and higher egg input costs. Post Consumer Brands profit included a $15.0 million legal-settlement provision and pandemic-related production costs; Battle Creek cereal-facility disruptions were estimated to reduce sales by $9.8 million and profit contribution by $5.6 million. BellRing sales benefited from protein-shake growth, while promotional spending, product costs and restructuring weighed on profit. Weetabix sales benefited from at-home consumption, exports and favorable foreign exchange; Refrigerated Retail profit rose with higher sales and pricing.
Outlook, commentary, risks and unusual items
- Management said it expects positive operating cash flows and believes cash on hand and available credit facilities are sufficient for foreseeable requirements. It gave no numerical consolidated earnings or sales guidance in the supplied filing text.
- Management described continuing COVID-19 uncertainty. Foodservice volumes improved from their fiscal 2020 lows but weakened again in November and December 2020 as restrictions returned. Retail at-home demand was generally stronger, while some on-the-go products remained under pressure. Management cautioned that improved category trends may not persist.
- COVID-19 risks include employee absences and safety costs, production constraints, supply-chain disruption and demand volatility. Other cited risks include high leverage, input and freight cost volatility, competition, acquisitions and integration, litigation, foreign exchange and interest-rate exposure, and Brexit-related uncertainty.
- Derivative gains were material and volatile: income on swaps was $41.6 million, versus $61.4 million a year earlier, primarily reflecting non-cash mark-to-market gains. These gains reduced the effect of operating deterioration on reported pretax earnings.
- BellRing recorded $4.5 million of restructuring charges in the quarter, with total expected charges of $4.7 million. Post recorded a $2.3 million loss from final Henningsen acquisition accounting and settlement adjustments, partly offset in other operating items by a $0.6 million net gain on asset sales.
- Three egg-product antitrust opt-out claims remained unresolved. Post had a $3.5 million accrual; the filing says the remaining litigation could still result in a material adverse outcome. The $15.0 million Post Consumer Brands legal-settlement provision is separately described in segment results.
- Subsequent events: Post completed the Peter Pan peanut butter acquisition for a closing payment of $103.4 million on January 25, 2021. The filing also describes an Almark Foods acquisition completed February 1, but gives the date as “February 1, 2020” in its subsequent-events discussion; verify the date. Purchase accounting for both acquisitions was incomplete at filing.
- On February 2, 2021, the board approved a new authorization to repurchase up to $400 million of shares, effective February 6, 2021, replacing the prior authorization.
Important facts for investors to verify
- Whether Foodservice demand, volume and margins recover as pandemic restrictions change, and whether pandemic-related plant disruptions and costs abate.
- The sustainability of operating cash generation and the extent to which swap mark-to-market gains, legal provisions and other unusual items affect comparisons.
- Debt levels, BellRing’s leverage and revolver usage, and liquidity after the Peter Pan and Almark acquisitions and ongoing share repurchases.
- Developments in the remaining egg-product antitrust claims, the adequacy of the recorded accruals, and the nature and potential cash impact of the $15.0 million legal-settlement provision.
- The Almark acquisition completion date and final purchase accounting, as well as the final purchase accounting and contribution expected from Peter Pan.