Post Holdings, Inc. — Q1 FY2020 Form 10-Q
Reporting period: Three months ended December 31, 2019; compared with the three months ended December 31, 2018. Amounts are in millions except per-share data. Post is a consumer packaged goods holding company with five segments: Post Consumer Brands, Weetabix, Foodservice, Refrigerated Retail and BellRing Brands.
Financial performance and liquidity
| Metric | Q1 FY2020 | Q1 FY2019 |
|---|---|---|
| Net sales | $1,456.8 | $1,411.3 |
| Gross profit / gross margin | $471.5 / 32.4% | $426.5 / 30.2% |
| Operating profit | $196.0 | $293.9 |
| Net earnings | $99.2 | $125.6 |
| Diluted EPS | $1.38 | $1.67 |
| Cash provided by operating activities | $108.4 | $238.7 |
- Sales rose 3%. Gross profit increased $45.0, while SG&A increased $18.2. Reported operating profit fell 33%, largely because the prior-year period included a $124.7 gain on the 8th Avenue transactions and a $0.6 warehouse-sale gain. Excluding the prior-year gains, management said operating profit increased $27.4, or 16%.
- Reported net earnings declined 21%. Results included a $61.4 net gain on non-designated swaps in 2019 versus a $51.7 loss in 2018; interest expense rose $43.5 to $102.9. The filing attributes the interest increase chiefly to hedge-related OCI reclassifications and debt associated with BellRing’s IPO, partly offset by lower interest following repayment of Post’s term loan.
- Operating cash flow was $108.4, down $130.3 year over year. Management cited higher swap settlements, interest and tax payments, incentive payments, and unfavorable working-capital movements. Capital expenditures were $77.3; cash used in investing activities was $75.8.
- Cash and cash equivalents were $812.6 at December 31, versus $1,050.7 at September 30, 2019. Current assets were $1,921.2 and current liabilities $883.1.
- Debt principal was $6,589.7 at December 31, compared with $7,119.3 at September 30. The reported balance-sheet carrying amount of long-term debt was $6,382.6, including current debt and debt-cost adjustments as presented in the filing. Post repaid its $1,309.5 term loan; BellRing had $700.0 outstanding under its Term B facility and $80.0 outstanding under its revolving facility. Post’s revolving facility had $778.0 available, and BellRing’s revolving facility had $120.0 available.
Segments and material changes
| Segment | Sales change | Segment profit change |
|---|---|---|
| Post Consumer Brands | Down 3% to $441.2 | Down 4% to $80.6 |
| Weetabix | Up 1% to $101.5 | Up 25% to $23.7 |
| Foodservice | Up 3% to $420.6 | Down 11% to $47.0 |
| Refrigerated Retail | Down 4% to $249.9 | Down 15% to $26.0 |
| BellRing Brands | Up 31% to $244.0 | Up 40% to $49.3 |
BellRing’s growth was led by Premier Protein sales, up 45%, with volume up 38%; the filing cites distribution gains, new products and comparison with prior-year capacity constraints. Foodservice profit was affected by unplanned facility downtime and start-up costs at its new Norwalk, Iowa facility. Refrigerated Retail faced lower volumes and higher raw-material costs. Post Consumer Brands reported lower cereal volume, partly offset by pricing and lower manufacturing and freight costs.
Transactions, outlook and risks
- BellRing completed an IPO on October 21, 2019, receiving $524.4 in net proceeds. Post retained 71.2% of BellRing LLC’s economic units and voting control; BellRing’s results are consolidated, with 28.8% allocated to noncontrolling interests.
- Post repurchased 2.2 million shares for $223.1 during the quarter. On January 8, 2020, after quarter-end, it redeemed the remaining $122.2 principal of its 8.00% senior notes for $135.5, including accrued interest and a tender premium.
- Management expects positive operating cash flows and believes cash on hand, operating cash flow and credit facilities will meet foreseeable financing needs. The filing gives no numerical earnings or sales guidance. Management cautions that cash generation depends on economic conditions, competition and other business risks.
- Key disclosed risks include high leverage and debt service, commodity and freight costs, customer and consumer trends, acquisition integration, supply-chain disruption, foreign exchange and interest-rate exposure, Brexit, product liability and regulatory matters.
- Three egg-product antitrust opt-out claims against subsidiary Michael Foods remain unresolved; the filing says they could still result in a material adverse outcome. The company reported a $3.5 accrual for the matter. Other class claims and specified opt-out claims had been settled. Bob Evans appraisal claims were settled and paid in October 2019. Weetabix received a $0.1 fine plus costs for a pre-acquisition environmental spill.
Important facts for investors to verify
- Assess underlying profitability apart from prior-year divestiture gains and quarter-to-quarter non-cash swap valuation effects.
- Review the terms, covenant requirements and allocation of obligations between Post and BellRing, including BellRing’s leverage and scheduled amortization.
- Track operating cash flow and working capital after the IPO-related financing, debt repayments and share repurchases.
- Monitor remaining egg-product antitrust claims and the adequacy of the related accrual.
- Confirm the impact of continuing volume declines in selected cereal and refrigerated products and whether Foodservice facility costs recur.