Post Holdings, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended September 30, 2015. The filing is an annual report, not a standalone fourth-quarter report; quarterly figures are noted where relevant. Post is a consumer packaged goods holding company with four reportable segments: Post Consumer Brands, Michael Foods Group, Active Nutrition and Private Brands.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $4,648.2 million | $2,411.1 million |
| Gross profit / gross margin | $1,174.4 million / 25.3% | $621.2 million / 25.8% |
| Operating profit (loss) / operating margin | $212.7 million / 4.6% | $(207.7) million / (8.6)% |
| Net loss | $(115.3) million | $(343.2) million |
| Net loss available to common shareholders / diluted loss per share | $(132.3) million / $(2.33) | $(358.6) million / $(9.03) |
| Cash provided by operating activities | $451.6 million | $183.1 million |
| Capital expenditures | $107.9 million | $115.5 million |
| Cash and cash equivalents at year-end | $841.4 million | $268.4 million |
| Debt principal | $4,485.2 million | $3,810.9 million |
| Total shareholders’ equity | $2,976.0 million | $2,283.2 million |
FY2015 net sales rose 93%; excluding acquisition contributions, sales increased 5%. Operating profit improved by $420.4 million, but remained below interest expense and other expense, leaving a pretax loss of $167.3 million. Net loss included $60.8 million of goodwill and intangible impairments; FY2014 included $295.6 million of such impairments. Interest expense was $287.5 million, up 57%, and other expense was $92.5 million, principally non-cash mark-to-market losses on interest-rate swaps.
Cash from operations increased by $268.5 million, reflecting acquired businesses, favorable working-capital changes and collection of a $55.5 million income-tax receivable, partly offset by higher interest and tax payments. Cash used in investing was $1,248.7 million, including $1,239.2 million for acquisitions; financing activities provided $1,372.4 million. Working capital, excluding cash, restricted cash and current debt, was $326.5 million, versus $371.5 million. The company reported $395.8 million of available revolving-credit capacity at year-end and said it was in compliance with its debt covenants.
Segments and material changes
- Post Consumer Brands: Sales were $1,260.8 million and segment profit was $205.5 million. Excluding MOM Brands, sales fell 3%, reflecting lower volumes and selling prices; segment profit excluding acquisition effects increased 9%.
- Michael Foods Group: Sales were $2,305.7 million and segment profit was $188.2 million. The year-over-year increase chiefly reflects additional months consolidated after the June 2014 acquisition. Avian influenza constrained egg supply; reported affected supply was approximately 25% of annualized egg volume commitments.
- Active Nutrition: Sales were $555.0 million and segment loss was $13.8 million. Excluding acquisition effects, segment profit increased to $26.5 million, but results included a $57.0 million Dymatize goodwill impairment, production problems, inventory write-offs and integration costs.
- Private Brands: Sales were $529.7 million and segment profit was $41.5 million. Growth reflected acquisitions and higher granola sales; higher commodity and fixed manufacturing costs weighed on acquired nut-butter and fruit-and-nut businesses.
Fiscal 2015 acquisitions included PowerBar, American Blanching Company and MOM Brands, acquired for a closing purchase price of approximately $1.18 billion. Post also issued common shares and debt to fund acquisitions and manage its capital structure. A $1.2 billion term-loan repayment was made after issuing senior notes and common stock. At September 30, 2015, goodwill was $3,072.8 million and other intangible assets were $2,969.3 million.
Outlook, risks and unusual items
- The filing provides no specific company earnings or revenue guidance. Management said cash on hand, operating cash flows and available or potential credit facilities should meet foreseeable requirements, while noting that cash generation depends on economic conditions, competition and other business risks.
- Management expected avian influenza to continue affecting egg volumes until supply was re-established. Higher market egg prices and pricing actions helped mitigate the effect on egg-business profitability; future outbreaks were not covered by those mitigating actions.
- Key risks include substantial leverage and debt-service demands, restrictive covenants, acquisition integration and realization of synergies, commodity and energy volatility, competition and changing consumer preferences, customer concentration, food-safety and regulatory exposure, and supply-chain disruption.
- Michael Foods faces ongoing federal and state antitrust litigation concerning shell eggs and egg products, including certified direct-purchaser shell-egg claims. The company said it could not estimate the possible loss.
- Other notable items included $34.2 million in losses on assets held for sale, $25.6 million in restructuring and plant-closure costs, and $92.5 million in swap-related non-cash losses. The company closed or sold several facilities and announced further operational consolidation.
- After year-end, Post completed its $90 million acquisition of Willamette Egg Farms on October 3, 2015. Acquisition accounting was incomplete at filing. Post paid no common-stock dividends in FY2015 and reported no plan to pay them in the foreseeable future.
PricewaterhouseCoopers LLP issued an unqualified opinion on the consolidated financial statements and internal control over financial reporting. The auditor’s internal-control audit excluded PowerBar and MOM Brands, acquired during FY2015; management likewise excluded them from its control assessment.
Important facts for investors to verify
- How much of reported growth and cash generation is sustainable without further acquisitions, and whether MOM Brands integration delivers expected synergies.
- Whether egg supply and volumes recover from avian influenza, and whether cost increases can continue to be offset through pricing and containment.
- The company’s capacity to service and refinance $4.49 billion of debt, including high-coupon notes, while meeting covenants and funding investment needs.
- Whether Dymatize’s production transfer resolves operational and quality issues, and whether further impairment charges arise across acquired assets or cereal brands.
- The potential financial and operating consequences of the Michael Foods antitrust litigation and other food-safety, regulatory or customer-related contingencies.