Post Holdings, Inc. quarterly report, Q3 FY2023

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Post Holdings, Inc. — Q3 FY2023 Form 10-Q

Reporting period: Three and nine months ended June 30, 2023. Amounts are in millions of dollars except per-share data. Post is a consumer packaged goods holding company with Post Consumer Brands, Weetabix, Foodservice and Refrigerated Retail segments. Prior-year BellRing results are presented as discontinued operations.

Financial performance and position

  • Q3 revenue: $1,859.4, up 22% from $1,524.9. Gross profit was $501.6 (27.0% gross margin) versus $364.7 (23.9%). Operating profit was $158.3 (8.5% operating margin), up 50% from $105.5 (6.9%).
  • Q3 earnings: Net earnings from continuing operations were $89.6 versus $170.2; diluted continuing-operations EPS was $1.38 versus $2.72. Lower non-operating gains—especially much smaller swap income and no current-quarter BellRing investment gain—more than offset stronger operating profit. The prior-year comparison also included a $35.1 BellRing gain and $131.6 swap income.
  • Nine-month results: Revenue was $5,045.6, up 18%; operating profit was $445.9, up 57%. Continuing-operations net earnings were $235.6 versus $651.1, and diluted EPS was $3.82 versus $10.47. Prior-year results included a $482.8 BellRing gain and $222.9 swap income; the prior year also included $21.6 of discontinued-operations earnings.
  • Cash flow: Nine-month operating cash flow from continuing operations was $480.5 versus $219.7. Investing cash use was $567.9, including $715.2 net cash paid for Pet Food and $201.9 in capital expenditures, partly offset by $345.0 returned from the PHPC trust. Financing cash use was $279.7. Cash, cash equivalents and restricted cash totaled $226.8 at June 30, versus $590.1 at September 30, 2022. Operating cash flow less capital expenditures was approximately $278.6.
  • Liquidity and debt: Cash and cash equivalents were $208.8; current assets were $1,640.3 and current liabilities $795.3. Long-term debt, including current portion, was $6,187.2 on the balance sheet; stated principal debt was $6,197.7. Revolver availability was $730.3, with $19.7 of letters of credit outstanding. The company reported compliance with its financial covenants.
  • Capital allocation: Post repurchased 2.9 million shares for $250.5 during the nine months. It issued 5.4 million shares to Smucker as part of the Pet Food acquisition consideration.

Material changes and segment trends

  • Pet Food acquisition: Completed April 28 for stated consideration of $1,207.5, including $700.0 cash (closing payment was $715.5, subject to adjustments) and $492.3 in Post shares. Included two months of $275.3 sales in the quarter and nine-month period. Purchase accounting remained preliminary; acquisition-related costs were $16.0 for the nine months.
  • Post Consumer Brands: Q3 sales rose 52% to $871.3, primarily reflecting Pet Food. Segment profit increased only 1% to $83.0; margin declined to 10% from 14%, with acquisition costs, inflation and manufacturing costs weighing on results. Excluding Pet Food, Q3 volume fell 6%.
  • Weetabix: Q3 sales rose 7% to $134.2, while segment profit fell 36% to $17.9. Higher raw-material and manufacturing costs reduced margin to 13% from 22%; volume declined 5%.
  • Foodservice: Q3 sales increased 8% to $622.7 and segment profit rose 135% to $107.7, supported by pricing, volume, and lower freight and some raw-material costs. Nine-month profit rose to $264.9 from $81.0, though the filing cites significant egg and potato input inflation over that period.
  • Refrigerated Retail: Q3 sales fell 6% to $230.7, with volume down 11%; segment profit rose 73% to $18.0 on pricing and lower manufacturing and freight costs. The filing cites price elasticity, private-label mix shifts, distribution losses and avian-influenza-related egg constraints.
  • PHPC liquidation: PHPC did not complete a partnering transaction and was liquidated. Post received $40.9 from its own shares in the redemption and recognized a $10.7 gain after deferred underwriting commissions were waived.

Outlook, commentary and risks

  • No quantified full-year earnings or revenue guidance is stated in the supplied filing text. Management expects inflationary pressures to continue through the remainder of fiscal 2023, while noting that pricing, cost savings and hedging have largely mitigated impacts so far.
  • Management says cash on hand, operating cash flow and available credit facilities should meet foreseeable funding needs, and that it is not aware of material near-term liquidity trends. This is subject to operating performance and credit-market access.
  • Key risks include input-cost and supply availability, pricing-related demand and volume effects, labor shortages, avian influenza and other agricultural disruptions, foreign exchange, interest rates, high leverage and covenant compliance, and successful integration and realization of expected benefits from the Pet Food acquisition.
  • Post uses derivatives to manage commodity, currency and interest-rate exposure and states it does not use them for speculation. Its hypothetical market-risk sensitivities are disclosed in the filing.
  • The company reported effective disclosure controls. Management was still evaluating and implementing any necessary control changes related to integrating the Pet Food business. Management considers other pending legal proceedings not expected to be material; prior egg-industry antitrust claims were settled, with no current-period expense reported.

Important facts for investors to verify

  • Whether acquired Pet Food sales, margins, integration costs and expected synergies develop as planned; the purchase-price allocation was preliminary.
  • Whether pricing can offset inflation without further volume declines, particularly in branded cereal and Refrigerated Retail.
  • Debt and interest burden, covenant headroom, revolving-credit availability and the impact of variable-rate borrowing.
  • Underlying earnings and cash generation excluding noncash mark-to-market items, debt-extinguishment gains and other unusual or transaction-related items.
  • Capital allocation following the $400 million share-repurchase authorization approved in June 2023, and the effect of repurchases and acquisition-related share issuance on per-share results.