Post Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2022. Financial amounts are in millions of dollars, except per-share data. Results are unaudited. Following the March 10, 2022 BellRing spin-off, BellRing’s historical results are presented as discontinued operations; continuing-operations results are the more comparable measure of Post’s ongoing business.
Financial performance
| Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | Six months ended March 31, 2022 | Six months ended March 31, 2021 |
|---|---|---|---|---|
| Net sales | $1,409.7 | $1,201.5 | $2,747.2 | $2,377.3 |
| Gross profit | $378.5 | $364.0 | $710.2 | $727.5 |
| Operating profit | $100.0 | $129.5 | $178.2 | $248.0 |
| Net earnings | $523.3 | $109.9 | $502.5 | $191.1 |
| Diluted earnings per share | $8.40 | $1.69 | $8.08 | $2.90 |
| Cash from continuing operating activities | Not stated for quarter | Not stated for quarter | $143.6 | $88.5 |
- Quarterly sales rose 17%; six-month sales rose 16%. Quarterly gross margin was approximately 26.8%, down from 30.3%; operating margin was approximately 7.1%, down from 10.8%.
- Net earnings included a $447.7 non-cash gain from remeasuring Post’s retained BellRing shares. Also affecting earnings were mark-to-market gains on interest-rate swaps of $128.2 for the quarter and $91.3 for six months. These items make headline earnings growth a poor indicator of underlying operating performance.
- Operating profit fell 23% for the quarter and 28% for six months, primarily due to higher corporate costs and weaker profit in Refrigerated Retail and Post Consumer Brands. Cost inflation, freight, manufacturing inefficiencies and supply constraints weighed on margins.
- Six-month cash used in investing activities was $43.0 and cash used in financing activities was $276.9; cash and restricted cash declined $330.9 overall. Capital expenditures were $102.5. The cash-flow statement reports $142.0 of total operating cash flow, including discontinued operations.
Segments and material changes
- Post Consumer Brands: Quarterly sales increased 19% to $573.1, while segment profit declined 13% to $79.5; margin fell to 14% from 19%. Pricing and acquisitions supported sales, but inflation, freight and manufacturing costs pressured profit.
- Weetabix: Quarterly sales rose 3% to $117.0 and segment profit rose 3% to $26.8. Pricing helped offset lower volume, inflation, transportation costs and unfavorable foreign exchange.
- Foodservice: Quarterly sales increased 22% to $451.9 and segment profit rose to $20.0 from $8.8, supported by volume recovery and pricing. Higher egg costs and freight remained significant headwinds.
- Refrigerated Retail: Quarterly sales rose 12% to $267.6, but segment profit fell 30% to $17.0; margin declined to 6% from 10%. Manufacturing, freight and raw-material inflation outweighed sales gains.
- Post distributed 80.1% of BellRing to shareholders and retained 14.2%, which it intended to divest within 12 months. The spin-off also involved $550.4 of cash contributed to BellRing and a debt-for-debt exchange. Separation expenses were $28.4 for the six-month period.
- Post sold Willamette Egg Farms in December 2021 and recorded a $6.3 net loss on the sale. After quarter-end, on April 5, 2022, it acquired U.K. protein-shake and nutrition-snack producer Lacka Foods for approximately $30.0, with up to approximately $4.6 in contingent consideration.
Debt, liquidity and capital allocation
- At March 31, 2022, long-term debt was $6,105.9 on the balance sheet; principal indebtedness was $6,106.6. Cash and cash equivalents were $489.8. The $750.0 revolving facility had $728.7 of available capacity after letters of credit.
- Post issued an additional $500.0 principal amount of 5.50% senior notes and redeemed $840.0 principal amount of its 5.75% notes, paying a $24.1 redemption premium. The company reported a $19.3 net debt-extinguishment loss for the period.
- Post repurchased 1.9 million shares during the six months for $193.2, including commissions. Management said cash, operating cash flows and credit facilities should be sufficient for foreseeable needs. The credit agreement leverage covenant was not required to be tested at quarter-end because relevant facility usage was below its threshold.
Outlook, risks and contingencies
- Management expected labor shortages, supply-chain disruption, low inventories and raw-material, packaging, wage and freight inflation to persist through fiscal 2022, while noting conditions were improving. Pricing actions were taken and further actions were expected.
- Management expected Foodservice to return to pre-pandemic profitability in fiscal 2023. No company-wide numerical earnings guidance is provided in the filing text.
- Avian influenza was expected to constrain egg supply and increase production and market-based egg costs; management planned customer-volume management and pricing actions to mitigate the impact.
- The Ukraine conflict had contributed to higher energy, fuel and commodity costs and supplier force majeure declarations. Weetabix sourced all natural gas from a U.K. subsidiary of a Russian-owned energy company; sanctions had not yet directly disrupted procurement, but further sanctions could increase costs.
- Three opt-out plaintiffs’ egg-product antitrust claims remained unresolved, with trial scheduled for October 2022. Post had accrued $3.5 and said a material adverse outcome remained possible. The BellRing transactions’ intended tax-free treatment and planned disposal of Post’s retained interest also carry tax and execution risks.
- Management identified high leverage, interest-rate and commodity volatility, operational and supply risks, and market-price risk on retained equity investments among key risks. Disclosure controls were assessed as effective, with no significant changes in internal control reported during the quarter.
Important facts for investors to verify
- Underlying operating performance excluding the BellRing remeasurement gain and derivative mark-to-market effects.
- Whether pricing can offset inflation and supply constraints without materially reducing volumes, and whether Foodservice reaches the stated fiscal 2023 profitability objective.
- Debt repayment capacity, refinancing costs and liquidity needs following the spin-off, acquisitions and share repurchases.
- Timing, market value and tax treatment of the planned divestiture of Post’s remaining BellRing shares, including related indemnification provisions.
- Developments in the egg antitrust litigation, avian influenza, Ukraine-related supply and energy exposure, and the integration and accounting for Lacka Foods.