Post Holdings, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2019. Amounts are in millions of dollars except per-share data. The company operates Post Consumer Brands, Weetabix, Foodservice, Refrigerated Retail and Active Nutrition.
Financial performance
| Metric | Three months 2019 | Three months 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Net sales | $1,439.2 | $1,608.1 | $4,238.3 | $4,627.3 |
| Operating profit | $198.2 | $184.3 | $678.4 | $506.0 |
| Net earnings | $16.2 | $96.5 | $185.8 | $482.9 |
| Diluted EPS | $0.21 | $1.29 | $2.47 | $6.34 |
| Operating cash flow | Not presented separately | Not presented separately | $504.8 | $591.1 |
Third-quarter gross profit was $462.1, or approximately 32.1% of sales, versus $458.2, or approximately 28.5%, a year earlier. Operating margin was approximately 13.8% versus 11.5%. Lower net earnings reflected, in part, a $86.2 loss on swaps in the quarter, primarily noncash mark-to-market effects. Nine-month operating profit included a $127.3 gain on the 8th Avenue transaction and a $0.6 gain on a warehouse sale; excluding these gains, operating profit increased $44.5, or 9%, year over year. Prior-year comparisons also include a substantial Tax Act-related tax benefit.
Nine-month capital expenditures were $202.7; operating cash flow less capital expenditures was approximately $302.1. Cash, cash equivalents and restricted cash declined $628.0 over the nine months to $366.5, mainly reflecting debt repayments, appraisal-related payments and share repurchases.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $364.7; current assets were $1,443.0 and current liabilities $715.7.
- Debt principal outstanding was $6,369.3; balance-sheet debt, including current portion and net of issuance costs and premium, was approximately $6,334.6. Debt principal was down from $7,917.4 at September 30, 2018, which included debt classified as held for sale.
- The $800.0 revolving credit facility had $780.1 of available capacity after letters of credit. The company reported compliance with its applicable interest-coverage threshold and said the leverage covenant was not then triggered.
- On July 3, 2019, after quarter-end, the company issued $750.0 of 5.50% senior notes due 2029, receiving $743.0 net of fees for general corporate purposes, potentially including acquisitions or debt repayment.
Material changes and segment performance
- Sales declined 11% in the quarter and 8% for the nine months, primarily because the historical Private Brands business was deconsolidated after the October 1, 2018 8th Avenue transaction. Post retained a 60.5% common-equity interest, now accounted for under the equity method, and recorded a $127.3 transaction gain.
- Quarterly sales grew in Post Consumer Brands, Weetabix, Foodservice and Active Nutrition, but declined in Refrigerated Retail. Active Nutrition sales rose 10% and segment profit rose 38%; Foodservice segment profit rose 90%, helped by lower raw-material costs and a legal-settlement gain.
- Refrigerated Retail quarterly segment profit fell 39%, reflecting lower sales, manufacturing and integration costs, freight, and product discontinuation costs. Weetabix nine-month segment profit increased 18%, despite slightly lower sales.
- Post repaid $863.0 of term-loan principal using transaction proceeds and made $253.6 of payments related to Bob Evans appraisal claims. It repurchased $88.7 of shares during the nine months.
Outlook, risks and unusual items
The company did not provide numerical earnings or sales guidance in the supplied filing text. Management said it expected positive operating cash flow and believed cash, operating cash flows and credit facilities would meet foreseeable requirements, while cautioning that this depended on business conditions and other risks. A confidential draft registration statement had been submitted for a proposed Active Nutrition IPO; the company said there was no assurance it would proceed. The filing also identifies the timing and completion of a proposed acquisition of TreeHouse Foods’ private-label RTE cereal business as a risk.
- Unusually volatile swap accounting materially affected reported earnings: non-designated interest-rate swaps generated losses of $200.9 for the nine months, largely noncash mark-to-market losses.
- Key risks include substantial leverage and debt service, commodity and freight costs, consumer and competitive changes, acquisition integration, foreign exchange and Brexit exposure, and possible impairment of goodwill or intangibles.
- Egg-products antitrust claims remained against four opt-out plaintiffs; a trial against one was scheduled for October 2019. The company said a material adverse outcome remained possible. Bob Evans appraisal proceedings also remained unresolved; the company had a $14.0 accrual for interest and said additional payments could be required.
- A UK environmental proceeding concerning a diesel spill at a Weetabix site was scheduled for a September 2019 hearing; management did not expect a material effect. Post also guaranteed leases for 143 former Bob Evans restaurant properties; current annual rent was $13.5, with terms extending approximately 17 years, though management considered the guarantee’s fair value immaterial.
- The Clinton, Massachusetts cereal facility closure was expected to be completed by September 2019; all expected restructuring charges of $15.7 had been recorded by June 30.
Important facts for investors to verify
- Underlying sales and earnings trends excluding the 8th Avenue deconsolidation, transaction gains, acquisitions and swap mark-to-market movements.
- Cash conversion and inventory levels, given the nine-month inventory build and lower operating cash flow.
- Debt reduction, refinancing plans and liquidity after the July 2029-note issuance, alongside the company’s high leverage.
- Active Nutrition operating performance and whether the proposed IPO proceeds; the filing provides no assurance of a transaction.
- Outcomes and potential costs of the remaining antitrust and Bob Evans appraisal proceedings.