Post Holdings, Inc. — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2020. Unless otherwise indicated, amounts are in millions of dollars. Post is a consumer packaged goods holding company with five reportable segments: Post Consumer Brands, Weetabix, Foodservice, Refrigerated Retail and BellRing Brands.
Financial results and liquidity
| Metric | Three months ended June 30, 2020 | Prior-year quarter | Nine months ended June 30, 2020 | Prior-year period |
|---|---|---|---|---|
| Net sales | $1,336.4 | $1,439.2 | $4,287.4 | $4,238.3 |
| Gross profit | $436.8 | $462.1 | $1,347.1 | $1,339.9 |
| Operating profit | $172.1 | $198.2 | $521.6 | $678.4 |
| Net earnings (loss) attributable to Post | $36.0 | $16.2 | $(56.2) | $185.8 |
| Diluted earnings (loss) per share | $0.52 | $0.21 | $(0.81) | $2.47 |
- Quarterly sales declined 7%; gross margin was approximately 32.7% versus 32.1%, while operating margin was approximately 12.9% versus 13.8%. Nine-month sales rose 1%; gross margin was approximately 31.4% versus 31.6%, and operating margin approximately 12.2% versus 16.0%.
- Quarterly interest expense, net, was $96.4; nine-month interest expense was $293.3. Nine-month results also included a $72.9 debt-extinguishment loss and $192.4 net swap expense. Nine-month 2019 results included a $127.3 gain on the 8th Avenue divestiture.
- Operating cash flow for the nine months was $408.4, down from $504.8. Capital expenditures were $160.0; cash used in investing activities was $94.8 and financing activities was $313.9. Cash, cash equivalents and restricted cash totaled $1,054.7 at June 30.
- At June 30, principal debt was $6,858.3 and balance-sheet long-term debt was $6,776.9, with $36.1 current. Cash was $1,043.6, excluding $11.1 restricted cash. Post’s revolver had $553.2 available and BellRing’s had $145.0 available at quarter-end. Post repaid its remaining revolver borrowings on July 8.
- Current assets were $2,132.3 and current liabilities $748.0. Total shareholders’ equity was $2,879.6. During the nine months, Post repurchased 4.6 million shares for $462.3.
Material changes and segment performance
- Post Consumer Brands: Quarterly sales rose 11% to $528.1 and segment profit rose 54% to $127.6, reflecting higher at-home cereal demand and improved costs.
- Weetabix: Quarterly sales increased 3% to $111.8 and segment profit increased 22% to $32.6. At-home cereal demand was partly offset by weaker on-the-go sales and unfavorable foreign exchange.
- Foodservice: Quarterly sales fell 41% to $242.3 and the segment recorded a $40.3 loss versus $58.5 profit. COVID-19-related declines in away-from-home demand, lower prices, reduced production and inventory write-offs were significant factors. Nine-month segment profit fell 81% to $30.5.
- Refrigerated Retail: Quarterly sales rose 21% to $250.3 and segment profit rose to $42.3 from $15.8, supported by increased at-home purchases, pricing and lower raw-material costs.
- BellRing Brands: Quarterly sales fell 14% to $204.2 and segment profit fell 45% to $30.6. Lower on-the-go demand, customer inventory levels, promotions and higher public-company and stock-compensation costs contributed. Nine-month sales increased 10%, but segment profit declined 15%.
- BellRing’s October 2019 IPO resulted in Post consolidating BellRing while allocating 28.8% of its net income and net assets to noncontrolling interests. Post retained 71.2% of BellRing LLC units and voting control.
Outlook, commentary and risks
- Management said COVID-19 drove stronger demand in many retail channels through increased at-home consumption, but reduced demand for foodservice and on-the-go products. Foodservice volumes improved from April lows during the quarter, tracking changes in restrictions. Management cautioned that retail gains and improved category trends may not persist.
- The company reported additional pandemic-related labor, screening and cleaning costs, and described actions to protect employees, maintain supply continuity, manage costs and preserve liquidity. Management stated that cash, operating cash flow and available credit were expected to meet foreseeable needs, while noting uncertainty and the possibility that additional financing or covenant waivers could be needed if cash generation weakens.
- Post issued $1,250.0 of 4.625% notes due 2030 and repaid higher-cost notes and its term loan. The refinancing and other repayments generated the $72.9 nine-month extinguishment loss. BellRing has separate debt facilities; it met its 6.00-to-1.00 leverage covenant at June 30. Post was not required to test its revolving-credit covenant at quarter-end.
- Interest-rate swap volatility remains important: nine-month swap expense was $192.4, including $146.7 of non-cash mark-to-market losses and $45.7 of settlements paid. Management said it does not use derivatives for speculation; commodity and interest-rate movements, supply-chain disruption, leverage, consumer demand and COVID-19 remain key risks.
- Three egg-product opt-out antitrust claims remain against subsidiary Michael Foods. Post accrued $3.5; the filing says a material adverse outcome remains possible. Separately, after quarter-end, Post acquired Henningsen Foods for a closing payment of $22.7. A proposed environmental consent decree for the acquired business included a $0.8 penalty and injunctive measures; the seller is contractually obligated to indemnify Post.
- No specific consolidated financial guidance was provided in the supplied filing text. Management’s outlook is qualified by substantial uncertainty surrounding the pandemic and its duration and effects.
Important facts for investors to verify
- Whether Foodservice demand and profitability recover, and whether the retail sales uplift from at-home consumption continues.
- Drivers of BellRing’s quarterly sales and profit decline, including customer inventory, promotional activity and on-the-go demand.
- Debt maturities, interest costs, swap exposure and post-quarter revolver repayment; distinguish Post debt from BellRing’s separately structured debt.
- Cash conversion and capital allocation, including the substantial share repurchases and the effect of future pandemic-related needs.
- Possible outcomes and reserve adequacy for the remaining egg antitrust litigation, and the status of the Henningsen environmental consent decree and seller indemnity.
- Comparability of nine-month earnings, particularly the prior-year 8th Avenue divestiture gain and current-year debt-extinguishment and swap charges.