Post Holdings, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2013, the three months ended December 31, 2012. Amounts are in millions except per-share data. Post manufactures and markets branded ready-to-eat cereals in the United States and Canada. The December 2011 comparison period predates Post’s February 2012 spin-off from Ralcorp and may not be fully comparable.
Financial performance
| Metric | Q1 FY2013 | Prior-year quarter |
|---|---|---|
| Net sales | $236.9 | $219.3 |
| Gross profit / margin | $105.7 / 44.6% | $98.0 / 44.7% |
| Operating profit / margin | $30.3 / 12.8% | $31.3 / 14.3% |
| Net earnings | $7.6 | $12.8 |
| Diluted EPS | $0.23 | $0.37 |
| Operating cash flow | $23.6 | $26.2 |
Sales grew 8%, reflecting 6% higher volume and a 2% increase in average net selling prices. Operating profit declined about 3%, while net earnings fell about 41%. Higher raw-material costs were partly offset by favorable manufacturing costs; SG&A rose to 30.4% of sales from 29.0%. Interest expense increased to $19.2 from $13.0, primarily reflecting higher debt.
Cash, debt and liquidity
Cash and cash equivalents were $310.9 at December 31, 2012, versus $58.2 at September 30, 2012. Current assets were $489.8 and current liabilities $139.4. Debt totaled $1,208.2, including $1,025.0 principal amount of 7.375% senior notes and a $168.4 term loan; cash exceeded the prior quarter largely because of the notes issuance. The company had $174.5 of available revolver capacity. It reported compliance with its credit-facility covenants.
Operating cash flow was $23.6; investing activities used $14.2, including the Attune acquisition and capital expenditures. Financing activities provided $243.4, principally from the $250.0 incremental senior-note issuance. Management stated that operating cash flows and credit facilities should meet foreseeable financing needs, subject to operating conditions and risks.
Material changes, outlook and risks
- Post acquired substantially all Attune Foods assets on December 31, 2012 for approximately $9.2, adding Attune, Uncle Sam and Erewhon brands. The preliminary allocation included $3.6 of goodwill and $3.8 of other intangibles.
- Higher production had built inventory as a contingency against a possible Battle Creek work stoppage. After renewing the collective bargaining agreement without a stoppage, Post expected to reduce production gradually to work down inventory, which management expected to weigh on fixed-cost absorption in future periods.
- Management expected slotting fees to be higher throughout fiscal 2013 as it pursued product innovation and renovation. No specific earnings or revenue guidance was provided.
- Key risks include substantial leverage and restrictive covenants, commodity and packaging costs, competition and changing cereal demand, customer concentration, supply-chain disruption, and potential impairment of goodwill or trademarks. Two trademarks’ estimated fair values only slightly exceeded carrying values at September 30, 2012; management said it would continue monitoring them.
- One customer generated approximately 23% of quarterly sales. Post reported ordinary-course legal proceedings and said their outcome was not expected to materially adversely affect its financial position, results or cash flows. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether sales and volume gains persist, and whether higher slotting fees or promotional spending affect pricing and margins.
- How quickly excess inventory is reduced and the resulting impact on production efficiency and cash flow.
- Debt service capacity, covenant headroom, and the effects of fixed-rate notes and variable-rate term-loan exposure.
- Attune’s post-acquisition contribution and whether the preliminary purchase-price allocation changes.
- Trademark valuation assumptions, customer concentration, and the comparability limitations of the pre-spin-off prior-year results.