Post Holdings Inc (POST) 2013 Q1 法說會逐字稿

Welcome to Post Holding's first quarter 2013 earnings conference call and webcast. Hosting the call today from Post is Terry Block, President and Chief Operating Officer, and Rob Vitale, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 8.00 PM Eastern Time. The dial-in number is 800-585-8367 and pin number 91491617. At this time, all participants have been placed in a listen-only mode. It is now my pleasure to turn the floor over to Deidre Gray, Post's Secretary and General Counsel for introductions. You may begin.

Thank you, and good afternoon, everyone. Welcome to Post Holdings conference call to discuss results for the first fiscal quarter ended December 31, 2012. With me today are Terry Block, our President and Chief Operating Officer, and Rob Vitale, our Chief Financial Officer. During this call, we will review our financial results and initiatives for the first quarter, and discuss guidance for fiscal 2013. We will not be taking questions after the prepared remarks. The press release that supports our remarks today is posted on our website at www.postfoods.com.

Before we continue, I would like to remind you that this conference call will contain forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information regarding these risks and uncertainties, please visit SEC filings in the Investor Relations section of our website. These statements speak only as of the date of this call, and management undertakes no obligation to update or revise the statements. All forward-looking statements are expressly qualified in their entirety by this cautionary statement. While evaluating Post business and securities, investors should give careful consideration to these risks and uncertainties.

As a reminder, this call is being recorded for audio replay. Finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, please see our press release posted on our website. With that, I will now turn the call over to Terry to review our business.

Thank you, Deidre. Good afternoon, and thank you for joining us today on our earnings call. We will review the status of our business for the first quarter ended December 31, 2012. As a reminder, it was a year ago yesterday that Post rang the opening bell on the New York Stock Exchange, signaling our start as an independent public company. At the time, we put in place strategies to affect a turnaround in Post's multi-year, negative revenue and share performance. In so doing, we were laying the foundation for growth and reliability of cash flow, both of which are central to forward-thinking optionality for the business. The outcome from these efforts to stabilize revenue and share continue to offer encouragement, as the investments in product, brand-building and customer management unfold, and the organization better understands the nuanced dynamics of the ready-to-eat cereal category.

I am pleased to announce that our 2013 first quarter recorded net sales of $236.9 million, an increase of 8% or $17.6 million, versus last year first quarter. Breaking this down, the established business, defined as brands and brand extensions that were available for sale on or before September 30, 2012, delivered $7 million of the year-over-year quarterly growth. The remaining $10.6 million came from early, new product shipments that occurred late December to support scheduled display and shelf activity to drive trial for the Post innovations at retail, beginning in January 2013. Also, we realized more gross sales to net sales during the quarter, resulting from a more disciplined approach to promotional spending. This is attributed to investments we made in better tools, improved processes and the direct ownership and expansion of the selling organization.

The category as measured by Nielsen experienced dollar consumption declines of 0.8% from the same quarter last year. Against the category performance backdrop, Post market share was 10.2% for the 13 week period ending December 29, 2012, down a disappointing 0.5 share point, versus the first quarter of last year. The decline was largely Honey Bunches of Oats related, and some what self-inflicted as we made the spending decision to reallocate funding to better support our innovation pipeline and new advertising campaigns breaking in our second quarter behind Honey Bunches of Oats, Grape Nuts and Shredded Wheat. We obviously have more work to do to become a long short-term share gainer, and that will continue to be a focal point throughout 2013.

Certainly, brand building will assist share resurgence, and we are hearing our customers are excited about the innovation Post is bringing to the category in our second quarter. The levels of acceptance and the speed to shelf are exceeding our expectations. This is the most aggressive new product line-up Post has had in years. It includes the following cereal items, Honey Bunches of Oats Greek Yogurt, Honey Bunches of Oats Mango Coconut, Great Grains Protein Blends, both cinnamon hazelnut and Honey Oats & Seeds, Grape Nuts Fit, Sesame Street both apple and banana flavors, plus Shreddies Granola Almond Crunch in Canada.

Importantly, these items are targeting different consumer segments of the cereal usage experience. We will continue to increase the intensity placed behind innovation and renovation that will enhance the market position of our brands. Further, we will extend where the consumer judges our brands can meaningfully transfer positioning and brand promise, and where Post can return an acceptable profit, and not just be the recipient of a short-term quick sale, with little hope of sustaining the adjacency long-term.

Now let me highlight a few of the brand-building efforts that we have going on. New Grape Nuts Fit is Grape Nuts for today's consumers who are looking for their food not only to taste good, but also for their food to give them sustained energy. Grape Nuts Fit has all the whole grain goodness of Grape Nuts plus vanilla-sweetened protein clusters and delicious cranberries with 6 grams of protein per serving. It is brought to you by the same cereal that fueled Sir Edmund Hillary to summit the highest point on earth, Mount Everest, 60 years ago. Our new marketing campaign also plays on Sir Edmund's heroic achievement and encourages us all, with the callout, what's your mountain? And personally, it is my favorite Post cereal.

Post Shredded Wheat will be launching a new campaign based on a recently concluded survey. We announced the survey results that reveal 9 out of 10 doctors would recommend Post Shredded Wheat as part of a healthy diet to help reduce the risk of heart disease. These survey results will be part of a new Post Shredded Wheat advertising campaign The 100 year old recipe for Post Shredded Wheat includes only one ingredient, whole-grain wheat. It is a powerful and meaningful message, and we will be telling it on TV, print and digitally.

Honey Bunches of Oats is the first major brand in the cereal aisle to put real, authentic Greek yogurt into the recipe, which is whole-grain flakes and two unique granola bunches with Greek yogurt. The taste sensation is delicious, and also the product delivers 5 grams of protein and two-thirds of your day's whole-grain requirement. The marketing campaign has evolved from factory workers who make the product, to real people who love eating Honey Bunches of Oats, and confirm that love with a smile. Pebbles support activities include new TV spots and base product changes to bring news to both Cocoa and Fruity Pebbles, and a partnership with John Cena and World Wrestling Entertainment, which has garnered over 72 million PR impressions to date across TV, radio, and the online channels.

For the past six months, Post has been testing a value cereal under the Good Morening's brand banner with limited exposure. The goal remains to better fulfill the cereal needs of value-oriented households with Post's quality alternatives at attractive price points. We have learned what refinements need to be made to product mix and marketing support. Working with our test customers, the adjustments are being made to further our learning while expanding the product more broadly in 2013. Combining this effort with several scalable private label SKUs for select customers affords Post the ability to spread fixed costs and improve plant productivity, while addressing the strategic imperative of improving customer management for mutual gain. I might add that neither initiative is distracting Post from the main mission of improving the performance of the Post brands, as evidenced by our new products that I just highlighted.

Net, we are gaining confidence that the investments in product, brand-building and improved customer management are on track to provide growth and a reliable cash flow. Key will be continued improvement in the execution of our core strategies, defined as first, we strengthen the breadth of our portfolio's consumer appeal. Second, to improve the interaction at the customer interface. Third, to accelerate innovation and renovation, leveraging our technological knowledge and resourcefulness. Fourth, to optimize the product supply network, advantaging scale, and to build a lean, nimble organization.

Finally, acquisition will be a key element to deliver shareholder value to Post. We did finalize a very small acquisition in December, acquiring Attune Foods, which is a manufacturer and marketer of branded premium healthy and organic cereals and snacks, based in San Francisco. By acquiring Attune Foods provides Post the opportunity to participate in the natural channel where today Post is unrepresented. Additionally, Attune affords Post an organic probiotic platform for future considerations. With that, I will turn to Rob Vitale, our CFO, to discuss financial results and guidance.

Thank you, Terry. As Terry mentioned, Post net sales increased 8% compared to the prior year, primarily driven by 6% higher volumes, and a 2% increase in average net selling prices. Honey Bunches of Oats, Grape Nuts, and Pebbles all increased volumes in Q1. Most notably, Grape Nuts increased 15% over the same quarter last year, while Honey Bunches of Oats and Pebbles volumes increased 3% and 5%, respectively. Additionally, the Good Morenings value brand had distribution gains of over 6% in the fiscal first quarter. Gross profit margins of 44.6% is a decrease of approximately 10 basis points from the prior year, primarily due to higher raw material costs including grains, fruit, and packaging which were partially offset by favorable fixed cost absorption from higher volumes, cost efficiencies and product mix.

Excluding costs related to the ongoing separation from Ralcorp, selling, general and administrative expenses as a percentage of net sales increased from 27.7% in the first quarter of fiscal 2012 to 29.3%. This increase was primarily driven by incremental holding Company costs, higher operating Company overhead for the new direct sales force, and non-cash mark-to-market adjustments on deferred compensation liabilities. Looking forward, we will not have complete comparability for SG&A until Q3 2013, because of the timing of the spin. For reference, the separation and integration costs were $2.8 million and $2.7 million in 2013 and 2012, respectively.

Adjusted EBITDA for the quarter was $52.5 million, an increase of 15.1% from the $45.6 million for the same time period a year ago. Income tax expense was $3.5 million, which represents an effective income tax rate of 31.5% for the first quarter, compared to an effective income tax rate of 32.3% for the same period a year ago. Net earnings were $7.6 million or $0.23 per diluted share for the first quarter. Adjusted net earnings and adjusted diluted earnings per share for the quarter were $10 million and $0.31, respectively. There is a reconciliation of adjusted to actual EBITDA and EPS in today's press release.

Recall that in October 2012, Post issued $250 million in additional high yield notes. This financing resulted in Post having approximately $300 million cash on hand as of December 31, 2012. As Terry mentioned, M&A remains a central piece to Post value building. Obtaining long-term capital enhances our M&A capacity, but it has a carrying cost while undeployed. Our M&A efforts are aggressive but disciplined, so the timing of utilizing the cash remains uncertain. During the first quarter of 2013, we incurred interest expense of approximately $3.2 million on the $250 million of additional high yield notes, which represents approximately $0.07 per diluted share after tax.

You will also note an increase in overall working capital during the quarter. This is a timing issue. Our Battle Creek collective bargaining agreement expired during the first quarter, and we built inventory in anticipation of that expiration. Post and its labor partners reached a new agreement without any disruption. We expect this inventory will be worked down in the second quarter with a modest negative impact on gross margin percentage. Also, newly introduced Honey Bunches of Oats with Greek Yogurt had large pipeline orders during the last two weeks of the quarter, that resulted in unusually AR -- high AR level at quarter-end.

On December 31, Post acquired substantially all the assets of Attune Foods for approximately $9.2 million. Attune will not materially impact Post adjusted EBITDA or EPS in 2013. As we have previously reported, Post and Ralcorp had entered into a Transition Services Agreement which covered over 20 different service areas. The most critical service area, information technology, is on track to go live and on an independent basis this summer. We do not expect Ralcorp's recent merger with ConAgra to materially impact our IT transition plans.

With respect our outlook for fiscal 2013, we remain comfortable with our previously issued guidance for adjusted EBITDA of between $210 million and $225 million. This range continues to contemplate the estimated year-over-year unfavorable commodity cost effect of between $10 million and $15 million. Post management further expects that capital expenditures will be in the range of $30 million to $35 million, inclusive of between $11 million and $13 million of capital costs associated with establishing stand-alone information systems separate from Ralcorp. Finally management expects net interest expense to be between $80 million and $83 million in fiscal 2013. Again, thank you for listening to our call today, and we look forward to providing more updates next quarter.

Thank you. This concludes today's call. You may now disconnect.