Post Holdings Inc (POST) 2014 Q1 法說會逐字稿

Welcome to Post Holdings Q1 2014 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 11:45 AM Eastern Time. The dial-in number is 800-585-8367, and enter PIN number 33249552.

(Operator Instructions)

It is now my pleasure to turn the floor over to Brad Harper, Investor Relations for Post Holdings, for introductions.

Thank you and good morning. Welcome to the Post Holdings conference call where we will discuss results for the first quarter of FY14. With me today are Terry Block, our President and COO, and Rob Vitale, our CFO.

We will not be taking questions after our prepared remarks today. The press release that supports these remarks is posted on our website at www.postholdings.com.

Before we continue, I would like to remind you that this call will contain forward-looking statements. These forward-looking statements are subject to risks and uncertainties, which should be carefully considered by investors as actual results could differ materially from these forward-looking statements.

For more information regarding these risks and uncertainties, please visit the SEC filings page 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 these statements.

All forward-looking statements are expressly qualified in their entirety by this cautionary statement.

As a reminder, this call is being recorded for audio replay.

Finally, this call will discuss certain non-GAAP measures. For a reconciliation of non-GAAP measures to the nearest GAAP measure, see our press release posted on our website.

With that, I will turn the call over to Terry.

Good morning, and thank you for joining us today on our earnings call. We'll review the status of our business for our FY14 first quarter ended December 31, 2013. Additionally, we'll highlight the recent acquisitions that are transforming Post Holdings from a low-growth, single-category participant to a more diverse consumer products enterprise, competing in categories with more dynamic growth prospects.

I'm pleased to announce that our first quarter recorded 25.4% growth, with consolidated net sales hitting $297 million. The Post RTE cereal business recorded net sales of $236.9 million, flat compared to last year's first quarter. This result was against a tough comparable year-ago quarter that was aided by a very significant new product pipeline in December 2012.

The category, as measured by Nielsen, remains challenged, experiencing dollar consumption declines of 3.9% for the same quarter. Post's $60.1 million of net sales growth was split $37.2 million and $23.2 million between Premier Nutrition and Attune Foods, respectively, as both businesses enjoyed strong first-quarter performances, which I'll touch on later.

The Post Foods RTE cereal business continued to show market share progress, as well as outpacing the category, and delivered the strongest year-over-year share increase in two years. Dollar market share for the 13-week period ended December 28, 2013, increased 0.3 point to 10.6%, building upon the positive share performance from the prior 13-week period. Pounds and packet shares were also up 0.3 and 0.4, respectively.

We continue to be pleased by the breadth of share improvement across the Post cereal portfolio, with most brands showing share stabilization or growth versus the same period year ago. This is a significant reversal of the broad-scale, multi-year declines of the past.

Now let's take a look at some of the individual brand performance.

Honey Bunches of Oats, our largest brand, had its best quarter in two years, growing dollar consumption 1.2%, with market share up 0.2 point to 4.5%. HBO is becoming more competitive, driven by improvement in the underlying strength of the core flavors, as well as new item gains, including HBO Granola.

The core flavors, honey roasted and almond, had the highest total share in any quarter in nearly three years. To build upon the recent improving trends for this most important brand, we will continue to focus on executing the fundamentals, our pricing pack size architecture, shelving, and merchandising.

Great Grains, our fastest growing brand, continued to outperform, with an increase in dollar consumption of 10% for the quarter. This resulted in a market share increase of 0.2 point versus the same 13-week period year ago, to 1.3%. Great Grains has strong momentum, with double-digit consumption dollar growth over the latest 52 weeks, driven by strong advertising and distribution gains, supporting new items.

We're building on this momentum with the introduction of two flavors of our new Great Grains Digestive Blends. Launching now, these new flavors further enhance the brand's health-and-wellness image.

Grape Nuts grew consumption dollars by 5.4% for the quarter, driven by distribution gains on Grape Nuts Fit and our continued brand revitalization efforts that are driving a reappraisal of this iconic brand.

Post Raisin Bran, Honeycomb, and Golden Crisp all had stable or growing share in the most recent quarter, an indication that our tactical approaches to support some of our smaller brands are delivering meaningful results and reversing multi-year share declines. These brands also are benefiting from increased attention by being represented by the Post direct-selling organization.

Pebbles had a soft performance in the first quarter versus prior year, with share down 0.1 point. This performance was driven by cycling of heavier advertising promotion during the prior year and was also impacted by delistments of weak flanker SKUs, Marshmallow and Boulders.

Importantly, the core flavors, Fruity and Cocoa, exhibited stability for the quarter. Pebbles is launching significant innovation during Q2 with the introduction of Poppin' Pebbles, which has received strong customer acceptance and has tested well among the target audience.

This past September, we began expanding our efforts to address the value-seeking consumer with the limited introduction of large bagged items of Fruity and Cocoa Pebbles, Honeycomb, and Golden Crisp.

We're expanding this effort with distribution in up to 4,000 retail outlets as initial retail consumption is on target. This endeavor represented a new packaging format for Post, as well as a moderately different target audience [and for] boxes.

Net, while the RTE cereal category remains very challenged, I'm encouraged by the impact our efforts have had to stabilize and now begin to grow Post's market share.

Our focus will continue to be on to enhance demand generation through stronger marketing and product improvements; to build a pipeline of new items that offer incrementality to the category; to capitalize on the shared capabilities and learnings of our acquired operating companies; and to execute the fundamentals of shelving, assortment, pricing, and merchandising.

Improvements in both our short- and long-term cost structure have also been a focus area over the past two years. The previously-announced Modesto plant closure is on schedule. Phase I was completed in November 2013, and Phase II of the closure is on schedule and is expected to be completed in August 2014.

The back nine months of FY14 will also experience modest deflation in grain commodities, which will more than offset increases in other commodities, as well as a number of non-traded inputs in the Post Foods segment. Net, we expect to experience stable gross margins in the Post Foods segment as we move through the back half of FY14.

Attune Foods, our organic, non-GMO cereal and snack business is comprised of the Erewhon, Uncle Sam, Peace, Sweet Home Farm, the Willamette Valley brands, plus the fantastic private-label granola business. Attune Foods for the first quarter achieved net sales of $23.2 million and was significantly ahead of the prior-year pre-acquisition quarter, and turned in a record quarter.

The strong results were driven by strength in organic, non-GMO, gluten-free cereal, especially Peace, Sweet Home Farm and bulk granola.

Additionally, the private label portfolio gained new customers and increased businesses with current longstanding customers, while growing at double-digit rates at several of its largest customers. Momentum on the business remains positive, with opportunities for operational improvements by capitalizing on Post's scale and knowledge, while remaining an independent operating unit of Post Holdings.

Post's Active Nutrition segment, in our first quarter was comprised of Premier Nutrition of the Premier Protein and Joint Juice brands.

Active Nutrition, for the first quarter, turned in net sales of $37.2 million, a significant jump versus the prior pre-year, pre-acquisition quarter. The outstanding results were driven by existing customers; by focusing on increased item assortment; customer-specific programming; and improved promotional execution, which accounted for 75% of the quarter's growth.

Equally important, expanded distribution on channel-appropriate items and to the food, drug, mass channels accounted for about 25% of the quarter's growth.

As recently announced, Active Nutrition is a key component in the transformation of Post into a more-diversified consumer products enterprise. Post Holdings continues to increase its commitment to the active nutrition category and anticipates combining Premier Nutrition; Dymatize Enterprises, markers of the Dymatize and Supreme brands; with the PowerBar and Musashi brands being acquired from Nestle to form a singular Active Nutrition group within Post with expected annualized revenue approaching $550 million.

Competing in a category with very attractive growth dynamics, the global active nutrition category is projected to grow at high single-digits in the upcoming years according to Euromonitor.

This combination will afford Post a broad portfolio of brands, addressing various segments of the category covering bodybuilding, endurance, lifestyle, and sports nutrition, consumer interests and benefits. The combined portfolio will provide the Active Nutrition group access to all channels of sales and distribution, as well as all leading product forms including bars, shakes, and powders, while expanding presence worldwide.

Leading this newly-formed Active Nutrition group will be two category-seasoned Co-CEOs: Dave Ritterbush, current President and CEO of Premier Nutrition, and Greg Venner, current President and CEO of Dymatize Enterprises.

We expect to maintain offices in both San Francisco and Dallas, the current headquarters for Premier and Dymatize, respectively. Division of labor and decision-making authority is work in process, but the design principles will largely be based on channels and geography.

When we announced the Golden Boy acquisition, we also announced the formation of the Post Private Brands group that initially will be comprised of Golden Boy and Dakota Growers Pasta Company. Combining these businesses will better manage the scaling of enterprises that possess similar go-to-market dynamics, management and operating challenges, and customers, while maintaining accountability and the individuality of the operating units.

The Post Private Brands group will have expected annualized sales in excess of $500 million and will be lead by the President and CEO of Golden Boy, Richard Harris, and will be headquartered in Burnaby, British Columbia, Canada.

The business will service the private label retail, foodservice, and ingredient channels, with the product line-up consisting of a wide variety of pastas including whole grain, whole wheat, and multi-grain with omega-3s, as well as peanut and other nut butters, trail mixes, snacking nuts, and other dry goods.

In summary, Post is transforming itself, having added exposure to segments and consumer package goods with higher growth rates, and in segments that remain fragmented and present consolidation opportunities.

If you could draw a pie chart, when reporting on first quarter 2013, that pie chart would have been 100% Post cereal.

If I draw that pie chart on a go-forward, full-year basis, reflecting both the announced PowerBar and Musashi deal, and closed acquisitions to-date, the pie chart would approximate the following percentage break out for net revenue: center-of-the-store, represented by Post Foods and Attune Foods, about 50%; active nutrition, about 25%; and private label about 25%.

Thank you. Now Rob Vitale will discuss the financials in detail.

Thanks, Terry.

This morning, I'd like to give you an overview of the quarter and then revisit our M&A strategy, with particular emphasis on providing some details around our announcement earlier this week.

Starting with the quarter, as Terry mentioned, net sales were $297 million, up $60.1 million from last year. The increase was entirely derived from acquisitions, as the Post Foods segment net sales were flat at $236.9 million. Note again, that this flat result was against a category dollar decline of 3.9%.

Pound volume for Post Foods increased 4%, but was offset by a 4% decline in average net selling price. Pound volume increases were driven by Great Grains and Post Raisin Bran. Additionally, we experienced growth in revenue from private label and co-manufacturing agreements.

Net sales for the Attune Food segment were $23.2 million for the first quarter, up 17.8% versus the prior-year pre-acquisition quarter. Attune Foods continues to perform in line with our expectations.

Turning to our Active Nutrition segment, Q1 is the first quarter to reflect a full quarter of Premier Nutrition results. This segment contributed net sales of $37.2 million, up 34.8% compared to the prior-year, pre-acquisition quarter.

Consolidated gross profit was $114.5 million, up $8.8 million from the prior year. To reconcile, the increase is comprised of $17.5 million in acquired gross profit, partially offset by $2.7 million of accelerated depreciation related to the Modesto plant closure, and negative price mix in the Post Foods segment.

More precisely, if the impact of Modesto and acquisitions are excluded, first-quarter gross profit was $99.7 million; and gross margin was 42.1% on net sales excluding those acquisitions. As I mentioned, the margin decline of approximately 250 basis points largely results from the impact of product mix and lower average net selling prices within the Post Foods segment.

As expected, we saw lower commodity costs for grains and fruit in the first quarter compared to prior-year in the Post Foods segment. The decrease was partially offset by higher costs for sugar.

SG&A increased $10.9 million, to $83 million, for the first quarter versus prior-year. $8.1 million of the increase to SG&A was related to acquired businesses. On a comparable basis, SG&A was 31.6% of net sales, excluding acquisitions, up approximately 120 basis points compared to the prior year.

The remaining $2.8 million increase in SG&A costs was the result of incremental holding company costs, partially offset by lower advertising and promotion expenses for the Post Foods business.

I would highlight that the increase holding company costs include $4.4 million of spending related to due diligence and transaction expenses on both completed and potential acquisitions. Note that for calculating adjusted EBITDA, we add back transaction expenses for completed acquisitions only, which were $3.4 million for the quarter.

Consolidated adjusted EBITDA for the quarter was $55.9 million, up $3.4 million compared to the prior year. Acquisitions contributed $10.2 million to the first quarter adjusted EBITDA.

Starting this quarter, we are reporting adjusted EBITDA results for each segment. We believe segment-adjusted EBITDA is a useful metric in providing transparency around each operating segment and acquisition activity.

For the first quarter of 2014, the Post Foods segment adjusted EBITDA was $59.7 million. The Attune Foods segment and the Active Nutrition segment had adjusted EBITDA of $4.4 million and $5.8 million, respectively. A reconciliation of segment-adjusted EBITDA to segment profit can be found in the financial tables in our earnings release.

Interest expense was $29 million for the quarter, compared to $19.2 million for the quarter last year. The increase is driven by the issuance of an aggregate of 875 million of Senior Notes issued in July 2013 and November 2013. For the quarter, net loss attributable to Common Stockholders was $5 million, or $0.15 per diluted common share. Adjusted net earnings available to Common Stockholders and adjusted diluted earnings per common share were $700,000 and $0.02, respectively.

Turning to our strategic activities, it has been a busy time period. On January 1, we completed the acquisition of Dakotas Growers Pasta Company. Earlier this week, we completed the acquisition of Golden Boy Foods. The combination of both companies provides Post an established private label platform with expected sales of approximately $600 million.

Also this week, we completed the Dymatize acquisition. Dymatize builds upon Post's established active nutrition focus. As Terry mentioned, these acquisitions have resulted in Post forming two new divisions -- Post Private Brands group and Post Active Nutrition group.

On Monday, we announced that we have reached an agreement to acquire the PowerBar and Musashi active nutrition brands from Nestle. In connection with this transaction, Post agreed to pay Nestle $150 million for the brands.

The transaction is structured as a stock and asset purchase. The portion of the total transaction purchase price allocated to the US assets qualifies for a step-up in fair value for determining tax deductible depreciation and amortization, resulting in a tax efficiency which we estimate to have a present value of between $18 million and $20 million.

This transaction was financed with cash in hand, resulting from the excess of the high-yield issuance and convertible preferred issuance in December of last year.

We expect PowerBar and Musashi to have net sales of between $165 million and $175 million, and adjusted EBITDA to be $15 million to $17 million for calendar year 2014, had the brands been part of Post Active Nutrition group for the entire period.

We anticipate certain transition services will be performed by Nestle under a TSA agreement. We estimate we will incur transition and integration expenses of approximately $10 million to $15 million over the 15 months following the close of the transaction.

As you've witnessed over the past few months, Post is transforming into a more-diversified consumer goods holding Company operating in the center of the store, active nutrition, and private label categories. M&A provides Post with both growth and diversification.

Using the steady cash flow of the Post Food businesses, we look for assets in categories that are growing and/or consolidating, such as active nutrition and private label. We also look for assets in the center of the store, with attractive scale benefits and/or cost structures to complement our existing core businesses.

To address short-term financing needs and to enable us to act quickly when needed, we entered into a credit agreement in late January, which provides us with a $300 million revolving credit facility. We plan to use the revolver for general Corporate purposes, which may include financing acquisitions, working capital, capital expenditures, or other items.

Finally, with respect to FY14, we expect adjusted EBITDA, including the results of all acquisitions completed to date, to be between $315 million and $340 million. This range reflects modest growth for the Post Foods business and contributions from acquisitions, in line with Management's previously-announced expectations.

Note this estimate reflects the timing of acquisitions that will contribute only partial years to FY14 and does not include contributions from the PowerBar and Musashi brands.

We expect capital expenditures to be in the range of $75 million to $85 million, inclusive of acquisitions completed to date. Our capital expenditure outlook reflects requirements to complete the start-up and transfer production to other facilities, related to the Modesto facility closure, along with corporate initiatives.

Thank you for listening to our call today, and we look forward to updating you again next quarter.

Thank you for joining today's conference call. You may now disconnect your lines at this time.