Post Holdings Inc (POST) 2014 Q4 法說會逐字稿

Welcome to Post Holdings fourth-quarter 2014 earnings conference call and webcast. Hosting the call today from Post are Rob Vitale, President and Chief Executive Officer, and Jeff Zadoks, Chief Financial Officer.

Today's call is being recorded and will be available for replay beginning at 12 PM Eastern time. The dial-in number is 800-585-8367, and the passcode is 259 20667.

At this time, all participants have been placed in a listen-only mode.

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

Thank you, and good morning.

Welcome to the Post Holdings conference call where we will discuss results for the fourth quarter of FY14 and the fiscal year. With me today are Rob Vitale our President and CEO, and Jeff Zadoks, our CFO. Rob and Jeff will begin the call with prepared remarks, and afterwards will be available for a brief question-and-answer session. 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 and should be carefully considered by investors as actual results could differ materially from these forward-looking statements. For more information, 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 issued yesterday and posted on our website.

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

Thanks, Brad. Good morning, and thank you for joining us.

Before we begin, on behalf of Jim Dwyer, Jim Holbrook, Jeff Zadoks, and myself, I'd like to thank Bill Stiritz and our Board of Directors for the confidence they have shown in this team. I had the great fortune to start working with Bill nearly 20 years ago, and I look forward to continue working closely with him as the Post story continues to develop.

I'd like to start by talking about the reorganization we announced last month, and then give you an update on the state of our business. As you know, last month we announced the restructuring of our business into three groups: consumer brands, Michael Foods, and private label.

Our reorganization was driven by four objectives, to maximize business unit autonomy with respect to customer and consumer facing activities; to leverage scale across the organization without compromising decision-making effectiveness; to share valuable assets across the business whether they be brands, plants, human capital, or knowledge resources; and to overlay a reporting, forecasting, and governance model that provides the ability to maintain an effective control environment and to allocate capital to its best use.

With this in mind, I will briefly provide an overview of each segment. Consumer brands is led by Jim Holbrook and includes our Post Foods, cereal, and Active Nutrition brands.

While brand autonomy is maintained, the coordination under common leadership greatly enhances the sharing of resources, systems, and information across the businesses. We believe this structure will optimize the use of the Post sales force, marketing team, inside function, IT platform, and logistics network.

Our Michael Foods group is led by Jim Dwyer, and it includes the Michael Foods egg, potato, and cheese businesses, and the Dakota Growers Pasta business. This structure combines under one management team businesses that predominantly serve the food service and ingredient channels. Again, we believe that this will result in more efficient coordination of resources without losing focus at the business unit level.

Last, our private label group includes our private label nut butter and granola businesses. This group combines predominantly private label products sold in similar channels across conventional and natural retailers. We expect costs associated with this reorganization to be approximately $5 million to $6 million.

Turning to our results, the fourth-quarter performance was in line with the expectations we communicated in August. Revenue was just over $1 billion, and adjusted EBITDA was $137.3 million. The results reflect a strong quarter for Michael which came in at the high side of our expected range. For the fiscal year, revenues were $2.4 billion, and adjusted EBITDA was $344.5 million.

During the quarter, we recognize non-cash impairment charges of $295.6 million. The amount of the impairment is subject to final review and potential adjustment, although we do not expect any potential adjustment to be meaningful.

The impairment impacts Post Foods and Active Nutrition. Post Foods recognized charges of $264.3 million, primarily resulting from declines in the branded ready-to-eat cereal category.

While we have stabilized our cereal business, the category itself remains challenged, and it resulted in a reduction in the long-term growth rates that underlie the fair value calculation. In fact, our FY15 plan assumes a 4% category decline.

Active Nutrition recognized charges of $31.3 million, resulting from the reduced near-term profitability at Dymatize. I will comment more on Dymatize, but I want to emphasize we remain confident in its growth opportunities and the potential for this business.

Turning to operational highlights, the RTE cereal category experience continued weakness in the quarter, and as I mentioned, we expect this trend to continuing into FY15. According to Nielsen, RTE cereal category dollars declined 4.6% and pounds declined 4.2% during our fiscal quarter. Nevertheless, Post continues to show market share gains. Compared to the year-ago quarter, Post consumption dollar market share was 10.7%, up 0.5 share points.

In August, we completed the final production run in our Modesto facility, and we are on track to achieve pretax savings of $14 million in 2015. We realized approximately $2.8 million in pretax cash savings in FY14 from the closure.

Moreover, we continue to expect to realize savings of approximately $10 million related to supply chain and packaging projects which are being implemented in FY15. The vast majority of these savings will be realized by Post Foods during the second half of the year.

The Active Nutrition brands, again, now part of consumer brands, has mixed performances in the quarter. Premier Nutrition continues to grow rapidly with sales up 24% year over year. However, profitability was hit by high milk protein concentrate costs. While these costs have declined recently, our inventory cycle takes 60 to 90 days before the lower priced inventory is realized in the P&L.

We continue to struggle with Dymatize. The business has been reestablished as a standalone unit to get the maximum focus, and we have named a general manager dedicated solely to this business.

At the start of the fourth quarter, we moved a significant portion of the Dymatize international production to a co-manufactured. We are continuing to make investments to improve Dymatize's manufacturing and supply chain processes. We expect to move the co-manufactured production back in-house in mid FY15. This should improve margins, but we expect Dymatize to underperform until the end of FY15.

We are also implementing cost reduction plans at Dymatize, related to improved procurement, which we expect result in cost savings of approximately $4 million in late FY15. On a positive note, and reinforcing our long-term optimism, the Dymatize brand continues to be strong with US Dymatize brand sales up 16.6% over the prior-year period.

Michael had a solid quarter coming in with adjusted EBITDA just under $65 million. We saw strong volume growth across products and channels. Michael's strong quarter comes despite a modest shortfall in grain-based supply versus grain-based demand.

Grain-based demand has grown faster than expected, a very positive sign for the prospects of the Company. However, in the near term, we are sourcing grain-based demand on the spot market, which currently is higher than our grain-based price. We are adding grain-based supply, and it will come online late fiscal year. Again, while this puts a very near-term pressure on margins, it is a very healthy sign for the business.

As we mentioned when announcing the acquisition of Michael, there's very limited integration of Michael into Post, [into the] core platform. However, the combined scale across Post Holdings has enabled us to achieve scale synergies in direct and indirect procurement, and we expect to meet our $10 million target by the end of FY15.

Dakota is now being managed through Michael. Its quarter came in as expected, in line with the third quarter. Our private label business also finished the year as expected.

On November 1, we completed the acquisition of American Blanching. The integration of Golden Boy and American Blanching is progressing well, and we've been impressed with their operations. We believe that we are now the country's largest provider of private label peanut butter, a category growing in unit volume at 8.5% in our fiscal year according to Nielsen.

Before turning the call over to Jeff, I want to comment on our M&A positioning in our portfolio. While in the near-term we have plenty to digest, we continue to believe M&A is central to value creation at Post. The historically low interest rate environment fuels our M&A strategy. Anticipating future M&A, we executed forward starting swaps that lock in these low interest rates on future anticipated debt.

Since executing the transactions, swap rates have decreased and resulted in a mark-to-market adjustments. However, our rationale has not changed. We believe securing an attractive interest rate is a prudent approach to solidifying our position for future M&A.

Last, the Post story is one of an evolving portfolio. We have transformed Post from a 100% ready-to-eat cereal Company to a diversified food Company.

Today, 75% of Post revenue comes from growing categories. We now have the platforms we need to grow. Our near-term focus is on strengthening the platforms operationally, so that future M&A can leverage more mature systems and generate marginally greater returns to capital.

I will now turn the call over to Jeff.

Thanks, Rob.

Good morning. I will start with our consolidated results, provide detail around the segments, and then turn to our 2015 outlook.

As with previous quarters, our financials include acquisitions from the respective closing dates forward without adjustment to prior periods. Except for Post Foods, each segment includes a partial period out in 2013 or 2014 or both. All segments reflect a full three months of results in the fourth quarter of 2014.

For the fourth quarter, consolidated net sales were $1.043 billion. Gross profit was $228.7 million, including $127 million from acquisitions. SG&A expense was $137.9 million and is running at 13.2% of net sales. SG&A from acquired businesses accounted for $64.9 million. Adjusted EBITDA was $137.3 million, including $87.7 million from acquisitions.

Non-cash impairment charges were $295.6 million, related to Post Foods and Active Nutrition. As Rob mentioned, this amount is subject to final review and potential adjustment.

We had a non-cash loss of $28.7 million in the fourth quarter, primarily resulting from unrealized losses on the interest rate swaps that Rob discussed. These interest rate swaps will result in a cash settlement in July 2018 based on the forward interest rate curve at that time.

Consolidated net interest expense was $60.4 million for the quarter, compared to prior-year interest expense of $25.5 million. Pretax loss was $329.7 million and resulted in an income tax benefit of $42.3 million. The effective income tax rate was 12.8%, principally from the impact of non-deductible goodwill charges.

The net loss attributable to common stockholders was $291.7 million or $5.86 per share. Adjusted net earnings available to common stockholders and adjusted diluted earnings per common share for the quarter were $6.9 million and $0.13, respectively.

For the year, net sales were approximately $2.4 billion with gross profit of $621.2 million. SG&A expenses were $444.4 million or 18.4% of net sales. This included $29.7 million of deal related transaction expenses, $27.7 million of which related to announced transactions and is added back in our adjusted EBITDA. Adjusted EBITDA was $344.5 million and included $159.4 million from acquired businesses.

Losses on foreign currency of $14 million were primarily related to hedging of the Canadian dollar Golden Boy purchase price, which was offset by a reduction in the US dollar equivalent purchase price.

For the year, net interest expense was $183.7 million. The income tax benefit was $83.7 million, an effective income tax rate of 19.6%. The net loss was $358.6 million or $9.03 per share. Adjusted net loss was $16.6 million or $0.42 per diluted share.

Before reviewing the segments, I want to remind you that they reported in the fourth quarter consistent with our operations prior to our reorganization. In the first quarter, we will begin to report results aligned with our new organization and will provide you with adjusted historical segment data at that time.

Starting with Post Foods, sales were $248.5 million for the quarter. Compared to the prior-year quarter, volume was up approximately 1%, and net pricing declined 3%. Cost of sales per hundredweight declined 5%.

Adjusted EBITDA was $63 million, a small improvement from a year ago. For the year, sales were $963.1 million, a decline of 2%, and adjusted EBITDA was $238.3 million.

For Michael Foods, net sales where $534.3 million for the fourth quarter. On a comparable basis, sales were up nearly 10% over the prior year with volume up 8%, primarily driven by egg products. Egg volumes were up on increased distribution from new customers and market share gains at existing customers. Adjusted EBITDA was $64.9 million for the quarter, and for our four-month ownership period was $79.5 million.

Moving to Active Nutrition, net sales were $98.8 million for the quarter. On a comparable basis net sales were up 8.5%, primarily driven by strong protein shake consumption. Dymatize net sales were in line with third quarter, but margins continue to be pressured by expenses to remediate supply chain disruptions.

Adjusted EBITDA for the quarter was $2.4 million. This level of adjusted EBITDA reflects strong performance from Premier Nutrition, offset by significant underperformance from Dymatize.

Next, private brands, net sales were $137.5 million for the quarter up 7% over the prior year on a comparable basis. Adjusted EBITDA was $16.5 million.

Turning to our outlook, for FY15, we expect adjusted EBITDA between $540 million and $580 million. While we do not normally provide quarterly guidance, we expect an unusual pattern in FY15 which we want to highlight.

We expect adjusted EBITDA for the first quarter to be between $115 million and $120 million. The primary items affecting our expectations for the first quarter are between $5 million and $6 million of expenses related to our reorganization; direct and indirect costs of approximately $6 million at Michael Foods incurred for corrective actions in connection with isolated fourth quarter product quality issues; and weakness in RTE cereal net sales which we expect to decline $15 million to $20 million compared to the prior-year quarter despite strong consumption data in October.

In the balance of 2015, we expect to meaningfully outperform the prior year on a comparable basis. The key drivers are Michael Foods will be cycling weak prior-year periods, and volumes continue to grow while input costs moderate; phasing in anticipated synergies associated with Michael Foods; RTE cereal adjusted EBITDA is expected to be flat as continued category volume declines will be offset by lower operational expenses; and progressive improvement in Dymatize result; lower dairy protein costs; and strong growth for protein shakes.

Regarding capital expenditures for FY15, we expect to invest between $115 million and $125 million. This reflects approximately $40 million related to growth activities, mostly at Michael, which are carryover projects from the prior year, and are expected to be completed in the first half of the year. Enterprise-wide maintenance capital expenditures are expected to be between $75 million and $85 million.

At this point, I will turn the call back over to the operator for questions.

(Operator Instructions)

Andrew Lazar of Barclays.

I just have two or three questions here. First off, Rob, if we take the run rate EBITDA guidance that you provided, for each of the acquisitions and embed no underlying growth, I guess it would seem as though the pro forma EBITDA for the business would be, at the very least, towards the higher end of the FY15 guidance range. That's true even if we adjust Dymatize lower, and use a pretty cautious assumption for the legacy Post Foods business. I guess the question is, outside of Dymatize, has anything changed? Is the difference maybe Michael's expected to track below the pre-synergy $255 million to $270 million range that you had once discussed? Maybe give us a sense of what your best estimate of the pro forma 2014 EBITDA adjusted range number might have been to give us a sense of what year-over-year change looks like?

Okay. First of all, a better way to look at the earnings power of the business, as we have articulated, is to really divided up into first quarter and last three quarters. If you take the expected average of the last three quarters, I think you reach a conclusion much more in line with street expectations. We have a one quarter problem resulting from, in part, the way we've treated the severance cost, the issue that we highlighted at Michael, and then some weakness in RTE which we think can be remediated in the last three quarters of the year, and we're happy to talk about. I think that when you bifurcate it in that manner, you reach a conclusion much more consistent with street expectations.

With respect to reconciling some of the prior buildup to the current, I would say two things. One, because of some of the limitations about the ability to reconcile to a GAAP number, or to a non-GAAP number, we can't give the adjusted EBITDA for the 12-month period ended September 30, specifically. What I can't comment on, if you go back to the [$570 million] estimate in March, some of the changes between that period would be Dymatize, which is the most significant of the two. That's roughly a $15 million impact between the two periods.

Then some increase in corporate cost drives really from consistent level of corporate cost in the March quarter, but were not fully reflected in the March 31 build up because that covered a period going back to the time at which the only operating business was Post Foods. From an operational perspective, the only real change is Dymatize. Your question about Michael Foods, the answer is no. We feel very comfortable with the expectations of Michael for the year. We're not giving specific business unit segment guidance, but we are very comfortable with our [underwriting] case and the performance of Michael to date.

That's helpful perspective. Thank you for that. I'd ask two questions on cereal. One is, first, what is impacting cereal sales so significantly in the first quarter? Was it a case of just overshipping in the fourth maybe, and stealing a bit from the first, and you've got to worked on that inventory? I'm trying to get a better a better sense for that.

Then you mentioned trying to take some actions to offset some of the profitability pressure in the back half of the year, or the back three quarters of the year. What exactly do you do there?

Two parts, first, I think there's probably some pull forward of inventory from October to September. Our consumption in October was very high, and we are seeing some softness in the shipments. It does appear that they're some reductions in inventory at retail that should bode well for shipments going forward. Whether that's immediate or longer term, it's hard to tell right now.

We continue to echo the same story that we have had for several quarters, in which trade efficiencies are not reaching historical norms. The amount invested in the EDLP is not allowing for the same level of trade ROI as it has been achieving, and that's a key focus of our sales force to try to work with our retail partners to fix that and drive volumes. In terms of longer term, and why we believe that we can maintain EBITDA for the balance of the year, first of all, I think it's important to highlight that Post Foods plays a critical role in our overall portfolio strategy, which is to generate free cash flow that allows us to do one of two things, either participate in consolidation of RTE, which has cost and capacity implications, or to diversify away into more rapidly growing categories.

We believe that we can maintain that level of cash flow throughout the year, in part because of the cost programs that we just highlighted, the Modesto program and the packaging program. The packaging program, specifically, won't hit until the latter half of the year. Also in our planning, we took a much more cautious approach, a much more data driven approach rather than a judgment on what the category could do. We looked at the category growth rate or decline rate in 2014 and extrapolated them into 2015.

We have an A&C budget that is aimed at a higher growth rate or a lesser rate of decline, so we have some flexibility in the A&C budget as it goes throughout the year that will allow us to decelerate or accelerate depending on how the year develops. We have some leverage to pull. We have some costs already baked into the plan that gives us reason to believe that on an EBITDA level, even with some volume declines, we can maintain a constant position throughout the year.

Thanks for that. One last quick one on cereal, your comment around challenges for the category made to longer term, I guess it would seem to us this means potentially Post, and really the category, will have to take a much more severe look, I guess, at the cost structure to preserve profitability longer term. I wanted to get your perspective on that.

You had four plants at the time of the spin. You've closed the smallest one. Volumes in general in the category are quite a bit lower than they were even then, when I think you had mentioned you probably had some excess capacity. I guess I'm trying to get a sense, longer term, if the category continues to decline at this sort of pace, I'm assuming your belief would be some other things you're going to have to cap in from a category perspective, whether it's cost work or consolidation activity. It seems like it can't go on at that rate without some additional actions. Your perspective would be helpful.

I think your characterization is quite fair. If the category rate of decline is in the 2% to 4% range that will create additional excess capacity and require a reaction to that. We're not prepared to say today exactly what that reaction may be because want to let some of that time develop and see where that greater decline and hopefully the rate of decline changes.

We obviously, as a [11] share, don't have the ability to drive category volumes. We compete for share more than trying to impact the category. If the category continues to decline at that rate, it will require a reassessment of the cost structure, some of which may occur through consolidation and some of which may be self-directed.

Thanks very much.

Jason English of Goldman Sachs.

Jeff, Rob, congratulations on the new roles. All right. Andrew covered quite a bit of it. Let me start with a high level question. You mentioned M&A. It's still in your DNA and something you're going to pursue on a go-forward. From the outside looking in, there seems to have been a bit of a lack of strategic cohesion with some of your past deals, with a lot of [this surprising us.] It's just going to entirely new spaces, new categories. As we think about the trajectory on a go-forward, could the acquisitions be as disparate on a go-forward? Should we think about these three platforms you've established as more of the defined sandbox of where you are going to play in?

I would take exception to the lack of strategic cohesion in that we were setting out to create a portfolio that essentially pursued the consumer, in terms of venues and price points and forms, and which it was migrating away from the traditional bag-in-a-box cereal in the center stores. I think while this transformation is at some times cumbersome bulky, after it's done, I think you will see more cohesion around what is the ultimate strategy, which is to chase the consumer.

I'm going to answer the question with a caveat. The first part is going to be that, yes, now that we have three scale size, attractive platforms that we firmly believe will embed growth within our overall portfolio, again, with 75% of our revenue now coming from growing categories. The caveat is that you used the term at our DNA level. We do tend to be opportunistic. If something comes along that makes a lot of sense, and is attractive from an economic basis, recognizing all the realities of our capital structure, our equity price, and everything else, it doesn't mean we wouldn't explore and try to be creative in pursuing it, but our first mission is to make sure the portfolio operational integrity is intact, and then overlay opportunities on it. The last piece of opportunism is reactionary.

Okay. That's helpful. Thank you. Stepping down with a little more detail into Dymatize, the issues you describe, sound pretty fixable. It sounds like it's all supply chain oriented, and you're working fast and furiously to get the fixes in place, yet you've taken a pretty sizable impairment charge, presumably related to your long-term outlook for that business.

Is there something a little more deeper seated here that you're looking at and saying, this isn't it really fixable? The underline earning stream for this business is going to be perpetually impaired versus what your incoming expectations were?

No. At the risk of Jeff kicking me under the table, a little bit of diatribe on the impairment process, it's a highly esoteric process based on theoretical buyers and theoretical sellers that in my opinion bears very little resemblance to the economic reality of the situation at Dymatize. It's much easier to negotiate and agree on an outcome rather than to spend the time and effort on audit fees to disagree with it.

I think, in my opinion, the impairment has no bearing on the longer-term prospects of Dymatize. I think that we have an asset that we had some diligence issues. We have some operational issues that our being fixed. We have an outstanding executive in charge now, who has a supply chain background from Nestle. We've got the right people in the right job, and I think that we will find that that becomes a very attractive asset for us to own. I wouldn't read anything into the impairment.

Rob, you mentioned diligence issues on this one. How are you addressing the diligence process on a go-forward to make sure that with the next run of M&A we don't stumble like we have here?

I think the stumble on Dymatize related to the way we assessed the operational execution. We have a long history in looking at brands, and I think our analysis of the brands was spot on. The businesses that we have acquired, in which the essential operation is converting an agricultural commodity to an ambient food product, we're very good at. Where we fell short, is trying to apply those same skills to what is essentially more of a nutraceutical product in Dymatize. The key learning from that was making sure we had a very good alignment between the internal resources we had and the external resources we need.

For instance, on Michael, our operational diligence was entirely outsourced with very little internal HR utilization. The key learning is recognizing our own limitations on internal knowledge on the type of product we're [diligencing] in. From a branding perspective, from a general management perspective, the diligence was the same as the others and quite fine.

That's helpful. Last question, I'll pass it on. Another area of disappointment last year was Dakota Growers, and your ability to capture new customers at the pace that was expected. Can you give us an update on where you stand now?

Sure. Again, I'm going to be hesitant to give business unit guidance because one of the things that we think is a value of the portfolio is the diversification it provides. We don't want to necessarily look at each business unit going forward. We want to be held to the total, but speaking specifically to Dakota, the customer contracts that we referenced previously have come online. The capital improvement that improved the yield from [durum] to semolina has been implemented and is working nicely. It's actually on an ROI basis a far more attractive project than it was previously because there's been a significant run up in the price of durum in the last three to four months.

If there's a headwind in Dakota now, it's not about volume or yield. It's about ability to make sure we are able to pass through the pricing on the durum run-up at retail. If you recall, about 70% of the durum of the Dakota business is on a pass-through basis. We have less at risk than you would normally expect, but we do have 30% of our business is on a traditional retail basis and requires us to negotiate pricing.

Thanks a lot. I'll pass it on.

Bill Chappell of SunTrust.

A follow-up on Andrew's question on guidance, just to make sure, this might be simplistic, but if I annualized fourth quarter adjusted EBITDA, and add PowerBar, American Blanching, and then the Modesto savings, you get to maybe $580 million, $600 million in EBITDA. Is it just simple to say that's the right way to look at it, but then the first quarter issues of 2015 and the continued slowdown in the cereal business offset that to get us where we are in guidance?

I'm going to answer it a little bit differently, and repeat what I said before. We believe the longer-term earnings power of the Company is more reflective of the last three quarters of the year than the first, incorporating everything you incorporated into the question. I don't want to deviate too far from that and get interpreted that our real guidance is something different than we provided.

I would never imply that. I'm just trying to make sure I'm doing the math right.

I think your math is right.

Okay. If I look at the cereal business, you said you're expecting 4% decline in the category. Are you expecting to be in line with that? I say that because you've consistently seen market share gains or been outperforming the market, at least through the Nielsens, over the past three or four months. Are you expecting more aggressive promotions from competitors? Any change to that as we look into 2015?

Bill, that's more of a change in the way we're looking at forecasting methodology. Last year, we gained share, and we expect to gain share this year, but we also had an assumption about the category that deviated from the recent history of the category. What we have done from a forecasting methodology perspective is to be very data driven and say that our most recent evidence is that the category is declining 4%. Let's continue that assumption, to the extent it does, and it creates a tailwind.

We think what we can control, we are controlling very well. Jim and his team have done an exceptional job in driving share and revitalizing Post in an extraordinarily difficult categories in the last two years. No, we are not surrendering the progress that the team at Post Foods has made. We are looking at the category on a more cautious basis.

Okay. Then, I don't fully understand the swaps commentary. What does that imply in terms of future acquisitions or amount of debt you're planning to take out over, I guess, the next 12 months?

Really nothing over the next 12 months. The way the swaps works is that they have a forward starting date. The forward starting date is July of 2018. What the swaps effectively do is, by a cash settlement mechanism, lock in a base rate of 4% on debt issuances of up to $750 million.

Our worst case scenario, if we have no future M&A, is that becomes part of our refinancing activity as we start to have call dates on our existing bonds. Our best case scenario is that that becomes the underlying capital base or rate base for additional M&A, sometime before July of 2018.

In the near term it's, I guess, higher carrying costs, but it doesn't imply there's an acquisition around the corner. You are still in the digestive mode?

No. It does not imply anything about acquisitions around the corner. It's no higher carrying cost in the near term. What it is, is volatility around mark-to-market as a swap rate move in the near term. There's no cash transferring. It's entirely mark-to-market, and we don't use hedge accounting so we just flow that through the P&L. There's no cash impact for four years.

Got it. Sorry, last one for me is Dymatize, did you say what the international sales were? I know that's where the pressure had been. I think they were down double digits last quarter, so I didn't know if that had improved at all with the things you've been doing.

Sequentially, from the third quarter to the fourth quarter, it grew 30%. It began to recover substantially as we were reshipping into the EU. It's hard to see it in aggregate because the fourth quarter is seasonally a low quarter. While our quarter-over-quarter US business is significantly up at nearly 17%, on a sequential basis, it's actually down a little bit, 6% from seasonality.

Then, we did lose some [co-man] business in the short term. The international business was extremely strong, as we brought the [co-man] back in. Again, our optimism is based on how well the brand seems to be received. The individual that we put in charge is doing, he's been there a short time, but the early read is quite exceptional.

Thanks so much for the color.

Cornell Burnette of Citi Research.

Great. I just wanted to probe a bit more about cereal, looking at your 2014 results, cereal sales down 2%. In the first quarter you're expecting, this a massive shift in that with sales implied to be down 6% to 8%. I know that you said some of that could be due to just timing and inventory shipments and so forth, but when I look at your 4Q results, your sales decline of 2% closely matched what you did in terms of Nielsen takeaway. Squaring that up, I was wondering if there may be a bit more to what's happening to the cereal business in the first quarter?

The best we can tell, the first quarter is largely a timing issue. Consumption data remains strong. You've probably seen October. We do think that there's a retail inventory impact, very difficult to quantify. There is no fundamental change in the dynamics in RTE, either quarter-over-quarter or year-over-year. It remains a category that is in low-single digit decline or mid-single digit decline, and a category in which we are competing quite effectively.

Then going forward, is there the possibility that you'll have a reversal of this, maybe in a future quarter, where the shipments bounce back, and you might have potentially a much better quarter in terms of top line in cereal?

Certainly that possibility exists. We are not planning on that possibility. I think one of the things you, hopefully, are hearing is a more cautious approach. We are, I would say, more hopeful than optimistic right now on that. We think what we can control, we are controlling very well. Our brands are performing or outperforming each of their direct competitors, but the category remains under pressure.

Then, I know it seems like you're saying that for your forward outlook for cereal makes you on a category level being down 4%. You're saying we're taking the current trends, and we're just projecting them forward. I guess within that, there's no consideration for maybe some of the things that were lapping, such as reduction in SNAP benefits. If you may, do to have somewhat of an estimate for what maybe that meant to the category in FY14?

That's not quite true. We think we did factor SNAP in. We think it was about eight- to nine-tenths of a point for a big part of the year. We've gone from 4.6% to 4.0% We've captured a portion of it.

Lastly, just getting back to the EBITDA range. One, it seems obviously pretty wide, $540 million to $580 million. Can you talk about some of the puts and takes between the bottom end of the range? How do you get there, and how do you get to the top end of the range?

Lastly, just going back to the fact that the guidance doesn't really seem to embed much growth in the base business on a year-over-year basis, assuming you had everything in play for the last year, can you talk about what's driving that? I know you have certain issues in cereal, but among the rest of the portfolio, is it an issue where it may be on some of your product lines? You're just not getting enough pricing coming through to offset some of the headwinds that you see in terms of cost?

A couple of things, first, we are attempting to provide you the real data and limit the amount of add backs to adjusted EBITDA, things like restructuring charges, which may be qualifying for add backs. We're trying to get away from adding to any list of add backs and get as close as we can to a pure number. One of the reasons for some gapping of the guidance, is to allow for restructuring activities where we think it makes sense and the costs related to that.

Secondly, we still have a considerable amount of our portfolio that is new to the Company. While we are confident in the long term prospects of each of the businesses, one of the things we're trying to factor in is some of the unknown unknowns that may occur. If they're known unknowns, we don't have any particular reason to be concerned right now. Having missed last year, we want to be more cautious in communicating our expectations for this year. That's the second piece.

In terms of commodity pricing, the only area that commodity pricing is a meaningful issue right now is on Michael, where we have very strong demand in eggs putting some pressure on the egg-based supply, the grain-based supply at Michael. That will remedy itself throughout the balance of the year.

Okay. Thanks very much.

Thank you. That does conclude the Q&A portion of today's call. I'll now return the call to management for any additional or closing remarks.

Thank you very much for your participation today. We look forward to next quarter, and hopefully everyone has a happy Thanksgiving.

Thank you for participating in the Post Holdings fourth quarter 2014 earnings conference call. You may now disconnect.