Post Holdings Inc (POST) 2016 Q1 法說會逐字稿

Welcome to Post Holdings first-quarter 2016 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 12.00 PM Eastern time. The dial-in number is 800-585-8367 and pass code is 26176230.

(Operator Instructions)

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 the results for first quarter FY16. 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 in the Investor Relations section and in the SEC filings section. In addition, the release is available in our SEC filings on the SEC's website.

Before I 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 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.

And 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 hand the call over to Rob.

Thank you, Brad, thank you all for joining us. We are pleased to share with you our first-quarter results. We had a terrific quarter.

Our adjusted EBITDA performance was strong for each of our segments. On a consolidated basis, revenue was $1.2 billion and adjusted EBITDA was $235.6 million.

This performance, combined with our expectations for the remainder of the year, has prompted us to raise our annual guidance. Our guidance also reflects incremental investments across the organization in brand building and cost reduction that will drive growth in 2017.

This morning I am going to discuss some of the segment highlights and our strategic outlook. We're making great progress at Post consumer brands. We continue to meet each milestone in our plan.

Our ERP conversion this spring continues on track and, when completed, will enable us to identify and execute incremental synergies across logistics, warehousing, and distribution. Our synergy plan is also on track, and we also to expect to meet or exceed our synergy goal for FY16. In fact, we now expect to deliver the previously announced $50 million in run rate annualized synergies by the end of FY16.

We remain cautiously optimistic on the cereal category. The category continued to modestly improve this quarter, showing dollar growth of 0.2% while pounds declined 0.5%. Notably, exiting the quarter December saw both dollar and pound growth of 0.9% and 0.3% respectively. This is the first measured monthly increase in both pounds and dollars in more than four years.

Category base sales improved behind consistent performance in FDM and distribution growth in the club and dollar channels. However, incremental sales remained soft across the category. Specific to Post, our consumption was flat on a dollar basis and pounds declined 0.6%.

Our largest brand, Honey Bunches of Oats, grew base volumes 3%, while incremental volumes declined 12%, resulting in flat performance for the brand. Pebbles and Honeycomb continued to see solid growth in large bags. On the other hand, distribution declines for Great Grains and Grape-Nuts weighed on results and MOM branded products lapped a heavily promoted quarter last year.

In general, consumption base sales remained healthy, while higher promoted prices reduced incremental consumption. Michael Foods performed exceptionally well.

We closed the acquisition of Willamette Egg Farms at the start of the first quarter and its results are included in the Michael Foods group segment. Our repopulation efforts from the spring 2015 outbreak of avian influenza continue. The majority of our own farms are back online with the start of our second quarter with full output anticipated during the third quarter.

We continue to expect our contracted third-party supply to come back online relatively evenly between now and the end of calendar 2016. You might have seen reports of an avian influenza incident in southern Indiana. None of our supply was impacted.

But we were pleased to see the aggressive response by the USDA and effected farms. We are encouraged that government and industry are working closely together to contain any future outbreaks.

Turning to active nutrition. Premier Protein continues\d to perform well this quarter with shake sales up nearly 40%. PowerBars renovation continues to progress.

We are in the process of ramping up production with our co-manufacturers for Dymatize. However, recall we are intentionally shrinking Dymatize to its core products. For Q1, we prioritize supply for our three largest product lines and plan to bring additional SKUs online in Q2.

We have more work to do, but we continue to believe it can achieve a low-teens adjusted EBITDA margin once fully recovered. This year our expectations remain modest.

Finally, I want to make some general observations about our business and our strategic position in the context of market headlines around currency, energy, and capital markets. First, we have very modest international exposure. Specifically our international exposure is less than 10% of sales and is primarily in Canada. While this domestic profile is a challenge in delivering volume growth, it also provides a safe haven from recent currency headwinds posed by dollar strength.

Second, low energy prices are favorable for companies like Post, other than the extent to which they create turmoil in the capital markets, which sets up my third point. We have frequently access to capital markets to finance acquisitions. However, as a result of our decision to fund acquisition dry powder, we have well over $2 billion in capacity, considering cash on hand, and secured debt availability.

Fourth, we're largely hedged against increases in interest rates during the timeframe in which our bonds become callable. Moreover, despite a choppy high yield market, our bonds have traded very well. In short, we are quite comfortable with our strategic positioning.

This week our Board of Directors authorized a share repurchase authorization for up to $300 million over the next two years. This authorization creates flexibility for Post to monetize volatility in our share price. We intend to execute against this on a highly opportunistic basis.

Meanwhile, we remain actively in search of tactical and transformative M&A, contrary to consensus that this is an environment this is challenging for a Company perceived as an M&A platform. We believe uncertainty breeds opportunity for a Company with substantial dry powder and operational flexibility

At the same time, we are growing without M&A and deleveraging as a multiple of EBITDA. In fact, excluding our current-year acquisition of Willamette Egg, the mid point of our revised guidance suggests $80 million of adjusted EBITDA growth on a comparable basis over FY15. More importantly, we view this as a level from which we can grow in 2017.

To close, this is an exciting time for Post. Operational results have expanded our strategic opportunities, and it would be a mistake to conclude that we are any less aggressive in pursuing those avenues than we have been in the past several years.

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

Thanks, Rob. Good morning. Starting with Post consumer brands, first-quarter sales were $411.6 million. On a comparable basis, sales decreased approximately 0.9% with volumes flat. Volume increases for Pebbles, HBO and co-manufacturing were offset by reduced volumes for MOM branded products as we lapped the highly promoted quarter in the prior year.

Net pricing declined 1.1% on a comparable basis resulting from unfavorable mix associated with larger package sizes on Post branded products in higher private label and co-manufacturing volumes. Post consumer brands' adjusted EBITDA was $97.2 million for the quarter.

Adjusted EBITDA benefited from increased Post branded product volumes, synergy savings, and decreases in raw material and freight expenses. This was partially offset by increased advertising and consumer spending.

Moving to Michael Foods group, net sales were $586.4 million for the first quarter. On a comparable basis, net sales decreased 6.2%. While volumes declined, the declines were in the lower margin products and produce an attractive combination of price and mix, resulting in improved profitability in margins for the segment.

On a comparable basis, egg volumes were down approximately 24%, in line with our estimate of AI supply losses, while egg revenues declined 7.5% behind AI-related price increases and favorable product mix.

Potato volumes declined 9%. This was primarily driven by lower food-service sales resulting from exiting low-margin business. Potato sales declined only 1.7%, however, with better product mix.

Pasta volumes and sales were both up approximately 6%, primarily from increases in the private label and food ingredient channels. Cheese volumes declined 6.7%, resulting from discontinued low-margin product lines and declines in private label. Cheese sales declined 10.6% and were pressured by reduced pricing resulting from lower cheese and dairy input costs compared to the prior year.

Michael Foods group adjusted EBITDA was $118 million and benefited from the acquisition of Willamette Egg, increased profitability per pound in all product categories, and reduced advertising and promotion expenses. Additionally, Michael Foods is lapping a prior-year period which was negatively impacted by approximately $5 million related to isolated product quality issues.

Turning to active nutrition, sales were $115.8 million. On a comparable basis, sales decreased $6.6 million as lower sales for Dymatize and PowerBar more than offset the nearly 40% growth for Premier Protein shakes. Premier Protein's sales performance was driven by increased distribution and organic growth predominantly in the club channel. Dymatize sales, as anticipated, declined significantly as a result of reduced product supply related to the exit from our manufacturing facility and the corresponding rampup of production at co-manufacturers.

Last, as expected, PowerBar sales declined year-over-year, primarily resulting from continued soft sales in North America. Active Nutrition adjusted EBITDA was $16.7 million and benefited from higher volumes and lower raw material costs at Premier and manufacturing savings associated with the PowerBar facility closure.

Moving to private brands, first-quarter net sales were $135.6 million, a decline of 3.3% over the prior year on a comparable basis. The sales decline was driven by reduced volumes for tree nut butters, granola, and dried fruit and nut products reflecting softer market conditions in a natural specialty channel. This was partially offset by increased peanut butter volumes and increased net pricing for certain products.

Private brands' adjusted EBITDA was $19.1 million and benefited from an additional month of American blanching in the current year and higher peanut butter volumes. This was partially offset by an unfavorable mix associated with reduced tree nut butter volumes.

Before moving to our guidance, I would like to comment on our interest rate swaps. Recall that in the fourth quarter of FY15, we refinanced the majority of our term loan into fixed-rate bonds leaving us with only $375 million of floating-rate debt. During the first quarter, we converted $650 million of our forward-starting May 2016 interest rate swap into a $900 million no-show amount swap, with a mandatory settlement date in December 2019.

This swap, combined with our existing $750 million no-show amount July 2018 swap, affectively gives us a total of $1.6 billion in rate locks. These rate locks closely correspond with our callable bond profile in 2018 and 2019, therefore giving us some mitigation against refinancing interest rate risk.

As a reminder, we do not elect hedge accounting and changes in market value are reflected in our GAAP results. In our fiscal first quarter we recognized a non-cash mark-to-market loss on our interest rate swaps of $15.9 million.

Now, turning to our outlook, we are raising our adjusted EBITDA guidance. We now expect adjusted EBITDA to be between $810 million and $840 million, an increase from our previous estimate of between $780 million and $820 million. This revised guidance contemplates an anticipated increase in expenses aimed at brand building and driving incremental cost savings and is inclusive of achieving $50 million in run rate cost synergies by the end of FY16 within our Post consumer brands segment.

With that, I would like to turn the call back over to the operator for questions. Operator?

(Operator Instructions)

Your first question comes from the line of Andrew Lazar of Barclays.

Good morning, everybody.

Good morning, Andrew.

Two questions, if I could. First would be regarding Michael. As we know, the business goes through various cycles or earning -- under earning cycles, of course, the discrete factors around pricing and such have certainly generated much higher EBITDA this quarter. Obviously we know the margin percentage can move around quite a bit as well.

I guess the question we're getting most on this is, what do you think represents a more reasonable centerline for this business with respect to EBITDA? And maybe what are more normalized assumptions for the balance of the year and into FY17 at Michael?

So for the balance of the year, we provided guidance that reinforces our comment last quarter that EBITDA would be front loaded. That was based on the expectation that as repopulation efforts went underway, pricing would be a headwind and volumes would be a tailwind. But I think it is more important, or the more important inquiry is, is less about the sustainability of Michael, but rather about the sustainability of Post EBITDA, which is one of the values of the portfolio.

And in that regard, looking a bit longer into 2017, we have a lot of confidence that the potential for pricing headwinds will be more than offset with volume increases, better mix and cost reduction. Some of that comes from Michael where the business has now levered more to higher margin segments. Some of that comes from expectations we will drive incremental cost synergy at consumer brands and some comes from organic growth across the portfolio. But by no means are we guiding to cash flow that we do not expect to sustain.

Got it. In the consumer brands piece, you mentioned some of that comes from synergy. And you've obviously pulled forward the $50 million in run rate savings for MOM brands by the end of FY16 versus, I guess, 2017 previously and 2018 before that. So just curious, did something specific there change?

And then with respect to perhaps where the upside that you've talked about could be on that $50 million. Are we still waiting for the ERP integration in the spring to share that? Or at what point do we have a sense of the magnitude of what that can be?

Nothing has really changed. To answer your first question, what has given us more confidence to pull forward, the estimate is simply our line of sight now, having been in it six months is greater. And we have the confidence to pull that forward, having seen no red flags that would cause us to hedge our estimates. So it's more about probability of achievement than any change in what has happened.

With respect to the ERP, we continue to be on pace to complete the transition mid-spring, and we expect to be in a position to revise our guidance shortly thereafter -- revise our synergy estimates shortly thereafter.

Thanks for that. One last quick one. Just the motivation behind the change. Bill Stiritz moving to Non-Executive Chairman, I'm always curious on those things, maybe it's just the why now or what was the timing involved? And anything you can share on that, that would be helpful.

This is more of a reflection of the reality of how we have been interacting rather than a change. We don't view it as much of a change. Bill has been extraordinarily gracious in this ongoing secession over the last nearly two years. And I think he just felt it was time to recognize and title the reality of the interaction.

Bill has been a mentor of mine for 20 years and I would be crazy to stop seeking that counsel now. I wouldn't expect anything to change from the way we've been operating historically.

Great, thanks very much.

Your next question comes from line of John Baumgartner of Wells Fargo.

Good morning, thank you. Rob, Active Nutrition saw some pretty appreciable margin expansion in the quarter. Can you discuss the benefits derived there in terms of promotional shifts at Premier versus cost deflation versus maybe anything larger or structural savings at Dymatize coming through?

Let me point out that one of the drivers of margin expansion at active attrition is the fact that we shrunk unprofitable volume at Dymatize, so Dymatize broke even in both quarters, but it broke even on a much lower sales base this quarter. So naturally the aggregate portfolio margin would increase.

Having said that, we had exceptional performance within the Premier business and it coincided with a relatively low level of promotional activity, so we did see significant margin expansion. We do expect margins in this category to continue to be in that low- teens level, though, particularly with recovery at Dymatize.

Okay. And then in cereal, as you get more deeply into the MOM business, wondering if you can maybe discuss some of the ([SK]management between legacy Post and MOM to the extent that you have an ability to cut lower turning SKUs at MOM? Or maybe go the other way and build distribution in other parts of the country for MOM?

We have both of those opportunities, somewhat in reverse order. One of the virtues of the combination is that the legacy Post and legacy MOM business is over and under indexed in a mirror image of each other, so we do believe there is some distribution expansion possible as we lever stronger sales relationships where each of those Companies were, on a legacy basis, stronger.

With respect to SKU rationalization, that continues to be dependent upon achieving a single ERP system to allow that effort to get underway. We do believe there are some opportunity to rationalize SKUs, but would not expect to comment on it in much detail until after we get through the ERP conversion.

Thank you, Rob.

Thank you.

Your next question comes from the line of Chris Growe of Stifel.

Good morning. I just had a question for you, if I could, first, on -- to understand on the EBITDA guidance, you had a great first quarter. You have more synergies coming through for MOM. I'm sure you can't give us a number, but I was just trying to get a sense of the investments you're going to make that may temper some of this good news we had in the first quarter and the upside from the synergies.

And I guess to go a little further, you are planning to reinvest. That sounds like that's mostly behind Post, I'm guessing, but I want to be clear on that? And then the investment -- and, I mean, on marketing, but also around achieving greater synergies. Again, is that mostly related to Post or is that across the enterprise?

We can give you a number. We have increased some spending, about $25 million for the balance of the year. And that is in active nutrition, Michael, and in consumer brands. The bulk of the cost reduction is in consumer brands as we brought forward some cost reduction programs at the factory level that required some pre-spending and the bulk of the brand building is at both consumer brands, active nutrition.

Okay. Thank you for that. And then just to understand on the rebuilding of supply at Michael Foods on the egg business. Two questions. One being your supply was being rebuilt throughout the quarter, yet volumes were about what they were in the fourth quarter of 2015.

So I did expect some sequential progress there. Should I have not expected that? And it sounds like we're going to see that snap back in volume in Q2.

And then also related to that, the profitability in eggs, I'm just curious how much of that is being driven by lower input prices, maybe in relation to even the higher prices in general in relation to supply. So if you can give us some color around the profit growth in the egg business?

Chris, with regard to the repopulation, we did definitely start repopulation in our fiscal first quarter. But not much in the way of supply, because the hens need to get to egg-producing age. So we should begin to see volume coming back more significantly in our second fiscal quarter as we have largely brought back online our owned farms. But we are still not expecting them to reach their pre-AI production levels until sometime in our third quarter.

And then the third-party contracted farms are slower to repopulate, largely because they are much bigger and the efforts to do the repopulation following the longer cleanup takes a little bit longer. The rampup still is what we had communicated before. We won't be back to full pre-AI levels until the end of calendar 2016.

And then profitability, Jeff, you can handle that one in terms of lower input prices certainly have to be an aid, along with the price level in general for eggs. Is there one you favor over the other in terms of explaining the strong first quarter?

In this quarter the larger factor was that the Urner Barry market for eggs peaked in August and then declined somewhat sharply during our fiscal first quarter. And that had to benefit with our cost price relationship.

Okay. Thank you for the time.

Your next question comes from the line of Tim Ramey of Pivotal Research Group.

Thank you so much. Good morning. A couple of more questions on Michael, as I think about the profitability here in the first quarter and then just the guidance. It is very hard to get there without EBITDA margins declining back to historic levels, or even lower, in the remainder of the year. I wanted to get a sense of the big drivers in the first quarter?

I know that mix shift between not doing as much dehydrated business, or any, versus lots of liquid business, would have been a factor. Is that the biggest factor? Is it margins on existing QSR customers? Can you speak to that at all?

As volume comes back, we will revert to a more normalized mix, although coming out of the AI event we expect, as I commented on, to be more levered to higher margin segments. But while supply has been constrained, we've been extremely levered to the higher margin segments. We expect volume benefits, but some margin degradation as the business expands back to normative distribution by segment.

But then we also are, as we talked about, trying to drive some growth beyond 2016 by making some P&L investments in the current year so that we can sustain the dollar profit, even if we don't sustain the margin -- the percentage profit.

I know you lead the market in the cage-free business and that is a big area of growth. How should we think about that as an impact on margins? Is that something that will have a cost on as you ramp up that business, but ultimately contributes better margins?

We expect that long-term conversion to be margin neutral to positive. And we expect that to be up to a decade-long process of partnering with customers to make that transition.

Good. And just one more on Michael. Sorry to overemphasize that. When are we likely to be back to regular contract relationships with customers and are we right to think that there is a round of contract negotiations that occur where the risk premium for AI gets built into long-term contracts for customers?

The answer to that question is really the contracts stayed in force. What we did is we added a cost premium during this period of time. So what we have talked about before is starting to happen. And that is as the supply dynamic rebalances, we're rolling back those cost adders.

So the core contract has remained in place. It's simply the pricing mechanism that changed. We wouldn't expect that to get back to the pre-AI levels until all the pre-AI supply comes back, so that is an activity that goes through our FY16.

In terms of the second part of the question, we certainly expect that there will be dynamics around contact negotiations that will revolve around AI and protections around AI. We expect that there will be a long-term investment in the biosecurity and other measures that will add costs that will ultimately be built into those contracts. But at this point, we have not done a lot of renegotiating of new contracts yet, so it's difficult to say exactly what form those modifications will take.

Sure. Thank you.

Your next question comes from the line of Bill Chappell of SunTrust.

Good morning, thank you. A quick one on Michaels. With spot prices dropping inter-quarter, was there any kind of artificial -- I guess artificial is the wrong --short-term lift in the quarter that reverses itself, just says you were buying on spot, but then had the price pass-through takes 90 days?

I think the entirety of our expectations around market dynamic is baked into our guidance. So as you see that the first quarter over performs the averages of the balance of the three quarters, that reflects our expectations around market dynamics in eggs as well as the balance of the portfolio.

I guess does it reverse this next quarter? Or does it take longer than that?

It's more of a glide path than a cliff.

Got you. Then second, just looking at two parts of the business, not to pick on, but PowerBar kind of declining now still a year after you bought it. Can you give us some color? Are there signs of stabilizing that in the US or plans to -- or is it really more focused on cost cutting at this point?

You also mentioned that tree nut butters were down. I mean, that seems to be a category that has been growing for the past few years and part of why you bought it. So getting more color on that would be great.

PowerBar has had some cost-cutting with the closure of the Boise facility. But we are actually investing in PowerBar. We continue to believe that that is a brand with significant opportunity and the declines are not terribly unexpected given the duration of the time in which it had been neglected and the handoff from Nestle to Post, so nothing terribly surprising about the challenges in PowerBar.

We have had some distribution losses. Where we continue to have distribution strength, we continue to also have decent velocities. But that brand is a branded turnaround, as we would have expected and we are putting money behind it.

The tree nut butter category continues to perform nicely. Our specific situation was that we had gotten meaningfully ahead of the category and we're sole source to several retailers who, given growth in the category, decided they needed to add some second sourcing. So we didn't lose any customers, but we lost some dedicated relationships as they brought in some secondary sourcing. So we had a temporary setback in the tree nut segment as some competition came in on secondary sourcing.

Got it. Both PowerBars and nut butters, that should probably continue at least for another quarter or two?

Yes. That is fair.

Perfect. Thank you so much.

Your next question comes from line of Cornell Burnette of Citi.

Good morning, everyone.

Good morning.

I think you mentioned that there is $25 million of incremental brand investment over the remainder of the year. Just was curious, what was the incremental brand investment in the first quarter?

Relatively modest. I think it was up $3 million. It wasn't that much on a year-over-year basis.

Great. And I think someone asked this question earlier, but when you think about cereal and some of the brand investments that you're putting on there, it seems like MOM is probably going to get some of that moneys as well. I believe I even saw a MOM commercial this quarter for the first time. So just wondering what is the dynamic with MOM historically? Has this brand received a lot of brand investments? How can it do, now that you have it and maybe you're giving it some more moneys towards the brand than what we've seen before?

The MOM brand tests very high with customer loyalty, but very low with brand awareness. So we have earmarked some consumer spending behind that brand. And as a result, you saw the commercial. So that is a positive sign.

I think the other aspect of that is with Post and the scale that we now have, our media buys are much more efficient. So we do expect to see some improvement on the cost side of our overall advertising expense.

Okay. Big picture on the cereal category. We witnessed about six straight quarters now of sequential volume and sales improvements in what the trends were, and we actually got to flattish sales in the December quarter. So was Post reinvesting back in the category as well as your major competitors? Do you believe the category can actually get back to growth in 2016?

We have, in all of our long-range planning, assumed a zero category growth. So we view the actions that we are taking, as well as the actions that our competition is taking, as upside if the category were to grow. But we are not banking on growth.

Okay. And then lastly, just going back to active nutrition. Seemed like a positive surprise to us in the quarter with EBITDA fixing to $17 million and an EBITDA margin of 14%. These are the strongest numbers that we've seen since that active nutrition segment has been with Post.

So I was wondering, was there something special in the quarter that drove that? Because it would seem to me that as you go forward, with the December quarter being kind of a seasonally weak quarter for that business, that as you move into the summer months you have the possibility to see profit trends as good, if not better, than what we saw this quarter. Was there something special about the quarter that we need to consider going forward?

No. The Premier business has performed just exceptionally well. We have more than tripled -- with our expectation for the year, more than tripled EBITDA since the acquisition. The business is growing within its existing channels and expanding channels. And the incremental volume is driving higher converted EBITDA margins.

So it is basic organic growth in the business, at the same time, as I mentioned, having shrunk business that was either zero or negative EBITDA at Dymatize that has a significant impact on margin math.

Essentially that 14% EBITDA figure in the quarter is good going forward and over time as maybe you start to turn things around, that PowerBar and leverage more at active nutrition, that low-teen kind of target is -- we are not very far from there and it's quite achievable?

That's right. We have said, virtually from the inception of the investment in the category, that we think it is a low-teen margin business. And I will leave open to debate whether [14] is lower mid teens.

I don't want to put that fine of a point on it, that [14] is specifically in the right number. But we are sticking with our position that we have had for some time that we can sustain a growing low-teens margin this business -- a low-teen margin in a growing business.

Okay, thanks a lot.

Your next question comes from the line of Heather Jones of BB&T Capital Markets.

Good morning.

Good morning.

I have a couple of questions. First on what we are seeing in MOM brands volumes recently in consumption data. I was wondering, is that simply -- some of the data that we have seen look like a mid-teens volume decline. I was wondering, is that more a factor of tougher comparisons? Or are you seeing some impact from some changes at Walmart that we've heard other companies talk about regarding --?

Entirely a function of lapping a very heavily promoted period the prior quarter.

Okay. And this is back to Michael Foods. I was wondering what you are seeing on the food service side as far as all-day breakfast demand? And related to that, given that you guys were able to fulfill your food service customers' needs during this period, but some of your competitors were not, as volume normalizes, do you anticipate being able to appreciably shift the percentage of your portfolio that goes to food service?

To take your first question, with the all-day breakfast, it is hard to pinpoint that effect and isolation, given all the noise in the category. But what we can share is that there's been no demand destruction in food service, whereas there has been demand destruction at retail, for instance.

With respect to the second part, we certainly believe that coming out of AI we have strengthened our relationship with our channel partners. What that means with respect to shifting the business between the various segments is yet to be observed, but we certainly think we come out of this in an enhanced position from a reputational support, supply chain, biosecurity from a variety of perspectives. We feel like this has been a positive result as we went through this crisis together.

Can you help me understand? You mentioned in nut butters that some of your customers are wanting to diversify their sourcing. Big food service customers on the egg -- the processed egg product, do they typically have diversified sourcing? And if so, do you think you can gain more share? And more importantly, do you think you can actually win large new customers that may not have been able to be fully supplied by their former suppliers?

I think I would repeat what I said before, that we feel very good about our competitive position in coming out of this and trying to necessarily predict that it will come from dual sourcing moving to sole source or the flip side of that, someone else's sole source going to a dual source. I think we would be overly speculating right now. But I think it is fair to say that we come out of this in an enhanced position.

Okay good. And finally, given the market turmoil that we've seen over the last couple of months, have you guys seen any change in acquisition availability. M&A targets?

So the market turmoil, you mean the equity market or the high-yield market?

Yes.

Well, the natural process in an environment like this seems to be first a decline in volume or frequency of transactions. I would say there's been a modest decrease in the frequency of the transactions.

And as I mentioned in our prepared comments, we believe we are quite well-positioned with a considerable amount of cash on hand, approaching $900 million. We've got considerable secured debt capacity. We've got a very rich pipeline of opportunities. So speaking solely for Post and not so much the market, I think we're going to have plenty of opportunities on the M&A front to execute against.

Okay, perfect. Thank you.

Thank you.

Your next question comes from line of Bryan Hunt of Wells Fargo.

Thank you for your time. I was wondering if there was any chance you could normalize the MOM sales for the effect of the promotion? And do you see the lack of promotion in Q1 a shift in timing or is this an elimination of that promotion?

More of a shift in timing. The trade budgeting process for Post and MOM remains separate until we bring the [RP] together. So very little has changed from an execution perspective on that front, because it's IT dependent.

Okay. My next question is if I look to this increase in support of $25 million that you mention is embedded in your EBITDA guidance, is this a permanent increase, in your opinion, or is this a temporary increase in marketing support and investment?

Well, I think it depends how well it pays off. If it pays off and we feel good about it, it will be a permanent increase. But I don't think we, in that area, make permanent decisions. It's a constant reevaluation of the efficacy of the spend versus the impact on the P&L.

Okay, and then my last question is, when I look at the active nutrition business, you are all launching new products in PowerBar and you mentioned you were rationalizing Dymatize, can you talk about, one, the market's reaction to the introduction of, I think, some low-carb introductions on the PowerBar front, as well as a protein drink? And then give us the timing of when you anniversary the product lines at Dymatize? And then that's it for me. Thank you.

So the introduction of the new product lines on PowerBar is very early. So all we have done thus far is gained distribution. It would be premature to talk about success or failure of both launches.

With respect to anniversary, if I understand the questions, the rollover of the Dymatize numbers, such that they are comparable, won't be until Q1 2017. (Multiple speakers) the question.

No, no, that was it. The rollover or when you anniversaried the product line reductions. And can you give us an idea of those product line reductions or were those product lines that were just not profitable in the scheme of things or were they in the undesirable channels? Were they duplicates? Again, just give us an idea of what's going on there.

So approximately a third of the business was private-label at negligible margins. So we walked away from that obviously with the closure of the facility.

Of the balance of the business, the vast majority of the volume came from three product categories and the profit followed that. In fact, the profit allocation was higher than the revenue. So we felt the need to simplify the business in order to eliminate some of the supply chain complexities that had really caused the problems for the better part of two years. So by eliminating those lower margin businesses in our product categories and the lower margin private-label business, we shrunk business by about 40%.

Great, thanks for the additional color. Best of luck next quarter.

Ladies and gentlemen, we've reached the allotted time for questions and answers. I will now return the call to Rob Vitale for any additional or closing remarks.

Thank you. Again, we are quite pleased with both the results of this quarter, the outlook for the balance of the year, and I want to stress this again, the outlook for continued potential M&A. So, again, we appreciate the support and look forward to talking to you next quarter.

Thank you. That does conclude the Post Holdings first-quarter 2016 earnings conference call and webcast. You may now disconnect.