Yahoo Finance Post Holdings, Inc. (NYSE:POST) Q2 2024 Earnings Call Transcript
Post Holdings, Inc. (NYSE:POST) Q2 2024 Earnings Call Transcript May 3, 2024
Post Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and thank you for standing by. Welcome to the Q2 2024 Post Holdings Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to your speaker today, Daniel O'Rourke, Investor Relations for Post. Please go ahead.
Daniel O'Rourke: Good morning. Thank you for joining us today for Post's Second Quarter Fiscal 2024 Earnings Call. I'm joined this morning by Rob Vitale, our President and CEO; Jeff Zadoks, our COO, and Matt Mainer, our CFO and Treasurer. Rob, Jeff and Matt will make prepared remarks and afterwards will answer your questions. The press release that supports these remarks is posted on both the investors and the SEC filing sections of our website and is also available on the SEC's website. As a reminder, this call is being recorded and an audio replay will be available on our website at postholdings.com. Before we continue, I would like to remind you that this call will contain forward-looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements.
These forward-looking statements are current as of the date of this call and management undertakes no obligation to update these statements. This call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, please see our press release issued yesterday and posted on our website. With that, I will turn the call over to Rob.
Robert Vitale: Thank you, Daniel, and good morning. Our business maintained the momentum we saw in Q1 with a strong Q2. Strong manufacturing performance, disciplined pricing, and solid cost management continued to drive results. With isolated exceptions, volumes generally declined. As we have previously mentioned, SNAP reductions are a meaningful component of the decline. However, there also remains a disconnect between macroeconomic statistics and consumer sentiment. Over time, we expect this to largely impact consumption, location and price points rather than volume. We like the balance of our portfolio it provides by virtue of the mix of products, price points and channels. Within our Consumer Brand segment, grocery and pet continue to perform well.
While we have incremental investments to make, our confidence continues to grow regarding the sustainable contribution run-rate from our pet acquisition. Cereal remains well-positioned in value, and is holding its own in premium with margins improving in both category subsegments. Equally important, the integration of pet into PCB is progressing and remains on-track. Our foodservice business continues to deliver strong results, demonstrating its value proposition to customers through excellent service levels and its value-added product offering. While we saw a bit of a slowdown in restaurant foot traffic this quarter, we believe it is temporary and our historical algorithm and growth drivers remain intact. Refrigerated retail continues to focus on driving volumes through its vastly improved supply chain, while Weetabix remains resilient in a challenging, albeit improving environment.
As far as capital allocation, we remain opportunistic with our triangular focus on share buybacks, leverage reduction and M&A. The M&A pipeline has increased, and we continue to look for opportunities both strategic and tactical. The debt refinancing we completed in February was exquisitely timed and created broader options for each bucket of capital allocation opportunity. Overall, I am very pleased with our performance through the first half of the fiscal year and remain very optimistic for the balance of FY '24. With that, I will now turn the call over to Jeff.
Jeff Zadoks: Thanks, Rob, and good morning, everyone. Starting with PCB, both our grocery and pet food products had another strong quarter, each driven by growth in our value offerings. Within grocery, cereal performed in-line with the category as we held branded share in both dollars and pounds. Cereal category volume showed some signs of improvement as the rate of decline slowed to 3.6% for the quarter. We expect category volumes will continue to normalize in Q3 now that we have fully lapped the reduction in SNAP benefits. The main profit drivers within grocery continue to be carryover pricing and strong operating cost performance. For our pet food brands, category share grew in both dollars and pounds. This growth combined with strong manufacturing performance drove our results.
We further ramped investments in our premium pet brands in G&A in preparation for exiting the TSA with Smucker's. Finally, from a network and supply chain perspective, we are focused on optimization for both cereal and pet. We are on track to capture the benefits of closing our Lancaster, Ohio Cereal plant in fiscal 2025. For pet, we are implementing an optimized warehouse and distribution network combined with grocery and lining up all the necessary internal and third-party capacity to fully exit the Smucker's co-pack agreement in the first half of 2025. Moving to Foodservice, we had another strong quarter as favorable mix and customer renewals were supported by excellent service levels. While we did see a pullback in overall egg volumes from declines in restaurant food traffic and inventory reductions at certain customers, we continue to see growth, strong growth within our higher margin, pre-cooked egg products, which were up approximately 5%.
There remains significant runway in our business by not only moving existing customers up the product value chain, but also by converting the 40% of foodservice industry volumes still using shell eggs. Our value proposition has never been stronger or more evident as wage rates drive operators to seek more efficiencies. Rounding out the discussion of foodservice, although we continue to see cases of avian influenza, including cases found in dairy herds, we have not had any additional outbreaks within our owned or contracted farms. Lastly, we continue to ramp our RTD Shake co-manufacturing for BellRing with improving production performance in the quarter, albeit well behind our initial start-up plan. We expect to hit our targeted profit run-rate for shakes exiting fiscal Q4.
Turning to Weetabix, U.K. Cereal category volumes declined 3%, but we outperformed the category given our participation in private-label. From a supply chain standpoint, our overall service levels showed improvement. Outside of cereal, Ufit continues to be a volume bright spot, providing an attractive source of growth. Our Refrigerated Retail business had a solid quarter, driven by continued manufacturing and cost management. We are focused on driving demand and pulling all levers to do that, including advertising, promotion and innovation. With that, I'll turn the call over to Matt.
Matt Mainer: Thanks, Jeff, and good morning, everyone. Second quarter consolidated net sales were $2 billion and adjusted EBITDA was $345 million. Net sales increased 23%, driven by recent acquisitions. Excluding acquisitions, sales declined 5% driven by lower overall volumes and the impact of our Foodservice pricing pass-through model, partially offset by hire and retain pricing across our businesses. Supply chain performance and fill rates remained strong while inflation persisted in areas such as sugar and labor costs with some offsets from better freight and grain costs. Finally, SG&A increased as we continued targeted marketing investments in our retail businesses. Excluding the benefit of Pet Food acquisitions, Post consumer brands, net sales increased 1% and volumes decreased 4%.
Average net pricing excluding pet food increased 5%. Volumes declined primarily in non-retail cereal and peanut butter. Segment adjusted EBITDA increased 74% versus prior year as we benefited from the strong contribution of pet food and improved grocery performance. Weetabix' net sales increased 10% year-over-year. Sales benefited from the Deeside acquisition and a 440 basis point tailwind from a stronger British Pound. On a currency and acquisition neutral basis, net sales were flat and volumes increased 3% while mix shifted to private label products. Segment adjusted EBITDA decreased 1% versus prior year as increased volumes and favorable FX were offset by private label mix shift and increased marketing costs. Foodservice net sales and volumes declined 12% and 2% respectively.
Revenue reflects pass through of lower grain costs and a reduction in pricing due to the removal of avian influenza price adders from last year. Volumes reflect decreases in our liquid egg products, partially offset by growth in our precooked egg and potato products. Adjusted EBITDA decreased 8% as the removal of avian influenza price adders from last year and lower egg volumes were partially offset by favorable mix shift to higher margin precooked eggs and customer renewal pricing. Refrigerated retail net sales decreased 8% and volumes decreased 5%, both were driven by distribution losses in egg and cheese products. Segment adjusted EBITDA increased 3% led by improvements in plant cost -- I'm sorry, plant, cost performance and SG&A. Turning to cash flow.
In the second quarter, we generated $250 million from operations driven by increased profitability and improved working capital. Our net leverage decreased 0.2 turn to 4.3 times. Capital expenditures in the quarter were approximately $100 million, driven by continued investments in our pet food business and the expansion of our Norwalk, Iowa precooked egg facility. Outside of internal investments, we focused on refinancing and building capital capacity in Q2. Our refinancing significantly added to our debt maturity runway as we cleared out three years of near-term maturities. In addition, we added to our overall liquidity as we increased the size of our revolver by $250 million to $1 billion. Finally, given the strong first half of the year, we again raised our guidance.
Within this new guidance range, we see the remaining two quarters of the year as fairly balanced to each other. Relative to Q2, we see seasonal lows for Refrigerated Retail in Q3 and Q4, with some additional investments around our pet integration being the biggest sequential drivers. With that, I will turn the call back over to the operator for Q&A.
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