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Post Holdings (POST) Q3 Earnings Miss Estimates, Sales Up Y/Y

Post Holdings, Inc. POST came out with third-quarter fiscal 2021 results, with the top and the bottom line increasing year on year. Sales surpassed the Zacks Consensus Estimate, while earnings missed the same.

Performance during the quarter gained from recovery in the Foodservice unit, growth in the Weetabix and BellRing segments as well as contributions from acquisitions. The company also witnessed strong brand growth in certain channels.

Lapping of last-year’s high at-home consumption trends adversely impacted the performance in Post Consumer Brands and Refrigerated Retail in the reported quarter. Further, management lowered the upper limit of adjusted EBITDA guidance for the second half of fiscal 2021.

Q3 in Detail

Adjusted earnings of 93 cents per share rose 24% from earnings of 75 cents earned in the prior-year quarter. The bottom line missed the Zacks Consensus Estimate of 94 cents.

The company registered sales of $1,589.8 million, up 19% from $1,336.4 million reported in the prior-year quarter. The figure exceeded the consensus mark of 1,502 million. Net sales growth in Foodservice, Weetabix and BellRing Brands was partially offset by sluggishness in Post Consumer Brands and Refrigerated Retail.

The top line included $78.5 million in net sales from acquisitions made in fiscal 2021 and 2020. This includes; Private label ready-to-eat (PL RTE) cereal business, Egg Beaters liquid egg brand, Almark Foods business and related assets, Peter Pan nut butter brand as well as Henningsen Foods, Inc.

Gross profit of $479.4 million improved 9.8% from $436.8 reported in the year-ago quarter. Gross margin contracted 250 basis points (bps) to 30.2% in the quarter under review.

The company’s SG&A expenses increased 3.4% year over year to $231.9 million. SG&A expenses, as a percentage of sales, deleveraged 220 bps to 14.6% in the reported quarter.

Operating profit of $206.5 million increased 20% year over year. Adjusted EBITDA increased 11.7% to $302.6 million from $ 270.9 million in the prior-year quarter. Adjusted EBITDA margin contracted 130 bps to 19% in the reported quarter.

Post Holdings, Inc. Price, Consensus and EPS Surprise

Post Holdings, Inc. price-consensus-eps-surprise-chart | Post Holdings, Inc. Quote

Segment Details

Post Consumer Brands: Sales in the segment fell 11.2% year over year to $468.7 million in the quarter under review. Segment sales include $38.4 million generated from the PL RTE Cereal Business and Peter Pan.

Volumes declined 10.9% due to the lapping of higher purchases in the prior-year quarter, softness in value and private label cereal products as well as declines resulting from the exit of certain low-margin private label businesses. The declines were offset by 860 bps benefit from the PL RTE cereal business and Peter Pan. Segmental profit was $87.8 million, down 31.2% from the prior-year quarter’s levels due to reduced volumes as well as higher manufacturing and freight costs.

Weetabix: Segmental sales went up 10.4% year over year to $123.4 million. Gains from favorable foreign currency movements of nearly 1240 bps aided sales.

Volumes dropped 2% mainly due to declines in all other products stemming from the lapping of prior-year quarter’s higher at-home consumptions activities due to the pandemic as well as participation in a government-backed food initiative. The downside was partly offset by growth in private label, new product introductions and drink products. Segmental profit of $28.6 million fell 12.3% year over year.

Foodservice: Sales increased 79.6% to $435.1 million in the quarter under review, including benefits of $31.2 million from the Henningsen and Almark acquisitions.

Volumes went up 56.1%, including a 520 bps benefit from the Almark and Henningsen buyouts. Volumes were positively impacted by the lapping of lower away-from-home demand in the prior-year quarter. Egg volumes rose 47.0%, aided by a 510 bps benefit from the Almark and Henningsen acquisitions. Potato volumes increased 98.9%. Segmental profit was $27.9 million, up 169.2% year over year due to volume recovery as well as improvements in average net pricing, contribution margin as well as fixed cost absorption, somewhat offset by labor shortages

Refrigerated Retail: Sales in the segment were $220.8 million, down 11.8% from the year-ago quarter’s figures. Segment sales included $8.9 million generated from Egg Beaters and Almark acquisitions. The unit gained from improved average net pricing for side dish, sausage and cheese products.

Volumes were down 10.3% year on year due to reduced side dish and sausage service levels driven by labor shortages. The metric was also adversely impacted by the lapping increased side dish, cheese and sausage purchases in the prior-year quarter. The downtick was partly offset by a 310 bps gain from the Egg Beaters and Almark buyout. Segmental profit declined 66.2% year over year to $14.3 million owing to lower volumes, higher input costs for sausage, cheese and egg products as well as increased freight and manufacturing costs

BellRing Brands: Sales of $342.6 million rallied 67.8% year over year. Sales in the Premier Protein brand gained from the RTD (ready-to-drink) shake distribution in both existing and new products, strong velocities higher promotional activity and higher average net selling prices. Sales in the Dymatize brand increased 98.5% year on year and the same for all other products increased 49.2%. Segmental profit of $51.5 million increased 68.3% in the quarter under review.

Financial Details

The company concluded the fiscal third quarter with cash and cash equivalents of $775.9 million, long-term debt of $6,932.1 million, and total shareholders’ equity of $2,833.9 million (excluding non-controlling interest). At the end of the reported quarter, the company had $730.8 million available under its revolving credit facility.

Cash provided by operating activities was $395.3 million for the nine months ended Jun 30, 2021. Post Holdings did not carry out share repurchase activities during the third quarter. During the nine months ended Jun 30, the company bought back 3.3 million shares worth nearly $315.3 million. It now holds shares worth $333.6 million under its current share repurchase plan.

Business Development

The company informed that it has completed the acquisition of PL RTE Cereal Business of TreeHouse Foods, Inc. THS as well as the buyout of Egg Beaters.

In a separate release, Post Holdings revealed its plans to distribute a significant portion of its interest in BellRing to shareholders, under a plan of distribution that could include a pro-rata distribution, an exchange offer or a combination of both. The distribution is expected to be completed in the first half of calendar year 2022, subject to certain customary conditions.

Post Holdings’ special purpose acquisition company, PHPC, completed its initial public offering on May 28, 2021.

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Pandemic Impacts

The company continues to closely monitor the impact of the COVID-19 pandemic upon its business operations. During the third quarter, most of the company’s retail channel products reflected growth, in line with their pre-pandemic levels. Management informed that foodservice volumes have been strongly recovering, and the trend is likely to continue through fiscal 2022. The company expects foodservice volumes to return to pre-pandemic profitability in fiscal 2023. Also, BellRing’s primary categories have been doing well.

Volume growth in the refrigerated retail business, especially for side dish products, is expected to remain constrained till the supply chain performance is stabilized.

Speaking of supply chain, this Zacks Rank #4 (Sell) company has been witnessing labor and freight shortages as well as other disruptions. Consequently, service levels and fill rates have gone down, costs have increased and certain products have been placed on allocation. Such headwinds have been exerting pressure on the company’s foodservice and refrigerated retail supply chain. Nevertheless, supply chain performance of the company’s cereal businesses have stabilized.

Outlook

Management updated its adjusted EBITDA view for the second half of fiscal 2021. The company now expects adjusted EBITDA in the range of $590-$610 million. Earlier on, the company had guided adjusted EBITDA in the bracket of $590-$620 million.

For BellRing Brands, the company expects net sales in the range of $1.25-$1.28 billion, up from $1.17-$1.20 billion anticipated earlier. Adjusted EBITDA for the segment is expected to be $230-$236 million, up from $214-$220 million expected earlier.

The company continues to anticipate capital expenditure of $225-$250 million for fiscal 2021, including approximately $3 million attributable to BellRing.

Price Performance

Shares of company have gained 11.7% in a year compared with the industry’s rise of 6.1%.

Consumer Staple Stocks to Bet On

Medifast, Inc. MED, flaunting a Zacks Rank #1 (Strong Buy), delivered an earnings surprise of 16.02% in the last four quarters, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

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Darling Ingredients Inc. DAR, with a Zacks Rank #2 (Buy), delivered an earnings surprise of 29.8% in the last four quarters, on average.


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