Post's profits, sales slip in Q3

Post's profits, sales slip in Q3

For the three months ended June 30, 2012, Honey Bunches of Oats and Pebbles volumes declined while Great Grains and Grape Nuts volumes grew.

Post Holdings, Inc. (NYSE:POST), a leading manufacturer, marketer and distributor of branded ready to eat cereals, today reported results for the quarter ended June 30, 2012.

Third Quarter 2012 Highlights:

  • Adjusted EBITDA of $61.4 million
  • Market share for expanded all outlets combined (xAOC) of 10.3 percent for the thirteen weeks ended June 30, 2012
  • Good Morenings brand launched

According to Nielsen, ready to eat cereal category revenues were flat, +0.1 percent, for the thirteen weeks ended June 30, 2012 as compared to the prior year, while category volumes, measured in pounds, declined 4.0 percent. Higher every day and promoted average prices maintained category dollars, but contributed to decreased selling volume. The overall category experienced dollar and volume growth in the value retailer channels in the thirteen weeks ended June 30, 2012, which helped offset the losses in the traditional food and drug channels. Nielsen data is published monthly. The current year data referenced in this press release is as of June 30, 2012.

As of June 30, 2012, Nielsen changed the way it reports ready to eat cereal category volume and sales data from including only Food, Drug and Mass (FDM) to an expanded All Outlets Combined (xAOC) which includes FDM plus Wal-Mart, club stores and certain other retailers. Post's U.S. dollar market share, as reported by Nielsen, was 10.6 percent for the thirteen week period ended June 30, 2012 for FDM and 10.3 percent for xAOC, down 0.9 share points for FDM and down 0.7 share points for xAOC versus the same time period a year ago, and down sequentially 0.2 share points for xAOC and 0.3 share points for FDM.

Post net sales decreased 2.3 percent for the quarter ended June 30, 2012 as compared to the prior year, primarily driven by a 5.5 percent decline in overall volumes, partially offset by higher average net selling prices. For the nine months ended June 30, 2012, net sales decreased 2.6 percent versus the same time period a year ago. Volumes declined across most of the Post brand portfolio both on a quarter and a year to date basis. On a year to date basis, Honey Bunches of Oats and Pebbles volumes were down 6.1 percent and 11.1 percent, respectively, versus the same time period a year ago, however, Great Grains experienced year over year volume increase of 8.9 percent. For the three months ended June 30, 2012 versus the comparable prior year quarter, Honey Bunches of Oats and Pebbles volumes declined 6.6 percent and 15.3 percent, respectively, while Great Grains and Grape Nuts volumes grew 1.5 percent and 5.9 percent, respectively.

During June, Post introduced in select stores a new quality line of every day value priced cereals under the Good Morenings brand. Post has plans to introduce a number of new line extensions and product improvements over the next 6-12 months, including Grape Nuts Fit, new Great Grains flavors, Honey Bunches of Oats Mango Coconut, and a more "chocolatey" Cocoa Pebbles.

Gross profit margin decreased by approximately 60 basis points for the third quarter 2012 versus prior year, largely driven by higher raw materials cost (primarily grains) and unfavorable fixed cost absorption resulting from lower production volumes.

Excluding the effect of $2.4 million of costs related to the transition and separation from Ralcorp, selling, general and administrative expenses as a percentage of net sales increased from 25.1 percent in the third quarter of fiscal 2011 to 25.9 percent for third quarter fiscal 2012. This increase was primarily driven by incremental corporate costs which was partially offset by lower advertising and consumer costs.

Adjusted EBITDA for the quarter ended June 30, 2012 was $61.4 million versus $64.7 million for the same time period a year ago and improved sequentially from $54.1 million. For the nine months ended June 30, 2012, Adjusted EBITDA was $161.1 million versus $192.2 million for the same period a year ago.

Income tax expense was $9.6 million, which represents an effective income tax rate of 37.8 percent, for the three months ended June 30, 2012, compared to an expense of $0.8 million and an effective income tax rate of 33.3 percent for the same period a year ago. For the nine months ended June 30, 2012, income tax expense was $24.3 million, an effective income tax rate of 38.3 percent, compared to an expense of $26.2 million and an effective income tax rate of 32.1 percent, for the nine months ended June 30, 2011. The increase in the current quarter effective tax rate was primarily due to $1.4 million of tax expense related to an uncertain tax position we expect to take on our short period tax return for the period starting with the separation from Ralcorp and ending on September 30, 2012. The increase in the year to date effective income tax rate was primarily the result of $4.6 million of non-deductible outside service expenses incurred to effect the Company's separation from Ralcorp, which resulted in incremental income tax expense of approximately $1.8 million and $2.1 million of tax expense related to an uncertain tax position. Management anticipates that the effective income tax rate for the fourth quarter of fiscal 2012 will be approximately 37.5 percent and that the effective income tax rate will return to its historical range of 32 percent - 35 percent in fiscal 2013.

Net earnings were $15.8 million, or $0.46 per diluted share, for the third quarter of fiscal 2012. For the nine months ended June 30, 2012, net earnings were $39.1 million, or $1.13 per diluted share. Adjusted net earnings and Adjusted diluted earnings per share for the quarter ended June 30, 2012 were $17.6 million and $0.51, respectively. Management has provided these non-GAAP measures because they are representative of Post as a stand-alone public company and not an operating segment of Ralcorp.

As previously announced, the Company is restating its financial statements for the year ended September 30, 2011 and the fiscal quarter ended December 31, 2011 as a result of Ralcorp Holding, Inc.'s restatement. Ralcorp has postponed the filing of its quarterly report on Form 10-Q for the second quarter ended March 31, 2012 and third quarter ended June 30, 2012 in order to conclude both the internal and external in-depth reviews associated with its previously announced financial restatements. While Post management is not participating in Ralcorp's review process, Post management is not aware of any issues from such review which would affect Post beyond the correction of the goodwill impairment charge previously reported. However, because Post was a wholly-owned subsidiary of Ralcorp and subject to Ralcorp's accounting and financial reporting processes during the periods affected by this review, there can be no assurance that Post will not be further impacted. Until Ralcorp completes its restatement, Post is not in a position to complete the filings necessary to effectuate its restatement or its Form 10-Q for the second and third quarters. Post management expects to complete its filings as soon as practicable after Ralcorp completes its filings. Ralcorp has announced it expects to complete its restatement in the near future.

Outlook
Post management affirms its previously issued guidance for fiscal 2012 of $200 to $210 million of Adjusted EBITDA and Adjusted EBITDA of $210 to $220 million for the twelve months following the separation from Ralcorp. Management continues to expect full year capital expenditures to be in the range of $24 to $26 million, exclusive of $8 million to establish Post as a stand-alone company, and that annualized net interest expense will be in the range of $60 to $61 million. While it is still early in Post's planning for fiscal 2013, the recent drought has created significant commodity price volatility. In 2013, Post management expects to see meaningful ingredient cost inflation, and will continue to monitor the commodity landscape closely and look for opportunities to mitigate increased costs.

 

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