Feb 8 2012 --- Ralcorp Holdings, Inc. reported results for the quarter ended December 31, 2011.  Ralcorp's results include the operations of the North American private-brand refrigerated dough business of Sara Lee Corp. since it was acquired on October 3, 2011. 

Additionally, results include the operations of the Post cereals business, which was distributed to shareholders effective February 3, 2012 and now is a separate publicly traded company named Post Holdings, Inc.

Q1 net sales for the company were up 18%, including 9% base-business growth. Net Sales grew as a result of the Refrigerated Dough acquisition as well as higher net pricing in all segments in response to rising commodity costs.

Net sales increased 18%, largely due to the acquisition of Refrigerated Dough.  Base-business net sales increased 9% as a result of an increase in overall net pricing due to adjustments in response to higher raw material (ingredients and packaging) and freight costs, partially offset by an overall 1% volume decline.  Excluding sales of the Branded Cereal Products segment, base-business volume was flat compared to a year ago.

Base-business raw material and freight costs (net of hedging activities) were approximately $112 million higher, with the most significant impact in snack nuts (included in the Snacks, Sauces & Spreads segment) and durum wheat (included in the Pasta segment).

Most of these rising commodity costs were offset through a combination of pricing adjustments and savings from cost reduction efforts, but the resulting impact of the higher costs offset by higher sales reduced gross margins by approximately 2.3 percentage points.  This negative effect was partially offset by the positive impact of the addition of the higher-margin products of Refrigerated Dough and favorable manufacturing costs overall.

During the quarter ended December 31, 2011, Ralcorp incurred $2.7 million of costs (primarily professional service fees) related to the separation of the Post cereals business from the other Ralcorp businesses.  During the three months ended December 31, 2011 and 2010, Ralcorp recorded approximately $5.6 million and $.2 million, respectively, of expenses related to acquisition activity.  In 2012, those costs related primarily to the acquisition of Refrigerated Dough including a one-time finished goods inventory revaluation adjustment.

Effective with Ralcorp's second quarter financial reporting, the Company expects to report Post as a "discontinued operation," and thus Post will be excluded from results from continuing operations.  All comments included below exclude the fiscal 2012 operations of Post.

For fiscal 2012, the Company currently expects the net year-over-year increase in unit costs for raw materials will result in a 10-12% increase in cost of goods sold.

The Company expects to take additional actions, including aggressively reducing costs through ongoing continuous improvement and other initiatives and increasing prices when justified.  The timing of these pricing actions and acceptance by customers is expected to lag cost increases, particularly in the first half of fiscal 2012 for the Pasta and Snacks, Sauces & Spreads reporting segments.  The Company expects that operating results in the second half of fiscal 2012 will improve for both segments as pricing and commodity increases become better aligned.

A spokesperson for Ralcorp said that: "Our operating results benefit from contract manufacturing, or 'co-manufacturing,' revenue of national brand products, which represented between 5% and 8% of total revenue over the last three years, primarily in our Snacks, Sauces & Spreads and Other Cereal Products reporting segments.  The impact from co-manufacturing arrangements can fluctuate significantly from period to period.”