Post Holdings Q2 Boosted by Acquisitions

12 May 2014 --- Post Holdings, Inc., a consumer packaged goods holding company, today reported results for the fiscal quarter ended March 31, 2014. Second quarter net sales were $438.0 million, an increase of $189.8 million, or 76.5%, compared to prior year.

Acquisitions, defined as the Attune Foods, Active Nutrition and Private Brands segments, contributed $198.5 million to consolidated net sales. Both second quarter 2014 and 2013 include a full quarter contribution of the initial Attune Foods acquisition. The Active Nutrition and Private Brands segment results include partial period contributions for acquisitions completed during the second quarter of 2014.

Gross profit increased $26.9 million to $129.4 million for the second quarter compared to the prior year. This included $34.1 million in gross profit from acquisitions, after incorporating the negative impact of inventory adjustments of $7.3 million resulting from acquisition accounting.

Selling, general and administrative (SG&A) expenses for the second quarter increased $34.9 million to $104.8 million compared to the prior year. SG&A was 23.9% of net sales and included $21.5 million of SG&A from acquisitions. Second quarter 2014 SG&A included $10.5 million of acquisition related transaction expenses for announced transactions.

Starting in the second quarter of fiscal year 2014, Post now reports foreign currency gains and losses separately from SG&A. Accordingly, SG&A for prior periods has been adjusted to align with fiscal 2014 presentation. Losses on foreign currency, which in 2014 were primarily related to hedge of the Golden Boy purchase price, were $11.9 million for the second quarter compared to $0.2 million in the prior year quarter.

Adjusted EBITDA was $63.5 million for the second quarter, up $12.5 million compared to the prior year. Second quarter 2014 included $23.7 million from acquisitions.

For the second quarter, the net loss attributable to common stockholders was ($22.6) million, or ($0.67) per diluted common share. Adjusted net loss attributable to common stockholders was ($7.2) million, or ($0.21) per diluted common share, for the second quarter. Weighted-average diluted common shares outstanding increased to 33.6 million shares for second quarter 2014 compared to 32.9 million for the prior year quarter. The increase resulted from an additional 5.75 million shares of common stock included in the second quarter weighted-average from the issue date of March 18, 2014.

Net sales for the six months ended March 31, 2014 were $735.0 million, an increase of $249.9 million, or 51.5%, over the prior year period. Acquisitions contributed $258.6 million to consolidated net sales, net of $0.3 million of intersegment eliminations.

Gross profit increased $35.7 million to $243.9 million compared to the prior year period. The six months ended March 31, 2014 included $51.6 million in gross profit from acquisitions, after incorporating the negative impact of inventory adjustments of $7.3 million resulting from acquisition accounting.

SG&A expenses increased $44.1 million to $186.2 million compared to the prior year and was 25.3% of net sales. SG&A from acquisitions was $29.6 million in the six months ended March 31, 2014. SG&A for the six months ended March 31, 2014 included $14.9 million of acquisition related transaction expenses for announced and unsigned transactions, $13.9 million of which was related to announced transactions.

Losses on foreign currency were $13.5 million for the six month period compared to $0.1 million in the prior year period; the losses in 2014 were primarily related to hedge of the Golden Boy purchase price.

Adjusted EBITDA was $119.4 million for the six months ended March 31, 2014, up $15.9 million compared to the prior year period. The six months ended March 31, 2014 included $33.9 million from acquisitions.

For the six months ended March 31, 2014, the net loss attributable to common stockholders was ($27.6) million, or ($0.83) per diluted common share. Adjusted net loss attributable to common stockholders was ($7.3) million, or ($0.22) per diluted common share.

Net sales were $239.5 million, a decline of $5.9 million, or 2.4%, compared to the prior year. Gross profit declined $4.7 million to $97.6 million, with gross margin of 40.8%, down approximately 90 basis points compared to the prior year. SG&A declined from $53.3 million to $52.7 million in the second quarter. Segment profit was $41.7 million and $45.3 million for second quarter 2014 and 2013, respectively. Segment Adjusted EBITDA was $54.4 million and $60.2 million for second quarter 2014 and 2013, respectively.

Softness in the ready-to-eat (RTE) cereal category during the quarter negatively impacted Post Foods results. Compared to the prior year quarter, Post Foods volumes increased 1% but average net selling prices decreased 4%. The decline in average net selling prices resulted from an unfavorable product mix and higher trade spending compared to the year ago quarter as well as liquidation inventory sales.

Post Foods net sales for the six months ended March 31, 2014 were $476.4 million, a decrease of $5.9 million, or 1.2%, compared to the prior year period. Gross profit declined $10.7 million to $197.9 million, with gross margin of 41.5%, down approximately 170 basis points compared to the prior year period. SG&A declined from $109.5 million to $103.1 million for the six months ended March 31, 2014. Segment profit was $88.2 million and $92.3 million for the six months ended March 31, 2014 and March 31, 2013, respectively. Segment Adjusted EBITDA was $114.1 million and $122.3 million for the six months ended March 31, 2014 and March 31, 2013, respectively.

According to Nielsen, U.S. RTE cereal category dollars were down 4.8% and category pounds declined 4.0% for the 13 weeks ended March 29, 2014, compared to the prior year period. For the same time period, Post Foods' U.S. dollar market share was 11.3%, up 0.9 share points compared to the year ago quarter. Compared to the 13 weeks ended December 28, 2013, Post Foods' U.S. dollar market share grew 0.7 share points. Post Foods' U.S. pounds share was 11.6% for the 13 weeks ended March 29, 2014, up 1.0 share points compared to the prior year period.

In fiscal year 2014, Post changed its methodology for allocating certain corporate costs to segment profit. Accordingly, segment profit for fiscal year 2013 has been adjusted to align with fiscal year 2014 presentation. This change only impacted the Post Foods segment profit. See the historical segment information tables in this press release for the adjusted presentation.

Attune Foods includes the cereal and snack business of the Attune, Uncle Sam and Erewhon brands (acquired on December 31, 2012) and the private label and branded cereal, granola and snack business of the Golden Temple, Peace Cereal, Sweet Home Farm and Willamette Valley Granola Company brands (acquired on May 28, 2013).

Net sales for the segment were $22.2 million for second quarter 2014, up $19.4 million compared to reported prior year net sales of $2.8 million. Both reported second quarter 2014 and 2013 included a full quarter contribution of the December 2012 Attune Foods acquisition; however, second quarter 2014 and 2013 are not fully comparable, as a result of the timing of the May 2013 Attune Foods acquisition. On a comparable basis, the Attune Foods segment net sales for the second quarter of 2014 were up 7.8% or $1.6 million over the same period in 2013.

Net sales on a comparable basis is the comparison of the net sales for the Attune Foods segment on a three month basis for the period ended March 31, 2014 to the net sales for the segment on a three month basis for the same period in 2013, including net sales in each period for both the periods of time Post owned each of the acquired businesses and the respective periods of time Post did not own the businesses.

Attune Foods segment profit was $1.9 million and ($0.6) million for second quarter 2014 and 2013, respectively. Segment profit for second quarter 2013 was negatively impacted by an inventory adjustment of $0.5 million resulting from acquisition accounting. Segment Adjusted EBITDA was $3.6 million and zero for second quarter 2014 and 2013, respectively.

For the six months ended March 31, 2014, net sales for the segment (including intersegment sales) were $45.4 million, up $42.6 million compared to reported prior period net sales of $2.8 million. The Attune Foods segment profit was $4.5 million and ($0.6) million for the six months ended March 31, 2014 and March 31, 2013, respectively. Segment profit for the six months ended March 31, 2013 was negatively impacted by an inventory adjustment of $0.5 million resulting from acquisition accounting. Segment Adjusted EBITDA was $8.0 million and zero for the six months ended March 31, 2014 and March 31, 2013, respectively.

Active Nutrition is comprised of Premier Nutrition Corporation ("Premier Nutrition") (acquired on September 1, 2013), which includes the Premier Protein and Joint Juice brands, and Dymatize (acquired on February 1, 2014), which includes the Dymatize and Supreme Protein brands.

Net sales for the segment were $70.6 million for the second quarter. Second quarter 2014 included a full quarter contribution from Premier Nutrition and a partial quarter (two-month) contribution from Dymatize. On a comparable basis, net sales for Active Nutrition for the second quarter of 2014 were up 7.8%, or $5.7 million over the same period in 2013.

Net sales on a comparable basis is the comparison of the net sales for the Active Nutrition segment on a three month basis for the period ended March 31, 2014 to the net sales for the segment on a three month basis for the same period in 2013, including net sales in each period for both the periods of time Post owned each of the acquired businesses and the respective periods of time Post did not own the businesses.

Net sales growth for the segment was driven by new Premier Nutrition products, Premier Nutrition channel expansion into food/drug/mass channels and strong consumer demand for Dymatize products at key customers. However, consumer traffic at key Dymatize retailers was depressed by the severe winter weather and negatively impacted Dymatize results in the second quarter of 2014 compared to the year ago pre-acquisition quarter. Additionally, supply chain issues caused missed shipments. Management has identified these issues and is addressing improvements to demand planning and manufacturing processes.

Active Nutrition segment profit and segment Adjusted EBITDA for second quarter 2014 were $0.2 million and $6.7 million, respectively. Segment profit for second quarter 2014 was negatively impacted by an inventory adjustment of $2.0 million resulting from acquisition accounting.

For the six months ended March 31, 2014, net sales for the segment were $107.8 million. The Active Nutrition segment profit and segment Adjusted EBITDA for the six months ended March 31, 2014 were $4.4 million and $12.5 million, respectively. Segment profit for the six-month period was negatively impacted by an inventory adjustment of $2.0 million resulting from acquisition accounting.

The Private Brands segment includes the private label pasta business of Dakota Growers (acquired on January 1, 2014) and the private label peanut butter and other nut butters, dried fruits and baking and snacking nuts business of Golden Boy (acquired on February 1, 2014).

Net sales for the segment were $105.7 million for second quarter 2014 and for the six months ended March 31, 2014. Second quarter 2014 included a full quarter contribution from Dakota Growers and a partial quarter (two-month) contribution from Golden Boy. On a comparable basis, net sales for Private Brands for the second quarter of 2014 were up 1.0%, or $1.3 million over the same period in 2013.

Net sales on a comparable basis is the comparison of the Private Brands sales for each segment on a three month basis for the period ended March 31, 2014 to the net sales for the segment on a three month basis for the same period in 2013, including net sales in each period for both the periods of time Post owned each of the acquired businesses and the respective periods of time Post did not own the businesses.

The Private Brands segment profit and segment Adjusted EBITDA for second quarter 2014 and for the six months ended March 31, 2014 were $0.8 million and $13.4 million, respectively. Segment profit for both periods was negatively impacted by an inventory adjustment of $5.3 million resulting from acquisition accounting.

Net interest expense was $37.3 million for the second quarter compared to $21.6 million for the prior year quarter. For the six months ended March 31, 2014, net interest expense was $66.3 million, compared to $40.8 million for the six months ended March 31, 2013. The increase for both the quarter and the six month period was driven primarily by the issuance of $350.0 million and $525.0 million in aggregate principal amount of senior notes in July 2013 and November 2013, respectively. Additionally, Post issued $350.0 million in aggregate principal amount of senior notes in March 2014.

Income tax benefit was ($19.3) million in the second quarter of fiscal 2014, compared to an expense of $2.2 million in the second quarter of fiscal 2013. The effective income tax rate was 51.3% for the second quarter of fiscal 2014 compared to 30.1% for the same period a year ago. For the six months ended March 31, 2014, the income tax benefit was ($20.7) million, an effective income tax rate of 50.0%, compared to an expense of $5.7 million and an effective income tax rate of 31.0% for the six months ended March 31, 2013.

The elevated effective income tax rate for both periods is a function of Post's estimated range of earnings (loss) before income taxes for fiscal 2014 excluding the impact of pending acquisitions (as discussed below). Small variations in earnings (loss) before income taxes and permanent differences are anticipated to have a magnified impact on the effective income tax rate for fiscal 2014. Post management expects its effective tax rate will stabilize and will be approximately 32%-35% in fiscal year 2015.

In a release dated April 17, 2014, Post announced it has agreed to acquire MFI Holding Corporation ("Michael Foods"), a leading producer of value-added food products and service solutions to customers across the foodservice, retail and food ingredient channels. Under the terms of the agreement, Post will acquire Michael Foods for $2.45 billion on a cash-free, debt-free basis, subject to working capital and other adjustments. The acquisition is expected to be completed in the second calendar quarter of 2014, Post's fiscal third quarter, subject to various closing conditions.

Concurrent with the signing of the agreement, Post obtained financing commitments under which various lenders have committed to provide up to $1.765 billion in credit facilities, including a committed bridge loan of up to $340 million. Committed facilities, together with cash on hand, are sufficient to fund the purchase price. Post currently expects to replace a portion of the committed financing with approximately $635 million of new term loan borrowings with the remainder of the financing consisting of approximately $500 million of newly-issued common and/or equity-linked securities and approximately $630 million of newly-issued senior unsecured debt securities. The final structure and terms of the acquisition financing will be subject to market and other conditions, and may be materially different than current expectations.

On February 3, 2014, Post announced it has agreed to acquire the PowerBar and Musashi brands and related worldwide assets from Nestle S.A. The transaction, initially expected to be completed in Post's fiscal third quarter, is now expected to close in Post's fiscal 2015 first quarter, subject to various closing conditions. Post management anticipates combining the PowerBar and Musashi brands into Post's existing Active Nutrition segment.

Including results of all completed acquisitions to date (which excludes the pending acquisitions of the PowerBar and Musashi brands and of Michael Foods), Post management continues to expect fiscal 2014 Adjusted EBITDA to be between $300 million and $320 million. For the second half of fiscal 2014, Post management expects modest net deflation in commodities and lower levels of promotional activity resulting in improved gross margins when compared to the first half of fiscal 2014.

On April 1, 2014, Post acquired certain peanut butter manufacturing and other assets from the bankruptcy estate of Sunland, Inc. for $26 million. As a result, capital expenditures for fiscal 2014, inclusive of all completed acquisitions to date (which excludes the pending acquisitions of the PowerBar and Musashi brands and of Michael Foods), are expected to be between $90 million and $100 million, an increase from the prior estimate of between $75 million and $85 million. The capital expenditure guidance is broken into the following categories: $26 million for assets associated with Sunland, Inc.; $20 million for capital expenditures associated with our Modesto facility closure; and the remaining balance for ongoing capital spending.