Post Holdings, Inc.
Q4 2013 Earnings Call Transcript

Published: 22 Nov 2013

[Operator:]

Welcome to Post Holdings Fourth Quarter 2013 Earnings Conference Call and Webcast. Hosting the call today from Post is Terry Block, President and Chief Operating Officer; and Rob Vitale, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 7

[Brad Harper:]

Thank you, and good afternoon. Welcome to the Post Holdings conference call, where we will discuss results for the fourth quarter and our 2013 fiscal year. With me today are Terry Block, our President and COO; and Rob Vitale, our CFO. We will not be taking questions after our prepared remarks today. The press release that supports these remarks is posted on our website at www.postholdings.com (sic) [www.postfoods.com] . Before we continue, I would like to remind you that this call will contain forward-looking statements. These forward-looking statements are subject to risks and uncertainties, which should be carefully considered by investors, as actual results could differ materially from these forward-looking statements. For more information regarding these risks and uncertainties, please visit the SEC Filings page in the Investor Relations section of our website. These statements speak only as of the date of this call and management undertakes no obligation to update or revise these statements. All forward-looking statements are expressly qualified in their entirety by this cautionary statement. As a reminder, this call is being recorded for audio replay. And finally, this call will discuss certain non-GAAP measures. For a reconciliation of non-GAAP measures to the nearest GAAP measure, see our press release posted on our website. With that, I will turn the call over to Terry.

[Terence E. Block:]

Good afternoon, and thank you for joining us today on our earnings call. We'll review the status of our business for the fourth quarter and for the fiscal year ended September 30, 2013. The past 12 months witnessed the continued transformation of Post from a low-growth, single-category participant to a more diversified consumer products enterprise, with a product portfolio that is allowing us to gain participation in retail channels and categories, exhibiting more dynamic growth. The transformation has had 3 main areas of concentration

[Robert V. Vitale:]

Thanks, Terry. I'd like to first expand on our consolidated net sales figures that Terry highlighted. Starting with the fourth quarter, consolidated net sales were $291.7 million, an increase of $44.5 million for the quarter. This includes $37.8 million from acquisitions. Post Foods segment net sales were $253.9 million, up 2.7% or $6.7 million over last year. The improvement resulted from a 3.4% increase in pound volume, slightly offset by a 0.7% decline in average net selling prices. Pound volume increases were driven by Post Raisin Bran, private label and co-manufacturing agreements. Q4 was the first full quarter for the expanded Attune Foods segment. Net sales, including intersegment sales for the quarter, were $24.2 million. For reference, net sales were up 17.5% compared to the year-ago pre-acquisition quarter. Lastly, our Premier Nutrition acquisition closed on September 1. As Terry mentioned, it currently comprises our active nutrition segment. This segment contributed net sales of $13.9 million to the quarter. Fourth quarter gross profit was $112.5 million, up $2.4 million from the prior year. This includes $11.1 million in gross profit from acquisitions, which is partially offset by $4.8 million of accelerated depreciation related to the Modesto plant closure. Excluding the impacts of Modesto and acquisitions, fourth quarter gross profit was $106.2 million, a gross margin of 41.8% on net sales, excluding acquisitions. Gross margin is down approximately 270 basis points compared to the prior year, largely resulting from the impact of product mix on both manufacturing costs and average net selling prices. As expected, we continued to see higher commodity costs for grains compared to the prior year. However, for the fourth quarter, these increases were offset by lower costs for sugar and nuts. Manufacturing fixed cost absorption is consistent with prior year. SG&A increased $7.5 million to $79.2 million for the fourth quarter versus prior year. Excluding $5.7 million in SG&A related to acquired businesses, SG&A was 28.9% of net sales, sales excluding acquisitions, flat compared to the prior year. The $1.8 million increase in SG&A costs was the result of incremental holding company costs, partially offset by lower advertising and promotion expenses for the Post Foods business compared to the prior year. Consolidated adjusted EBITDA for the fourth quarter was $57.2 million, up $3.7 million compared to the prior year. Acquisitions contributed $6.3 million to the fourth quarter adjusted EBITDA. Interest expense was $25.5 million for the quarter compared to $16.1 million for the prior year quarter. This increase is driven by the issuance of an aggregate of $600 million of senior notes issued in October 2012 and July 2013. The notes were issued as stack-on financings to our existing 2022 senior notes. Fourth quarter income tax benefit was $200,000, primarily resulting from a loss before income tax of $1.1 million, which does include $5.6 million of expenses related to the Modesto plant closure. We also incurred certain nondeductible transaction expenses in the quarter related to the PNC acquisition. Net loss attributable to common stockholders for the fourth quarter was $3.2 million or $0.10 per diluted common share. Adjusted net earnings available to common stockholders and adjusted diluted earnings per common share for the quarter were $5.3 million and $0.16, respectively. And as Brad mentioned, the reconciliations between these figures and the GAAP-related figure are in the press release. Moving on to our fiscal year results. Consolidated net sales were $1,034,100,000. This is up $75.2 million compared to the prior year and includes $51.3 million from acquisitions. The Post Foods segment net sales were $982.8 million, an increase of $23.9 million or 2.5%. This is the first time in several years that the Post Foods business has shown annual net sales growth and it occurs against the backdrop of a 2.2% decline in RTE cereal category recorded in Nielsen. This result was driven by 4.7% higher volumes, offset by a 2.1% decrease in average net selling prices. Volume improvements were driven by growth in the Great Grains, Post Raisin Bran and Grape Nuts brands and growth in revenue from private label and co-manufacturing agreements. Including intersegment sales, the Attune Foods segment contributed $37.8 million in net sales for the fiscal year and PNC contributed $13.9 million. Gross profit for the fiscal year was $424.9 million, which includes $14.1 million from acquisitions and a deduct of $9.6 million in accelerated depreciation related to the Modesto plant closure. Excluding these 2 items, gross profit was $420.4 million, a decline of $8.5 million with gross margin of 42.8% on net sales exclusive of acquisitions. This figure declined approximately 190 basis points from the prior year on product mix, higher trade spending, including higher sodding fees for new product introductions and higher total commodity costs in the current year. Again the higher commodity costs were expected that negatively impacted the fiscal year results. Manufacturing fixed cost absorption is consistent with prior year. SG&A increased $19.9 million to $294.4 million for the fiscal year. This was driven primarily by $8.6 million from acquired businesses and incremental holding company costs. The increased holding company costs include $5.7 million of spending related to due diligence on completed and potential acquisitions. These increases were partially offset by lower overall advertising and promotional spending for Post Foods. Consolidated adjusted EBITDA was $216.7 million for the year, an increase of $2.1 million. Acquisitions contributed $8 million in adjusted EBITDA. Interest expense was $85.5 million for the fiscal year compared to $60.3 million from the prior year due to additional debt issuances, as discussed in the quarter comments. For the fiscal year, income tax expense was $7.1 million, an effective income tax rate of 31.8%. This compares to an expense of $30.5 million, an effective rate of 37.9% for the fiscal year ended September 30, 2012. The decrease in the effective rate is primarily the result of an uncertain tax position taken on the company's 2012 short period tax return and higher nondeductible transaction expenses in the prior year. For the fiscal year ended September 30, 2013, net earnings available to common stockholders were $9.8 million or $0.30 per diluted common share. Adjusted net earnings available to common stockholders and adjusted diluted earnings per common share for the fiscal year were $31.1 million and $0.94, respectively. With respect to strategic activities during the fourth quarter, we completed the acquisition of Premier Nutrition Corporation. As Terry mentioned, this acquisition provides us with a platform in the growing active nutrition and supplements business. This is a segment of the market that exhibits both strong organic growth and lends itself to potential consolidation opportunities. We expect to continue to invest in this segment. On September 16, we announced our planned acquisition of Dakota Growers Pasta Company, a private-label manufacturer of pasta products, for $370 million. Dakota provides Post a platform in private label, which again as a category, lends itself to both organic growth and consolidation opportunities. On a full-year basis, Dakota is expected to contribute approximately $300 million of net sales and approximately $42 million to $46 million in adjusted EBITDA. The transaction was granted early termination under the Hart-Scott-Rodino Act in October and we expect to close the transaction in January 2014. The acquisition will be financed from cash on hand. Finally, with respect to fiscal 2014, we expect adjusted EBITDA, including the results of acquisitions completed in fiscal 2013, to be between $245 million and $260 million. This range reflects modest growth of the Post Foods business and contributions from acquisitions in line of management's previously announced expectations. As a reminder, on a full-year basis, Dakota is expected to contribute, as I mentioned, between $42 million and $46 million in adjusted EBITDA. Lastly, we expect capital expenditures to be in the range of $65 million to $75 million, inclusive of acquisitions completed through fiscal 2013. Our capital expenditure outlook reflects our maintenance requirements plus requirements to complete the start-up and transfer of production to other facilities related to the Modesto facility closure, along with other corporate initiatives. Thank you for listening to our call today and we look forward to updating you again next quarter.

[Operator:]

Thank you. This concludes today's conference call. You may now disconnect.