ST. LOUIS — A year ago and in the midst of integration activity of Michael Foods, Bob Evans and Post Consumer Brands, Robert V. Vitale, president and chief executive officer of Post Holdings, Inc., said significant M.&A. was “a lower near-term priority,” adding that if a great opportunity developed, Post would respond. The private label ready-to-eat cereal business of TreeHouse Foods, Inc. apparently is such an opportunity. Post on May 2 announced plans to acquire the TreeHouse unit.
In a May 3 conference call with analysts to discuss second-quarter financial results, Mr. Vitale said the business “needs some T.L.C.” in order to return to the profitability level that Post believes is possible. Even so, he said the acquisition makes sense for Post.
“One, we are already a participant in the private label category within cereal and are doing reasonably well within it,” he said. “Two, we think there are substantial cost opportunities that can be derived to make us an even more effective competitor. And, three, if you look at the footprint of our combined manufacturing network, it enables us to not only optimize costs, both manufacturing and transportation costs more effectively, but it also allows us to avoid some capital expenditures that would be needed simply to maintain the ongoing network.”
The R.-T.-E. cereal business generated $268 million in sales in 2018. It has a range of manufacturing capabilities and features two plants in Lancaster, Ohio, and Sparks, Nev. Upon closing, Post said it will integrate the business into its existing North American R.-T.-E. cereal business.
“So it gives us two very attractive factories, which supplement our manufacturing base quite nicely,” Mr. Vitale said. “It gives us a distribution footprint that is bigger and enables more optimization, and it is in a category in which we’re already successfully competing.”
Reflecting on the company as a whole during the second quarter, Mr. Vitale said external headwinds, including extreme weather in the Upper Midwest that affected supply chains at Michael Foods, Refrigerated Retail and Post Consumer Brands, weighed on results.
Consolidated net earnings available to common shareholders of Post Holdings in the three months ended March 31 were $43 million, equal to 61c per share on the common stock, down 52% from $88.9 million, or $1.33 per share, in the prior-year period. Net sales decreased 13% to $1,387.8 million from $1,586.1 million.
Segment profit for the Post Consumer Brands segment, which includes North American R.-T.-E. cereal brands such as Pebbles, Honey Bunches of Oats and Malt-O-Meal, decreased 8% to $83.2 million on net sales of $459.1 million, down 0.7% from the comparable quarter.
Mr. Vitale said Post Consumer Brands retail dollar sales increased 2% in tracked channels during the second quarter, and branded market share reached 20.4%.
“The innovation we have introduced in licensed brands is performing well,” Mr. Vitale said. “We have some standouts and some laggards, but we are quite pleased with the overall performance. We continue to seek to broaden our innovation pipeline to more effectively reengage consumers with the category.
“Our cereal shipments lagged our strong consumption results this quarter. Promotional changes in non-measured channels, coupled with fluctuations in retail inventories, account for the difference between consumption and shipments. We view the modest volume softness this quarter as timing, some of which perhaps benefited Q1 as our year-to-date results are strong. The nearly $11 million decline in segment adjusted EBITDA mostly results from manufacturing conversion cost increases compared to last year. Pricing offset most but not all of the inflation. This is a timing issue.”
Mr. Vitale said he was “extremely proud” of the work that has gone into restarting the company’s promotional strategies around Weetabix. Segment profit was $23.6 million, up 50%, on net sales of $104.1 million, down 4.5%, in the quarter.
In the Refrigerated Retail segment, which includes side dishes, egg, cheese and sausage products, segment profit grew 34% to $26.5 million on net sales of $219.5 million, a 0.1% decrease from the prior-year period.
The Active Nutrition segment, which includes ready-to-drink protein shakes, other R.-T.-D. beverages, powders and nutrition bars, generated profit of $44 million, up 69% from the comparable quarter. Net sales increased 5.5% to $216.5 million.
“We had a great quarter at Active Nutrition with adjusted EBITDA exceeding $50 million for the first time,” Mr. Vitale said. “You may recall that last quarter, to maximize supply, we temporarily limited our assortment to two of our previous seven flavors. This quarter, we reintroduced our full line of flavors, and the consumer response was terrific. Our share of ready-to-drink protein in tracked channels now exceeds 16% and is growing. We also have significant presence in untracked channels.”
Mr. Vitale said Post submitted its Form S-1 for its Active Nutrition initial public offering on April 5 and remains on track for a fall execution.
The Foodservice segment, which primarily includes egg and potato products, posted profit of $47.4 million, up 10.5% from a year ago. Net sales increased 2.3% to $389.1 million in the period.
In the six months ended March 31, Post had net earnings of $166.6 million, or $2.43 per share, down from $380.4 million, or $5.73 per share, in the comparable period. Net sales decreased 7.3% to $2,799.1 million from $3,019.2 million.