Ralcorp Holdings: Announces Results for Q4 and Fiscal 2008

St. Louis / MO. (rh) Ralcorp Holdings Inc. said fourth-quarter net income for the three months ended September 30 more than tripled to 41,1 million USD, or 0,90 USD a share, from 12,2 million USD, or 0,46 USD a share in the year-ago period. The St. Louis food company said sales rose to 873,5 million USD from 608,2 million USD. Looking ahead, Ralcorp said it expects challenges in 2009, but it remains confident in the growth prospects of its base businesses.

Net sales for the year grew more than 26 percent to 2’824,4 million USD in fiscal 2008 from 2’233,4 million USD in 2007, and Food EBITDA (earnings before interest, income taxes, depreciation, and amortization, excluding equity method earnings and other gains or losses related to the Company´s investment in Vail Resorts Inc.) increased 14 percent to 275,7 million USD compared to 242,9 million USD last year. These increases are partially due to incremental results from acquired businesses, particularly Post Foods (acquired in August 2008), but also Bloomfield Bakers (acquired in March 2007) and Cottage Bakery (acquired in November 2006).

Approximately 180,5 million USD of the fourth quarter´s 265,3 million USD sales growth came from Post Foods (Cereals, Crackers + Cookies segment). For the year, a portion of the sales growth is also attributable to the timing of the fiscal 2007 acquisitions of Bloomfield Bakers (Cereals, Crackers + Cookies segment) and Cottage Bakery (Frozen Bakery Products segment) – approximately 119,7 million USD from the additional five and a half months of Bloomfield sales and approximately 15,8 million USD from the additional six weeks of Cottage sales. The segment discussions below include analyses of net sales changes in the base businesses, meaning businesses that were owned by Ralcorp (and therefore included in operating results) for the duration of each of the periods being compared (in example, excluding businesses acquired since the beginning of the comparative period of the prior fiscal year).

Cereals, Crackers + Cookies Segment Results

The increase in year-over-year net sales in the Cereals, Crackers + Cookies segment is attributable primarily to sales from Post Foods and the timing of the acquisition of Bloomfield Bakers last year. However, base business sales also grew 16 percent for the fourth quarter and twelve percent for the year due to increases at both the Ralston Foods cereal and snacks division and the Bremner cracker and cookie division. This growth is attributable to higher prices in both divisions, raised in an effort to offset higher input costs, as well as higher volumes at Ralston Foods.

At Ralston Foods, base business net sales grew 30,0 million USD (16 percent) and 70,1 million USD (15 percent) in the three- and twelve-month periods, respectively, as a result of improved pricing and higher volumes. Ready-to-eat (RTE) cereal volume was up 13 percent for the quarter and nine percent for the year, hot cereal was up twelve percent for the quarter and three percent for the year, snacks were up two percent for the quarter and six percent for the year, and Bloomfield´s fourth quarter volume increased eight percent. Co-manufacturing volumes increased 41 percent for the quarter and 67 percent for the year, but a change in product mix resulted in a small sales dollar decline for the quarter while sales dollars increased 15,4 million USD for the year, demonstrating the potential volatility of this co-manufacturing business from period to period.

At the Bremner cracker and cookie division, the effects of price increases and a favorable product mix were partially offset by overall sales volume declines. For the quarter, cracker volume was down two percent, cookie volume was down two percent, and co-manufacturing volume was down 48 percent, for an overall volume decline of five percent. For the year, overall sales volume was four percent lower, with crackers down five percent, cookies up one percent, and co-manufacturing down 34 percent. The change in product mix had an impact of approximately 5,2 million USD for the quarter and 8,7 million USD for the year.

The segment´s profit contribution increased significantly as a result of acquisitions. Results from Post Foods added about 43,3 million USD (net of 2,2 million USD of amortization related to certain brands and customer relationships and 7,6 million USD of depreciation). In addition, the extra 24 weeks of results from Bloomfield Bakers added an estimated 9,2 million USD of profit in the year ended September 30, 2008. Excluding those acquisition timing impacts, profit contribution improved as the effects of selling price adjustments and cereal volume growth slightly exceeded the negative effects of higher raw material, production, and freight costs, and promotional expenses. Compared to last year, higher raw material unit costs reduced profit by approximately 18,4 million USD and 51,1 million USD in the three and twelve months ended September 30, 2008, respectively. The most notable cost increases were in wheat and corn products, soybean oil, oats, and rice. Higher rates increased freight costs by about 2,4 million USD for the quarter and 2,8 million USD for the year. Increased promotional support and programs, as well as related timing changes, also impacted the segment´s profit contribution.

Frozen Bakery Products Segment Results

The Frozen Bakery Products segment´s fourth quarter net sales increased ten percent over last year as a result of selling price improvements, partially offset by volume declines. Fourth quarter sales growth was eleven percent, six percent, and 16 percent in the segment´s foodservice, in-store bakery (ISB), and retail channels, respectively, with each channel benefiting from improved pricing, partially offset by volume losses in the foodservice and ISB channels. The foodservice channel is impacted by general economic conditions, with consumers dining out less frequently. The ISB volume decline was primarily due to lower overall cookie sales.

For the fiscal year, base business net sales grew twelve percent overall (14 percent in foodservice, nine percent in ISB, and 17 percent in retail), including the effects of price increases and volume growth in all three channels. The base foodservice volume improvement came primarily from new products, partially offset by general softness in the channel. In the base retail business, incremental sales of private label waffles accounted for most of the growth.

The segment´s profit contribution was reduced by higher raw material costs (primarily wheat flour, fats and oils), an unfavorable change in product mix, higher freight costs, and slightly higher warehousing costs. However, improved pricing (and in the full year, incremental Cottage Bakery profit due to acquisition timing) offset most of those negative effects. Higher raw material prices raised costs by about 11,7 million USD and 40,0 million USD for the three and twelve months ended September 30, respectively, and higher freight rates had an impact of 1,5 million USD and 4,7 million USD, respectively. In addition, the segment´s Canadian operations were hurt by the decline in the value of the U.S. Dollar relative to the Canadian Dollar in fiscal 2008. The change in the average exchange rate increased the U.S. Dollar equivalent of the net Canadian Dollar expenses by approximately 0,5 million USD for the fourth quarter and 5,6 million USD for the year, net of the effects of foreign currency hedging activities. Finally, the extra six weeks of results from Cottage added an estimated 2,5 million USD of profit in the year ended September 30, 2008.

Info: The complete press release is available here.