Post Holdings: Reports FY 2020 Second Quarter Results

St. Louis / MO. (pfh) Post Holdings Inc., a consumer packaged goods holding company, reported results for the second fiscal quarter ended March 31, 2020.

Highlights for the second quarter of fiscal year 2020

Net sales of USD 1.5 billion
Operating profit of USD 153.5 million; net loss of USD 191.4 million and Adjusted Ebitda of USD 291.7 million
As a result of uncertainty around the duration, scope and ultimate financial impact of the Covid-19 pandemic, Post management is withdrawing its fiscal year 2020 outlook

Basis of Presentation

On October 21, 2019, the initial public offering (the «IPO») of a minority interest in the BellRing Brands business, Post’s historical active nutrition business, was completed. Post fully consolidates the results of BellRing Brands, Inc. («BellRing») and its subsidiaries within Post’s financial statements and effective October 21, 2019 allocates 28.8 percent of its consolidated net earnings/loss and net assets to noncontrolling interest within Post’s financial statements.

Second Quarter Consolidated Operating Results

Net sales were USD 1,494.2 million, an increase of 7.7 percent, or USD 106.4 million, compared to the prior year period net sales of USD 1,387.8 million. Gross profit was USD 438.8 million, or 29.4 percent of net sales, a decrease of USD 12.5 million compared to the prior year period gross profit of USD 451.3 million, or 32.5 percent of net sales.

Selling, general and administrative («SG+A») expenses were USD 245.0 million, or 16.4 percent of net sales, an increase of USD 19.2 million compared to the prior year period SG+A expenses of USD 225.8 million, or 16.3 percent of net sales. Operating profit was USD 153.5 million, a decrease of 17.6 percent, or USD 32.8 million, compared to the prior year period operating profit of USD 186.3 million.

Net loss was USD 191.4 million, a decrease of 535.0 percent, or USD 235.4 million, compared to the prior year period net earnings of USD 44.0 million. Net loss included loss on extinguishment of debt of USD 60.0 million in the second quarter of 2020. Net loss/earnings included expense on swaps, net of USD 224.6 million and USD 63.0 million in the second quarter of 2020 and 2019, respectively. Loss on extinguishment of debt and expense on swaps, net are discussed later in this release and were treated as adjustments for non-GAAP measures. Net loss/earnings included equity method losses, net of tax of USD 11.1 million and USD 8.8 million in the second quarter of 2020 and 2019, respectively. Net loss/earnings excluded net earnings attributable to noncontrolling interest of USD 5.6 million and USD 0.3 million in the second quarter of 2020 and 2019, respectively.

Net loss attributable to common shareholders was USD 191.4 million, or USD 2.76 per diluted common share, compared to the prior year period net earnings available to common shareholders of USD 43.0 million, or USD 0.58 per diluted common share. Adjusted net earnings were USD 45.5 million, or USD 0.65 per diluted common share, compared to the prior year period Adjusted net earnings of USD 98.4 million, or USD 1.31 per diluted common share.

Adjusted Ebitda was USD 291.7 million, a decrease of 2.4 percent, or USD 7.2 million, compared to the prior year period Adjusted Ebitda of USD 298.9 million. Adjusted Ebitda in the second quarter of 2020 included an adjustment of USD 5.2 million primarily for the portion of BellRing’s consolidated net earnings which was allocated to noncontrolling interest, resulting in Adjusted Ebitda including 100 percent of the consolidated Adjusted Ebitda of BellRing.

Six Month Consolidated Operating Results

Net sales were USD 2,951.0 million, an increase of 5.4 percent, or USD 151.9 million, compared to the prior year period net sales of USD 2,799.1 million. Gross profit was USD 910.3 million, or 30.8 percent of net sales, an increase of USD 32.5 million compared to the prior year period gross profit of USD 877.8 million, or 31.4 percent of net sales.

SG+A expenses were USD 480.3 million, or 16.3 percent of net sales, an increase of USD 37.4 million compared to the prior year period SG+A expenses of USD 442.9 million, or 15.8 percent of net sales. Operating profit was USD 349.5 million, a decrease of 27.2 percent, or USD 130.7 million, compared to the prior year period operating profit of USD 480.2 million. Operating profit for the six months ended March 31, 2019 included a USD 127.3 million gain related to the separate capitalization of 8th Avenue Food + Provisions, Inc. («8th Avenue»), which was treated as an adjustment for non-GAAP measures.

Net loss was USD 92.2 million, a decrease of 154.4 percent, or USD 261.8 million, compared to the prior year period net earnings of USD 169.6 million. Net loss/earnings included loss on extinguishment of debt of USD 72.9 million and USD 6.1 million in the six months ended March 31, 2020 and March 31, 2019, respectively. Net loss/earnings included expense on swaps, net of USD 163.2 million and USD 114.7 million in the six months ended March 31, 2020 and March 31, 2019, respectively. Loss on extinguishment of debt and expense on swaps, net are discussed later in this release and were treated as adjustments for non-GAAP measures. Net loss/earnings included equity method losses, net of tax of USD 18.4 million and USD 19.5 million in the six months ended March 31, 2020 and March 31, 2019, respectively. Net loss/earnings excluded net earnings attributable to noncontrolling interest of USD 13.5 million and USD 0.6 million in the six months ended March 31, 2020 and March 31, 2019, respectively.

Net loss attributable to common shareholders was USD 92.2 million, or USD 1.32 per diluted common share, compared to the prior year period net earnings available to common shareholders of USD 166.6 million, or USD 2.26 per diluted common share. Adjusted net earnings were USD 98.4 million, or USD 1.38 per diluted common share, compared to the prior year period Adjusted net earnings of USD 183.2 million, or USD 2.44 per diluted common share.

Adjusted Ebitda was USD 594.8 million, an increase of 0.6 percent, or USD 3.4 million, compared to the prior year period Adjusted Ebitda of USD 591.4 million. Adjusted Ebitda for the six months ended March 31, 2020 included an adjustment of USD 12.6 million primarily for the portion of BellRing’s consolidated net earnings which was allocated to noncontrolling interest, resulting in Adjusted Ebitda including 100 percent of the consolidated Adjusted Ebitda of BellRing.

Post Consumer Brands

North American ready-to-eat (RTE) cereal.
For the second quarter, net sales were USD 507.9 million, an increase of 10.6 percent, or USD 48.8 million, compared to the prior year period. Volumes increased 14.2 percent and benefitted from (i) increased purchases resulting from consumer pantry loading and increased at-home consumption in reaction to the Covid-19 pandemic, (ii) the timing of promotional and merchandising support when compared to the prior year, (iii) new product introductions and (iv) private label distribution gains. Segment profit was USD 92.4 million, an increase of 11.1 percent, or USD 9.2 million, compared to the prior year period. Segment Adjusted Ebitda was USD 120.9 million, an increase of 6.9 percent, or USD 7.8 million, compared to the prior year period.

For the six months ended March 31, 2020, net sales were USD 949.1 million, an increase of 3.8 percent, or USD 34.7 million, compared to the prior year period. Segment profit was USD 173.0 million, an increase of 3.5 percent, or USD 5.8 million, compared to the prior year period. Segment Adjusted Ebitda was USD 230.6 million, an increase of 1.7 percent, or USD 3.9 million, compared to the prior year period.

Weetabix

Primarily United Kingdom RTE cereal and muesli.
For the second quarter, net sales were USD 113.4 million, an increase of 8.9 percent, or USD 9.3 million, compared to the prior year period, reflecting 4.5 percent improved average net pricing and a 6.0 percent volume increase (driven by increased purchases resulting from consumer pantry loading in reaction to the Covid-19 pandemic), which were partially offset by an unfavorable foreign exchange rate headwind of approximately 180 basis points. Segment profit was USD 28.0 million, an increase of 18.6 percent, or USD 4.4 million, compared to the prior year period. Segment Adjusted Ebitda was USD 36.0 million, an increase of 12.5 percent, or USD 4.0 million, compared to the prior year period.

For the six months ended March 31, 2020, net sales were USD 214.9 million, an increase of 4.8 percent, or USD 9.9 million, compared to the prior year period. Segment profit was USD 51.7 million, an increase of 21.6 percent, or USD 9.2 million, compared to the prior year period. Segment Adjusted Ebitda was USD 67.9 million, an increase of 14.9 percent, or USD 8.8 million, compared to the prior year period.

Foodservice

Primarily egg and potato products.
For the second quarter, net sales were USD 378.4 million, a decrease of 2.7 percent, or USD 10.7 million, compared to the prior year period. Volumes for the second quarter decreased 4.2 percent with egg volumes declining 4.5 percent and potato volumes declining 2.0 percent. Volume declines were driven by lower demand from foodservice customers resulting from the impact of the Covid-19 pandemic on various channels, including full service restaurants, quick service restaurants, education and travel and lodging, which was partially offset by higher volume in the food ingredient channel. Prior to the Covid-19 pandemic, volume growth for Post’s Foodservice segment was strong as volumes in January and February increased 5.4 percent, driven by increases of 3.7 percent in egg volumes and 13.9 percent in potato volumes.

Segment profit was USD 23.8 million, a decrease of 49.8 percent, or USD 23.6 million, compared to the prior year period. Segment Adjusted Ebitda was USD 55.1 million, a decrease of 27.4 percent, or USD 20.8 million, compared to the prior year period. Second quarter 2020 segment profit and segment Adjusted Ebitda were negatively impacted by (i) unfavorable fixed cost absorption and USD 6.1 million of increased reserves for obsolete inventory on short-dated products, both of which resulted from the significant decline in foodservice product demand in reaction to the Covid-19 pandemic, (ii) startup costs at the new precooked egg facility in Norwalk, Iowa of approximately USD 4.2 million (excluding depreciation, an approximately USD 2.8 million negative impact to segment Adjusted Ebitda) and (iii) approximately USD 3.0 million of expenses, including a USD 2.5 million insurance deductible, incurred in connection with a previously reported fire at the Bloomfield, Nebraska laying facility.

For the six months ended March 31, 2020, net sales were USD 799.0 million, an increase of 0.2 percent, or USD 1.8 million, compared to the prior year period. Segment profit was USD 70.8 million, a decrease of 29.3 percent, or USD 29.3 million, compared to the prior year period. Segment Adjusted Ebitda was USD 130.4 million, a decrease of 14.8 percent, or USD 22.6 million, compared to the prior year period.

Refrigerated Retail

Side dishes and egg, cheese and sausage products.
For the second quarter, net sales were USD 237.6 million, an increase of 8.2 percent, or USD 18.1 million, compared to the prior year period, with volumes increasing 2.4 percent. Side dish net sales increased 23.3 percent, reflecting a meaningful improvement in average net pricing and a 13.1 percent volume increase (primarily driven by increased purchases resulting from consumer pantry loading and increased at-home consumption in reaction to the Covid-19 pandemic). Egg product net sales decreased 18.7 percent driven by losses in branded egg product volume and lower average net selling prices resulting from lower market-based egg prices. Volume information for additional products is disclosed in a table presented later in this release. Segment profit was USD 30.2 million, an increase of 14.0 percent, or USD 3.7 million, compared to the prior year period. Segment Adjusted Ebitda was USD 48.1 million, an increase of 1.7 percent, or USD 0.8 million, compared to the prior year period.

For the six months ended March 31, 2020, net sales were USD 487.5 million, an increase of 1.3 percent, or USD 6.4 million, compared to the prior year period. Segment profit was USD 56.2 million, a decrease of 1.4 percent, or USD 0.8 million, compared to the prior year period. Segment Adjusted Ebitda was USD 91.9 million, a decrease of 3.6 percent, or USD 3.4 million, compared to the prior year period.

BellRing Brands

Ready-to-drink (RTD) protein shakes, other RTD beverages, powders and nutrition bars.
For the second quarter, net sales were USD 257.5 million, an increase of 18.9 percent, or USD 41.0 million, compared to the prior year period. Net sales and volume growth were primarily driven by the Premier Protein brand as net sales increased 25.8 percent, with volumes increasing 27.1 percent. Premier Protein benefitted primarily from increased purchases resulting from consumer pantry loading in reaction to the Covid-19 pandemic, along with distribution gains for RTD protein shakes and incremental promotional activity .

Segment profit was USD 35.1 million, a decrease of 20.2 percent, or USD 8.9 million, compared to the prior year period, with the decrease driven by USD 9.9 million of higher marketing and consumer advertising expenses and USD 2.5 million of incremental public company costs. Segment profit for the second quarter of 2020 and 2019 included transaction costs of USD 0.3 million and USD 0.1 million, respectively, to effect BellRing’s separation from Post and to support BellRing’s transition into a separate stand-alone publicly-traded entity, which were treated as adjustments for non-GAAP measures. Segment Adjusted Ebitda was USD 43.4 million, a decrease of 13.9 percent, or USD 7.0 million, compared to the prior year period.

For the six months ended March 31, 2020, net sales were USD 501.5 million, an increase of 24.7 percent, or USD 99.2 million, compared to the prior year period. Segment profit was USD 84.4 million, an increase of 6.6 percent, or USD 5.2 million, compared to the prior year period and included USD 4.3 million of incremental public company costs. Segment profit for the six months ended March 31, 2020 and March 31, 2019 included transaction costs of USD 1.8 million and USD 0.1 million, respectively, to effect BellRing’s separation from Post and to support BellRing’s transition into a separate stand-alone publicly-traded entity, which were treated as adjustments for non-GAAP measures. Segment Adjusted Ebitda was USD 102.0 million, an increase of 10.9 percent, or USD 10.0 million, compared to the prior year period.

As of March 31, 2020, BellRing had USD 811.3 million in total principal value of debt and USD 76.7 million in cash and cash equivalents.

For further information, please refer to the BellRing second quarter 2020 earnings release and conference call (the details of which are included later in this release).

Interest, Loss on Extinguishment of Debt, Expense on Swaps and Income Tax

Interest expense, net was USD 94.0 million in the second quarter of 2020, compared to USD 85.5 million in the second quarter of 2019. For the six months ended March 31, 2020, interest expense, net was USD 196.9 million, compared to USD 144.9 million for the six months ended March 31, 2019. Interest expense, net in the second quarter of 2020 included USD 14.3 million attributable to BellRing in connection with the creation of BellRing’s capital structure in the first quarter of 2020. Interest expense, net in the six months ended March 31, 2020 included (i) USD 25.9 million attributable to BellRing and (ii) a loss of USD 7.2 million resulting from the reclassification of losses previously recorded in accumulated other comprehensive loss to interest expense. Interest expense, net in the six months ended March 31, 2019 included a gain of USD 30.5 million resulting from the reclassification of gains previously recorded in accumulated other comprehensive loss to interest expense. The remaining decrease for both periods was driven by repayment of Post’s term loan in the first quarter of fiscal year 2020 which resulted in an interest expense reduction of USD 15.3 million and USD 26.6 million in the three and six months ended March 31, 2020, respectively.

Loss on extinguishment of debt, net of USD 60.0 million was recorded in the second quarter of 2020 in connection with (i) Post’s repayment of USD 1,000.0 million in total principal value of its 5.50 percent senior notes due in March 2025 and USD 122.2 million in total principal value of its 8.00 percent senior notes due in July 2025 and (ii) the amendment and restatement of Post’s credit agreement in March 2020. Loss on extinguishment of debt, net of USD 72.9 million was recorded in the six months ended March 31, 2020 in connection with (i) Post’s repayment of its 5.50 percent senior notes due in March 2025 and 8.00 percent senior notes due in July 2025, (ii) Post’s repayment of the entire principal balance of its term loan in the first quarter of fiscal year 2020, (iii) the assignment of debt to BellRing Brands, LLC related to the creation of BellRing’s capital structure in the first quarter of 2020 and (iv) the amendment and restatement of Post’s credit agreement in March 2020. Loss on extinguishment of debt, net of USD 6.1 million was recorded in the six months ended March 31, 2019 in connection with (i) Post’s repayment of USD 863.0 million in total principal value of its term loan, (ii) the assignment of debt to 8th Avenue related to its separate capitalization and (iii) Post’s open market purchases of USD 60.0 million in total principal value of certain senior notes.

Expense on swaps, net relates to non-cash mark-to-market adjustments and cash settlements on interest rate swaps and was USD 224.6 million in the second quarter of 2020, compared to USD 63.0 million in the second quarter of 2019. For the six months ended March 31, 2020, expense on swaps, net was USD 163.2 million, compared to USD 114.7 million in the six months ended March 31, 2019.

Income tax benefit was USD 47.1 million in the second quarter of 2020, an effective income tax rate of 21.2 percent, compared to USD 11.6 million in the second quarter of 2019, an effective income tax rate of negative 28.0 percent. For the six months ended March 31, 2020, income tax benefit was USD 16.7 million, an effective income tax rate of 21.7 percent, compared to an expense of USD 32.2 million in the six months ended March 31, 2019, an effective income tax rate of 14.5 percent. The effective income tax rate in both of the fiscal year 2019 periods differed significantly from the statutory rate as a result of discrete items occurring in the second quarter of 2019, primarily relating to excess tax benefits for share-based payments.

Share Repurchases

During the second quarter of 2020, Post repurchased 2.0 million shares for USD 206.0 million at an average price of USD 101.75 per share. During the six months ended March 31, 2020, Post repurchased 4.2 million shares for USD 429.1 million at an average price of USD 102.38 per share. At the end of the second quarter of 2020, Post had USD 161.9 million remaining under its share repurchase authorization.

Covid-19 Commentary

Post is closely monitoring the impact of the Covid-19 pandemic and is taking actions to ensure its ability to safeguard the health of its employees, maintain the continuity of its supply chain to serve customers and manage its financial performance and liquidity. On March 23, 2020, Post borrowed USD 500.0 million under its USD 750.0 million revolving credit facility. As of April 30, 2020, Post had approximately USD 1.35 billion in cash and cash equivalents on hand. On May 5, 2020, Post repaid USD 150.0 million of the outstanding principal value on its revolving credit facility.

Post products sold through food, drug, mass, club and online have generally experienced an uplift in sales driven by consumer pantry loading and increased at-home consumption in reaction to the Covid-19 pandemic. Post expects some of the benefit of consumer trial (as consumers try products they may not have been previously purchasing) to convert into an intermediate term improvement in category trends across its retail businesses as household penetration accelerates across many brands. However, there is no guarantee that such increase in sales and/or intermediate term improvement in category trends will continue. Post’s foodservice business has been negatively impacted by lower demand resulting from the impact of the Covid-19 pandemic on various channels, including full service restaurants, quick service restaurants, education and travel and lodging.

Outlook

As a result of uncertainty around the duration, scope and ultimate financial impact of the Covid-19 pandemic, Post management is withdrawing its fiscal year 2020 Adjusted Ebitda and capital expenditures outlook that was previously provided on February 6, 2020.

BellRing Outlook

BellRing management continues to expect its fiscal year 2020 net sales to range between USD 1.00-USD 1.05 billion, Adjusted Ebitda to range between USD 192-USD 202 million and capital expenditures to be approximately USD 4 million.

BellRing provides Adjusted Ebitda guidance only on a non-GAAP basis and does not provide a reconciliation of its forward-looking Adjusted Ebitda non-GAAP guidance measure to the most directly comparable GAAP measure due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, including adjustments that could be made for noncontrolling interest adjustment, separation costs and other charges reflected in BellRing’s reconciliation of historical numbers, the amounts of which, based on historical experience, could be significant. For additional information regarding BellRing’s non-GAAP measures, see the related explanations presented under «Use of Non-GAAP Measures» in BellRing’s second quarter 2020 earnings release. BellRing, as a separate publicly traded company, releases guidance regarding its future performance. These statements are prepared by BellRing’s management, and Post does not accept any responsibility for any such statements.

8th Avenue Standalone Financial Information

Post owns a 60.5 percent common equity interest in 8th Avenue, which is an unconsolidated affiliate that sells private label nut butter, dried fruit and nuts, granola and pasta.
For the second quarter, net sales were USD 233.1 million, an increase of 9.1 percent, or USD 19.4 million, compared to the prior year period. Net loss was USD 7.2 million, a decrease of 71.4 percent, or USD 3.0 million, compared to the prior year period. Adjusted Ebitda was USD 22.3 million, a decrease of 9.3 percent, or USD 2.3 million, compared to the prior year period.

For the six months ended March 31, 2020, net sales were USD 451.5 million, an increase of 5.5 percent, or USD 23.7 million, compared to the prior year period. Net loss was USD 8.1 million, an improvement of 6.9 percent, or USD 0.6 million, compared to the prior year period. Adjusted Ebitda was USD 46.0 million, a decrease of 3.2 percent, or USD 1.5 million, compared to the prior year period.

As of March 31, 2020, 8th Avenue is capitalized with USD 63.9 million of unrestricted cash and cash equivalents, USD 618.4 million of senior secured debt, USD 50.0 million under its revolving credit facility, USD 60.1 million related to a sale leaseback transaction, USD 250.0 million in principal amount of preferred equity and USD 44.9 million of accumulated, but unpaid, preferred dividends.