Post Holdings: Reports Results for Q4 and FY 2016

St. Louis / MO. (pfh) Post Holdings Inc., a consumer packaged goods holding company in the United States, reported results for the fourth quarter and fiscal year ended September 30, 2016. Highlights:

• Fourth Quarter net sales of 1.3 billion USD; operating profit of 108.3 million USD; net loss of (37.0) million USD and Adjusted Ebitda of 219.5 million USD
• Fiscal Year net sales of 5.0 billion USD; operating profit of 545.7 million USD; net loss of (3.3) million USD and Adjusted Ebitda of 933.9 million USD
• Fiscal 2017 Adjusted Ebitda (non-GAAP) guidance range of 910 to 950 million USD

Fourth Quarter Consolidated Operating Results
Net sales were 1’260.8 million USD, a decline of 49.0 million USD, or 3.7 percent, compared to the prior year. On a comparable basis, net sales declined 6.0 percent when compared to the same period in fiscal 2015 primarily resulting from an anticipated decline in sales within the Michael Foods Group segment.

Gross profit was 377.4 million USD or 29.9 percent of net sales, an increase of 44.1 million USD compared to the prior year gross profit of 333.3 million USD or 25.4 percent of net sales. Selling, general and administrative (SG+A) expenses were 231.1 million USD or 18.3 percent of net sales, an increase of 33.9 million USD compared to the prior year SG+A of 197.2 million USD or 15.1 percent of net sales, and include an accrual of a 24.0 million USD provision for potential legal settlements.

Operating profit was 108.3 million USD, an increase of 67.5 million USD, or 165.4 percent, compared to the prior year. Net loss was (37.0) million USD, an improvement of 35.5 million USD, or 49.0 percent, compared to the prior year. The net loss attributable to common shareholders was (40.4) million USD, or (0.58) USD per diluted common share. Adjusted net earnings available to common shareholders were 49.1 million USD, or 0.61 USD per diluted common share.

Adjusted Ebitda was 219.5 million USD, an increase of 26.4 million USD, or 13.7 percent, compared to the prior year.

Fiscal Year 2016 Consolidated Operating Results
Net sales were 5’026.8 million USD, an increase of 378.6 million USD, or 8.1 percent, compared to the prior year. Gross profit was 1’547.4 million USD or 30.8 percent of net sales, an increase of 373.0 million USD compared to the prior year gross profit of 1’174.4 million USD or 25.3 percent of net sales. SG+A expenses were 839.7 million USD or 16.7 percent of net sales, an increase of 105.6 million USD compared to the prior year SG+A of 734.1 million USD or 15.8 percent of net sales, and include an accrual of a 34.0 million USD provision for potential legal settlements.

Operating profit was 545.7 million USD, an increase of 333.0 million USD, or 156.6 percent, compared to the prior year. Net loss was (3.3) million USD, an improvement of 112.0 million USD, or 97.1 percent, compared to the prior year. The net loss attributable to common shareholders was (28.4) million USD, or (0.41) USD per diluted common share. Adjusted net earnings available to common shareholders were 205.8 million USD, or 2.59 USD per diluted common share.

Adjusted Ebitda was 933.9 million USD, an increase of 276.5 million USD, or 42.1 percent, compared to the prior year.

Post Consumer Brands

Post Consumer Brands includes the ready-to-eat (RTE) cereal business.

Net sales were 442.0 million USD for the fourth quarter, relatively flat compared to the reported prior year fourth quarter, with volumes up 0.7 percent. Net sales benefitted from growth in net sales and volume for Malt-O-Meal branded bags and Pebbles, which was offset by lower average net selling prices, anticipated reduced distribution for MOM branded boxes, and declines in net sales and volume for Great Grains.

Segment profit was 77.6 million USD and 65.5 million USD for fourth quarter 2016 and 2015, respectively. Fourth quarter 2016 and 2015 segment profit was negatively impacted by integration expenses of 2.3 million USD and 5.6 million USD, respectively. Segment Adjusted Ebitda was 106.8 million USD and 99.9 million USD for fourth quarter 2016 and 2015, respectively.

For fiscal year 2016, net sales were 1’728.2 million USD, an increase of 467.4 million USD over the reported prior year. Segment profit was 290.4 million USD, compared to 205.5 million USD in the prior year. Fiscal year 2016 and 2015 segment profit was negatively impacted by integration expenses of 19.3 million USD and 8.6 million USD, respectively. Fiscal year 2015 segment profit was negatively impacted by an inventory adjustment of 17.0 million USD resulting from purchase accounting. Segment Adjusted Ebitda was 415.0 million USD, compared to 302.6 million USD in the prior year.

Michael Foods Group

Michael Foods Group includes the egg, potato, cheese and pasta businesses.

Net sales were 522.6 million USD for the fourth quarter, a decline of 11.6 percent, or 68.8 million USD, over the reported prior year fourth quarter. Net sales included 18.1 million USD from the acquisition of Willamette Egg Farms. On a comparable basis, net sales declined 16.1 percent, or 100.5 million USD, over the same period in fiscal 2015. Egg sales, on a comparable basis, declined 20.8 percent as a result of reduced grain-based pricing in the foodservice channel related to continued roll back of the temporary component of avian influenza pricing and reduced market-based pricing in the ingredient and retail shell egg channels. Egg volumes, on a comparable basis, increased 8.2 percent as fourth quarter 2015 egg inventory available for sale was reduced as a result of the impact of avian influenza. Net sales and volume information for potato, cheese and pasta products is disclosed in a table presented later in this release.

Segment profit was 40.6 million USD and 57.9 million USD for fourth quarter 2016 and 2015. Fourth quarter 2016 segment profit included 1.5 million USD from the acquisition of Willamette Egg Farms and was negatively impacted by the accrual of an 18.5 million USD provision for a potential legal settlement. Segment Adjusted Ebitda was 97.5 million USD and 90.0 million USD for fourth quarter 2016 and 2015, respectively.

For fiscal year 2016, net sales were 2’184.7 million USD, a decline of 5.2 percent, or 121.0 million USD, over the reported prior year. Net sales included 88.3 million USD from the acquisition of Willamette Egg Farms. Segment profit was 276.6 million USD, compared to 188.2 million USD in the prior year. Fiscal year 2016 segment profit included 14.6 million USD from the acquisition of Willamette Egg Farms and was negatively impacted by the accrual of a 28.5 million USD provision for a potential legal settlement. Segment Adjusted Ebitda was 446.6 million USD, compared to 321.3 million USD in the prior year.

Active Nutrition

Active Nutrition includes protein shakes, bars and powders and nutritional supplements.

Net sales were 159.0 million USD for the fourth quarter, an increase of 16.7 percent, or 22.8 million USD, over the reported prior year fourth quarter, primarily driven by strong growth for Premier Protein branded products. Segment profit (loss) was 2.7 million USD and (10.9) million USD for fourth quarter 2016 and 2015, respectively. Fourth quarter 2016 segment profit was negatively impacted by heavy in-store promotions, anticipated significantly higher advertising and promotional spend to support future growth, and the accrual of a 5.5 million USD provision for a potential legal settlement. Segment Adjusted Ebitda was 14.4 million USD and (3.8) million USD for fourth quarter 2016 and 2015, respectively. Fourth quarter 2015 segment loss and Adjusted Ebitda were negatively impacted by an inventory write-off of approximately 9.2 million USD related to unsalable Dymatize inventory.

For fiscal year 2016, net sales were 574.7 million USD, an increase of 3.5 percent, or 19.7 million USD, over the reported prior year. Segment profit (loss) was 44.7 million USD, compared to (13.8) million USD in the prior year. Fiscal year 2016 segment profit was negatively impacted by the accrual of a 5.5 million USD provision for a potential legal settlement. Segment Adjusted Ebitda was 75.2 million USD, compared to 20.5 million USD in the prior year.

Private Brands

Private Brands primarily includes peanut and other nut butters, dried fruit and nuts, and granola.

Net sales were 137.2 million USD for the fourth quarter, a decline of 2.2 percent, or 3.1 million USD, over the reported prior year fourth quarter. Peanut and other nut butter and dried fruit and nut sales declined 5.1 percent, with volume declining 1.6 percent. Granola and cereal sales increased 9.1 percent, with volume up 4.3 percent. Segment profit was 10.9 million USD and 13.7 million USD for fourth quarter 2016 and 2015, respectively. Segment Adjusted Ebitda was 17.4 million USD and 21.3 million USD for fourth quarter 2016 and 2015, respectively.

For fiscal year 2016, net sales were 540.4 million USD, an increase of 2.0 percent, or 10.7 million USD, over the reported prior year. Segment profit was 40.5 million USD, compared to 41.5 million USD in the prior year. Segment Adjusted Ebitda was 65.6 million USD, compared to 70.0 million USD in the prior year.

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

Interest expense, net was 74.2 million USD for the fourth quarter compared to 72.6 million USD for the prior year quarter. For the fiscal year ended September 30, 2016, interest expense, net was 306.5 millio USDn, compared to 257.5 million USD for the fiscal year ended September 30, 2015. The increase for the fiscal year was driven by a rise in Post’s debt principal balance outstanding primarily resulting from the May 2015 term loan issuance in connection with financing the MOM Brands acquisition.

Loss on extinguishment of debt of 86.4 million USD and 30.0 million USD was recorded in the fourth quarter of fiscal 2016 and fiscal 2015, respectively. The fiscal 2016 loss resulted from payments made related to Post’s tender offer for its 7.375 percent senior notes and repayment of Post’s term loan in August 2016. The fiscal 2015 loss resulted from repayment of a portion of Post’s term loan in August 2015.

Other expense relates to non-cash mark-to-market adjustments and cash settlements on interest rate swaps and was 13.5 million USD for the fourth quarter of fiscal 2016, compared to 51.0 million USD for the fourth quarter of fiscal 2015, and was 182.9 million USD for fiscal year 2016, compared to 92.5 million USD for fiscal year 2015.

Income tax benefit was (28.8) million USD, or an effective income tax rate of 43.8 percent, in the fourth quarter of fiscal 2016, compared to a benefit of (40.3) million USD and an effective income tax rate of 35.7 percent in the fourth quarter of fiscal 2015. For the fiscal year ended September 30, 2016, income tax benefit was (26.8) million USD, or an effective income tax rate of 89.0 percent, compared to a benefit of (52.0) million USD and an effective income tax rate of 31.1 percent for the fiscal year ended September 30, 2015.

Update on Acquisition

On October 3, 2016, Post completed the acquisition of National Pasteurized Eggs, a producer of pasteurized shell eggs.

Outlook

Post management expects fiscal 2017 Adjusted Ebitda to range between 910 to 950 million USD, with modest favorability to the second half of fiscal 2017. This outlook reflects a significant decline in the Michael Foods Group segment Adjusted Ebitda from fiscal 2016 to fiscal 2017, offset by phasing in of incremental cost reductions within the Post Consumer Brands segment, Active Nutrition growth and cycling approximately 50 million USD related to incremental investments in brand building and above target incentive compensation recorded in fiscal 2016.

Post management expects fiscal 2017 capital expenditures to range between 180 to 200 million USD, including approximately 60 to 70 million USD related to growth activities, of which approximately 25 to 35 million USD is related to the previously announced cage-free housing conversion at the Bloomfield, Nebraska facility. Maintenance capital expenditures for fiscal 2017 are expected to range between 120 to 140 million USD.

The Company 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 mostly 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 non-cash mark-to-market adjustments and cash settlements on interest rate swaps, provision for legal settlement, transaction and integration costs, restructuring and plant closure costs, losses on assets held for sale and other charges reflected in the Company’s reconciliation of historic numbers, the amounts of which, based on historical experience, could be significant.