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Ralcorp consolidates three units as profits slump

By Oliver Nieburg+

09-Aug-2012

North American private label firm Ralcorp has announced plans to merge three of its four business units after it suffered a 9% fall in third quarter (Q3) results.

Although Ralcorp’s group sales were up 16% compared to the same quarter last year to $1.1bn, operating profit fell 9% to $105.3m.

Merges three business units

The company, which claims a 6% share of the $100bn private label industry, said that inefficiencies totalling $8.2 million from its Bloomfield Bakers operation were responsible and said it will tie-together three business units to achieve cost savings.

The three business segments: Cereal, Pasta, and Snacks, Sauces & Spreads will be merged into a single private label food company.

Only the second most profitable segment, Frozen Bakery, will remain separate.

The restructuring comes soon after Ralcorp finalised the spin-off of its branded cereal business Post Holdings in February, in which it still holds a 20% stake.

New consolidated private label business

The latest consolidated business, to be headquartered in St. Louis, will be led by Rich Koulouris, currently corporate vice president and president of Ralcorp's snacks, sauces, and spreads. .

Ralcorp plans to close its Kansas City office by the end of the calendar year.

Company president and CEO Kevin Hunt said: “This streamlined structure is intended to enable the new segment to operate effectively and efficiently.”

“We plan to provide more resources where needed, be more responsive to our strategic customers, and easily assimilate new product offerings and acquisitions in the future.”

The new organizational structure is expected to result in savings of between $26 and $31 million in fiscal 2013.

Ralcorp will pay one-off consolidation costs of $17m and $22m that will cover expenses and pay for job cuts, which Hunt called “employee separation”.

The separation will take effect from 1 October this year.

Segment performance

During Q3, Ralcorp’s Pasta segment took the biggest profit hits. Operating profit in this segment fell 30% to $25.5m

Ralcorp, which acquired the pasta business in 2010, said it was hurt by cost inflation of durum wheat. It intends to expand the North American footprint of its Gelit business to foster growth in the segment.

The company’s Cereal business tumbled 36% in operating profit on inefficiencies at its Bloomfield Bakers plants. Cereal volumes also fell 10% due to the exit of an unnamed  co-pack customer in the Bloomfield Bakers business.

Profit in Ralcorp’s largest business segment: Snack, Sauces, and Spreads remained essentially flat at $32.8m, while profits in frozen bakery rose on the strength of Racorp’s Refrigerated Dough acquisition from Sara Lee in August last year.

Hunt said that growth within the nutritional bar category provided a long-term opportunity for Ralcorp.

Commodities outlook

Ralcorp anticipates year-over-year input cost increases of $52 million in the next quarter, as an extremely hot summer and drought has taken its toll on the Corn Belt and resulted in corn price hikes.

However, the company expect input costs to be lower for fiscal 2013 by around 2%.

Ralcorp said it will continue to hedge six to nine months in advance on all key commodities, due to volatility in the grain market.

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