New products buoy Post’s US cereal business despite COVID-19 related supply, production constraints
Net sales of Post’s North American ready-to-eat cereal increased 0.9% or $3.8m to $445m during the company’s first quarter ending Dec. 31 thanks to a “favorable mix,” and CEO Rob Vitale said he is "cautiously optimistic" about two new category innovations that could deliver ongoing category success in coming quarters.
During the company’s first quarter earnings call with analysts Feb. 5, Vitale explained that Post has “for some time … sought more fundamental cereal category innovation,” which include two recent efforts that he says stand out.
The first is a new line of Premier Protein cereal that Vitale said has launched “with great success at limited distribution,” and which he described as combining “our heritage strength in cereal with our competence in protein, and we believe delivers great tasting cereal with high protein.”
The second, is a line of snacking products that launched last month, which Vitale said leverages Post’s iconic cereal brands into more dayparts beyond breakfast.
These include two flavors of PEBBLES Crisps – fruity and cocoa – that are about the size of potato chips, and two flavors of Honeycomb Big Bites – original and chocolate – which are twice the size of traditional Honeycomb cereal, making them “perfect for dipping, dunking, popping and packing,” according to Post.
The launch of the PEBBLES Crisps comes as the brand marks its 50th anniversary, which also inspired Post to extend the brand into Delight coffee creamers and Duncan Hines baking kits, according to the company.
Vitale also hinted at an “intriguing innovation pipeline” related to Weetabix that the company will introduce “soon.”
Sales of legacy Post branded cereals also increased 9% in aggregate during the quarter, even as private label and food service sales of cereal declined due to ongoing shutdowns and restrictions of offices, schools and other institutions.
Supply chain constraints suppress cereal sales
New and existing cereal products likely did not reach their full potential in the company's first quarter, however, due to high rates of COVID-19 related absenteeism in November and December at the company’s Battle Creek facility, which required Post to temporarily suspend production for one building.
“This resulted in the highly publicized Grape-Nuts shortage,” and also suppressed sales of Honeycomb and peanut butter products, Vitale said.
The company is now back to full production, but it will take “through early spring to restore inventory levels,” resulting in an estimated loss of $10m in revenue and $5.6m in lost profit contribution.
“Longer term, COVID has revealed areas in which we can improve supply chain effectiveness and efficiency,” Vitale added, noting that “the demand surges and the supply pressures are testing our demand planning and production plan. These learnings are constructive and we expect to emerge from COVID with improved processes. While most pronounced at Post consumer Brands, supply chains across the company are learning and improving from the experience.”
As Post balanced the benefits of new product launches with the downward, and less predictable, pull of the pandemic, it saw its overall Consumer Brands segment profit fall 13% to $70.5m in the first quarter.
Nonetheless, executives said the company was on track to meet their expectations for the first half of the fiscal year, with the expectation of a “material improvement in the second half of the fiscal year 2021,” when warmer weather and broader availability of the coronavirus vaccine likely will improve consumer mobility . As such, Post affirmed that it expects fiscal 2021 to reach an adjusted EBITDA in the first half of the year between $520-$550m.