Post Holdings foodservice unit accelerates while retail segments stall in Q3 2021

09-Aug-2021 - Last updated on 09-Aug-2021 at 15:46 GMT

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Photo Credit: Post Holdings

Post Holdings is experiencing a reversal of growth trends across its business, in which its foodservice unit is driving most of the recent sales momentum, compared to one year ago when its retail business was experiencing unprecedented growth.

Q3 2021 net sales were $1.6bn, an increase of 19% (or $253.4 million including $78.5m in net sales from acquisitions made in the past two years) compared to $1.3bn in the prior year period.

While Post’s two major retail segments – Post Consumer Holdings and Refrigerated Retail business –declined by double digits vs. one year ago, Post’s foodservice business has taken off, growing net sales by 80% year on year in Q3, primarily driven by out-of-home demand for its egg and potato products (albeit compared to a very low benchmark from the year prior when much of the food service industry came to a screeching halt).

“Setting aside uncertainty around the Delta variant, we remain extremely encouraged by the progress,” said Post Holdings president and CEO Robert V. Vitale during the company’s Q3 2021 earnings call.

Also experiencing strong double-digit growth for the quarter was the company’s ready-to-drink protein shakes business which includes the Premier Protein brand, which experienced a 68% lift to net sales to $342.6m compared to the prior year.

Consumers premiumize cereal purchases

The Post-branded cereal products performed in line or better than the category, achieving a 12.5% market share of the ready-to-eat cereal category, however, net sales were down 11% in Q3 2021 compared to the same period last year, noted Vitale.

“Post Consumer Brands had a soft volume quarter, largely attributable to what we believe is a temporary consumer shift toward premium purchasing,” said Vitale.

While several brands within Post’s portfolio have benefited from the consumer shift, other areas of the business – such as its recent acquisition of TreeHouse Foods’ private label cereal business for $85m earlier this year – were adversely impacted, said Vitale.

“We saw weakness in our value portfolio, which includes non-branded bags and private label. We believe recent increases in discretionary income have produced a trade-up effect. We expect that to normalize, and we further expect that cost reduction enabled by our recent acquisition of two cereal plants from TreeHouse will provide us further differentiation opportunities in the value segment,” he said.

However, the company’s Pebbles brand continues to be a bright spot for the company, growing 10% year-over-year despite challenging comparables from last year’s retail environment, commented Post Holdings executive vice president and chief financial officer, Jeff A. Zadoks.

Refrigerated retail emerges as most challenge business

The biggest challenge emerging for the company, was in Post’s refrigerated retail business, which includes Bob Evans dinner sides and sausages and the Egg Beaters brand (acquired from Conagra), noted Vitale who expects similar challenges in the fourth quarter of 2021 as well due to ongoing supply chain roadblocks.

“While demand remained strong, most notably on Bob Evans dinner sides and sausage, manufacturing constraints, resulting primarily from labor availability, have reduced internal capacity. While we've expanded our use of external supply chain partners, they, too, face similar challenges with labor and come at a higher cost. The combined manufacturing network was not able to service the full customer demand in Q3 and will further pressure Q4 in the holiday season,” said Vitale.

The company’s Egg Beaters brand is experiencing similar challenges, especially in regards to labor shortages, according to Vitale.

“We had 22 precooked egg lines, including the three we built in Norwalk (Iowa) immediately prior to the pandemic. Currently, we cannot staff more than 17. As a result, we are having to allocate demand to our capacity. As you may imagine, this creates inefficiencies and overall cost absorption,” he added.

Longer-term outlook

Expecting continual challenges to the business for the rest of the 2021 fiscal year, Vitale noted that 2022 will be a transitional period for the company as it deals with the lingering effects of inflation.

“We believe many of these challenges are transitory, and the most likely planning scenario for 2022 is a continuation of elevated price levels and a flattening of the rate of inflation. Regardless of the transitory or permanent nature of some of these items, we are aggressively attacking productivity opportunities,” Vitale added.