Post Holdings: ‘We’re beginning to see a future that looks fairly close to the pre-pandemic past’

By Elizabeth Crawford

- Last updated on GMT

Source: Post Holdings
Source: Post Holdings

Related tags Post holdings

Cereal giant Post Holding’s better-than-expected second quarter in which net sales and margins increased significantly reflects higher prices, a near-return to pre-pandemic market performance and an aggressive M&A strategy that expands the company’s reach into new areas.

During the company’ second quarter ending March 31, Post Holdings’ net sales increased 14.9% to $1.61bn, helping to boost gross profits 9.3% to $413m.

The bulk of this lift comes from price increases enacted over the past year, which helped offset a dip in volume in some segments, including Post’s iconic cereal business, CFO Matt Mainer told investment analysts last Friday during the company’s quarterly call.

He explained that Post Consumer Brands saw net sales lift 5% on an average net pricing crease of 11%, but volumes decrease 6% with most of the losses coming branded Honey Bunches of Oats and MOM bags of cereal. Private label cereal, on the other hand, performed well, as did Peter Pan.

Price increases also helped cushion a 11% drop in volume in the company’s refrigerated retail, including a 10% decline in side dish volume so that net sales for the segment fell only 2%, Mainer added.

CEO Rob Vitale predicted the dip in refrigerated and other key segments will be short lived as the company takes action to reverse sagging volume without reverting pricing.

“In terms of the trends in the [refrigerated retail] category, we are leaving two or three years of essentially no advertising because of the supply chain challenges that existed throughout COVID. So, we are just re-engaging advertising and we fully expect the trend to resume to pre-COVID growth rates – and growth rates that even existed well into COVID without advertising once we re-engage, because there are both distribution and velocity opportunities within the side dish brand,”​ he explained.

A return to pre-pandemic market conditions?

Stepping back to look at Post’s performance more broadly, as well as the overall CPG food industry, Vitale was optimistic about the outlook.

“We’re beginning to see a future that looks fairly close to the pre-pandemic past, and that what I would expect to see is mean reversions on volume with likely retention of the pricing that has been taken the last handful of quarters if not years,”​ he said.

This projection has less to do with CPG and more to do with foodservice, however, he added.

“What I would proffer is that some of the trial benefit that we may have hoped would convert has not been sticky, and that … you’re seeing it in the benefit from our perspective in our food service business,”​ which Vitale added has been “underappreciated” and is on course to return to pre-pandemic levels.

More M&A could be on the horizon, but human resources could be limiting factor

Post executives also are optimistic about the role mergers and acquisitions could play in the company’s future despite the challenging economic environment, and are confident that should the right deal present itself funds would be available to execute.

“We are certainly in an interesting times in the capital markets. The increasing cost of debt and the reduction in available credit will likely make M&A a bit more scarce in general. However, we think Post is positioned favorably as a buyer with greater financing flexibility and certainty of closing,”​ Vitale said, adding: “Our pipeline of opportunity seems to reflect this perspective.”

Looking forward the company is open to expanding its new foothold in the pet food segment which came with the acquisition of Rachel Ray Nutrish, Nature’s Recipe and other select pet food brands from JM Smucker Co, which was completed late last month.

Vitale said he sees “a lot of opportunities” to expand in pet food, but that acquisitions in this and other segments must be evaluated through a “lens of both human and financial resources.”

He explained that while he is confident Post can access the capital needed to close beneficial acquisitions, there is a “constraint” currently around the staff necessary to integrate additional businesses.

With that in mind, he said, “we would be a little bit more cautious on full integration right now simply because of the amount of work that is being dedicated to the existing opportunity.”

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