Post Holdings Downgraded to Strong Sell

Zacks

Zacks Investment Research downgraded Post Holdings Inc. (POST) to a Zacks Rank #5 (Strong Sell) on March 19 after the company announced a soft guidance for certain items for fiscal 2014.

Why the Downgrade?

On Mar 10, this cereal maker revised its guidance for fiscal 2014. Post Holdings now expects fiscal 2014 adjusted EBITDA to be between $300 and $320 million, lower than the previous guidance of $315 million-$340 million provided during the first quarter fiscal 2014 conference call.

The new guidance includes the partial-year expected results of Dakota Growers as well as Golden Boy Foods Ltd. and Dymatize Enterprises, LLC (both acquired in Feb 2014)  but excludes the pending acquisition of PowerBar and Musashi brands from Nestle S.A. (announced in Feb 2014).

The lowered guidance reflects an expected increase in merger and acquisition costs, including increased audit fees for pending or completed acquisitions, due diligence fees on abandoned acquisitions, outside service fees related to IT integrations, and increased employee costs. The company also experienced volume decline in late 2013 and early 2014 at Dakota Growers Pasta Company (acquired in Jan 2014). The company expects the softness in the ready-to-eat (‘RTE’) cereal category to persist in the second quarter of fiscal 2014 and as a result lowered the fiscal guidance.

Management expects to prudently regularize integration costs and additional merger costs over the near term. It expects volume at Dakota Growers to return to historical levels by 2015 as it has a strong pipeline for the near term. Post Holdings expects the RTE cereal category to grow in single digits in 2015. However, the company’s EBITDA will decline in fiscal 2014.

This food company witnessed sharp downward estimate revisions after the announcement of the revised guidance. The Zacks Consensus Estimate declined 18% for fiscal 2014 and 13.9% for fiscal 2015 over the past 7 days.

Other Stocks to Consider

Not all stocks are performing as poorly as Post Holdings. Better-ranked food companies in the consumer staples sector include Diamond Foods Inc. (DMND), Inventure Foods, Inc. (SNAK) and J&J Snack Foods Corp. (JJSF), all of them holding a Zacks Rank #2 (Buy).

Read the Full Research Report on DMND
Read the Full Research Report on POST
Read the Full Research Report on JJSF
Read the Full Research Report on SNAK


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