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Post Holdings' (POST) Q1 Earnings Miss on Cost Woes, Sales Beat

·7 min read

Post Holdings, Inc. POST reported mixed first-quarter fiscal 2022 results, wherein the top line grew year over year and surpassed the Zacks Consensus Estimate. The company witnessed robust sales growth across all segments. Meanwhile, the bottom line declined year over year and missed the consensus mark.

This Zacks Rank #4 (Sell) company’s segments have been witnessing labor shortages, input and freight inflation and other supply-chain disruptions. This led to higher manufacturing costs and hurt sales to some extent. Elevated per unit product costs escalated, while service levels and fill rates remained below normal levels along with lower inventories. These factors are likely to persist in fiscal 2022.

Shares of POST have gained 9.4% in the past three months compared with the industry’s growth of 6.3%.

Zacks Investment Research
Zacks Investment Research

Image Source: Zacks Investment Research

Q1 Details

Adjusted earnings of 29 cents per share declined significantly from 72 cents reported in the prior-year quarter. The bottom line also missed the Zacks Consensus Estimate of 34 cents.

The company registered sales of $1,643.7 million, up 12.7% from $1,458 million reported in the prior-year quarter. The figure exceeded the consensus mark of 1,636 million. The upside can be attributed to strength in Post Consumer Brands, Weetabix, Foodservice, Refrigerated Retail and BellRing.

The top line included $97.8 million in net sales from acquisitions. This includes Private label ready-to-eat (PL RTE) cereal business, Egg Beaters liquid egg brand, Almark Foods business and related assets as well as Peter Pan nut butter brand.

Gross profit amounted to$424 million, down 6.9% from $455.4 reported in the year-ago quarter. Gross margin contracted from 31.2% to 25.8% in the quarter under review due to higher cost of raw material packaging and freight expenses.

The company’s SG&A expenses increased 2.5% year over year to $257.3 million. Meanwhile, SG&A expenses, as a percentage of sales, came in at 15.7%, down from 17.2% reported in the year-ago quarter.

Operating profit of $128.7 million fell 22.6% year over year. Adjusted EBITDA declined 7.5% to $263.1 million from $ 284.4 million in the prior-year quarter.

Segment Details

Post Consumer Brands: Sales in the segment increased 14% year over year to $507.3 million in the quarter under review. Segment sales included $65.5 million generated from the PL RTE Cereal Business and Peter Pan.

Volumes rose 7.7%, including 1,640 basis points (bps) benefits from the aforementioned acquisitions. Excluding the gains from buyouts, volumes fell 8.7% on persistent softness in value and private label cereal products as well as losses from the decision to exit specific low-margin private label business and lapping club promotional activity in the last year period. Segmental profit was $71.3 million, up 1.1% from the prior-year quarter’s levels.

Weetabix: Segmental sales rose 4.5% year over year to $118.6 million. Gains from favorable foreign currency movements of nearly 210 bps aided sales.

Volumes fell 4.4 due to sluggishness in all except new products as well as the lapping of higher purchases in the year-ago quarter amid increased at-home consumption and higher inventory. Segmental profit of $27.2 million decreased 3.2% year over year.

Foodservice: Sales increased 23.7% to $438.6 million in the quarter under review, including benefits of $12.7 million from the Almark acquisitions.

Volumes rose 13.3%, which includes a 150 bps benefit from the Almark buyout. The upside in volumes can be attributed to higher away-from-home egg and potato demand. Egg volumes rose 6.5% (including a 190 bps benefit from Almark) and potato volumes rallied 49.7%. Segmental profit was $15.1 million, up 39.8% year over year.

Refrigerated Retail: Sales in the segment were $273.4 million, up 3.9% from the year-ago quarter’s figures. Segment sales included $19.6 million generated from Egg Beaters and the Almark acquisition.

Volumes moved down 5.1% year over year. Excluding any benefits from Egg Beaters and the Almark buyout, volumes fell 7.3% due to softness in sausage and side dish. Segmental profit declined 31.3% year over year to $13.6 million.

BellRing Brands: Sales amounted to $306.5 million, up 8.5% year over year. Sales in the Premier Protein brand gained from higher average net selling prices stemming from lower promotions and higher price. Sales in the Dymatize brand increased 40.6% year on year and the same for all other products increased 3.2%. Segmental profit of $50.6 million increased 5.9% in the quarter under review.

Post Holdings, Inc. Price, Consensus and EPS Surprise

Post Holdings, Inc. Price, Consensus and EPS Surprise
Post Holdings, Inc. Price, Consensus and EPS Surprise

Post Holdings, Inc. price-consensus-eps-surprise-chart | Post Holdings, Inc. Quote

Financial Details

As of Dec 31, 2021, cash and cash equivalents came in at $1,158 million with long-term debt of $7,429 million and total shareholders’ equity of $2,571.6 million.

Cash provided by operating activities was $106.1 million for the quarter ended Dec 31, 2021. During the fiscal first quarter, Post Holdings repurchased 1.5 million shares for $155 million. This brings the remaining share repurchase availability to $329.7 million.

Business Development

BellRing got back on track in the quarter under review with in-line growth as compared to the pre-pandemic level. However, tough economic challenges including higher labor and freight cost, inflationary pressure and lack of inputs affected BellRing’s supply chain operations. Delays in capacity expansion and lower-than-anticipated production led to drab sales and lower inventories. Elevated cost of raw material, packaging and higher freight expenses dented margins. These headwinds are likely to linger throughout fiscal 2022. That said, management is undertaking pricing actions to overcome these hurdles.

Pandemic Impacts

The company continues to monitor the impact of the COVID-19 pandemic on its operations. Volumes in certain channels and product categories in the foodservice business have almost fully recovered to pre-pandemic levels. In aggregate, overall foodservice volumes are still below pre-pandemic levels. Management expects foodservice business to return to pre-pandemic profitability during fiscal 2023. Volume growth in the Refrigerated Retail business is likely to be constrained till supply chain performance has not returned to normalcy.

Outlook

Post Holdings anticipates fiscal 2022 adjusted EBITDA between $1.16 and $1.20 billion, including BellRing Brands.

For BellRing Brands, the company expects fiscal 2022 net sales in the range of $1.36-$1.41 billion. The projection suggests an increase of up 9-13% year over year. Fiscal 2022 adjusted EBITDA for the segment is expected to be $255-$265 million, calling for 9-13% increase year over year.

Stocks to Consider

Some better-ranked stocks in the Consumer Staples sector are Medifast MED, United Natural Foods UNFI and Compania Cervecerias Unidas CCU.

United Natural Foods distributes natural, organic, specialty, produce, and conventional grocery and non-food products. It currently sports a Zacks Rank #1(Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for UNFI’s current financial-year sales and EPS suggests growth of 4.8% and 7.7%, respectively, from the year-ago period’s reported figures. United Natural Foods has a trailing four-quarter earnings surprise of 35.4%, on average.

Medifast, one of the leading health and wellness companies, currently has a Zacks Rank #2 (Buy). MED has a trailing four-quarter earnings surprise of 17.3%, on average.

The Zacks Consensus Estimate for MED’s current financial-year sales and earnings suggests growth of 63% and 49.3%, respectively, from the year-ago period’s figures.

Compania Cervecerias presently carries a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 29.6%, on average.

The Zacks Consensus Estimate for Compania Cervecerias’ sales and earnings per share for the current financial year suggests growth of 34% and 110.3%, respectively, from the year-ago reported numbers. CCU has an expected long-term earnings growth rate of 15.6%.


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