Q4 2022 Post Holdings Inc Earnings Call
Please stand by your program is about to begin.
Need assistance during your conference today, Please press Star zero.
Good day and welcome to post Holdings fourth quarter 2022 earnings conference call and webcast.
Hosting the call today from post are Rob Vitale.
President and Chief Executive Officer, and Jeff setup.
<unk> financial officer.
Today's call is being recorded and will be available for replay beginning at 12 P. M Eastern time.
The dial in number is 808.
8393742 <unk>.
No pass code is required.
At this time, all participants have been placed in a listen only mode.
It is now my pleasure to turn the floor over to Jennifer Meyer Investor Relations of post holdings for introductions you may begin.
Good morning, and thank you for joining us today proposed fourth quarter fiscal 2022 earnings call with me today are Rob Vitale, our president and CEO and Jeff <unk>, Our CFO , Rob and Jeff will begin with prepared remarks, and afterwards, we'll have a brief question and answer session. The press release that supports these remarks is posted on our web.
In both the investors and the SEC filing section at post Holdings Dot Com. In addition, the release is available on the SEC's website.
Before we continue I would like to remind you that this call will contain forward looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements.
These forward looking statements are current as of the date of this call and management undertakes no obligation to update these statements.
As a reminder, this call is being recorded and an audio replay will be available on our website and finally this call will discuss certain non-GAAP measures for a reconciliation of these non-GAAP measures to the nearest GAAP measure see our press release issued yesterday and posted on our website with that I will turn the call over to Rob.
Thanks, Jennifer and thank you all for joining us before commenting on our results I want to congratulate both Jeff and Matt in connection with the announcement earlier this week.
Jeff is ideal for this role and he has a deep knowledge of each business as well as the trust and respect of each business leader and Matt has been a key architect of many of coast sophisticated financial transactions I look forward to working with them each of them with each of them in their new roles.
Post ended the year in strong fashion.
Incurred by exceptional performance in foodservice, we delivered a quarter with nearly $280 million and adjusted EBITDA in a year with over $960 million and adjusted EBITDA. This represents a respective growth rate for the quarter and year of 32% and 8%.
Moreover, we look forward to delivering EBITDA growth rates above our historical norm through at least 2024.
I would characterize characterize 2020 was haven't been dominated by inflation management and ongoing supply chain challenges, we expect 2023 to be focused on margin restoration.
I will comment more on that shortly.
As I mentioned foodservice had an exceptional quarter.
I'm quite proud of the performance of this team having now entirely recovered from the depths of Covid.
And added to the segment's profitability.
In addition to facing the global pandemic, we have navigated an avian influenza challenge and done so exceptionally well.
For those of you who have been around a while you may recall that this experience tends to make us a more effective competitor and a more profitable company.
That is not to say it comes without risk there is always the risk that we may be impacted.
Our foodservice segment has been quite resilient now through different environments.
We believe we are well positioned for a consumer pullback that we skew to the less sensitive breakfast day part.
To date, we've seen no sign of a pullback from away from home consumption.
Post consumer brands to had a solid quarter.
Brandon consumption dollars grew to 19, 4%.
At the same time, we experienced a bit of a category trade down to value and private label, both of which are profit accretive.
Key trends from the year continued in the quarter, we continue to be disciplined in price realization relative to inflation and we continue to work our way back to pre pandemic levels, but supply chain execution.
Refrigerated retail exited 2022, and a markedly improved manner over last year.
Recall that last year supply chain was inhibited our ability to build inventory for the all critical holiday season.
This year inventories are at a solid level customer fill rates dramatically improves.
Hi, egg prices inhibited volume and profit in this segment, but on balance it has made great progress.
On a local currency basis Weetabix continues it's rock solid performance.
We continue to face headwinds in currency translation, and we expect ongoing pressure on our consumers and our cost structure.
Last night, we provided guidance for 2023.
$990 million to $1 billion $40 million of adjusted EBITDA.
Even at this level of growth, we still have opportunity for earnings acceleration driven primarily by margin recovery.
Over the last three years enterprise wide EBITDA margins have decreased approximately 440 basis points.
Fully half of this decrease is attributable to growth in foodservice and attractive acquisitions that you'll lower EBITDA margins so mix related.
The remaining half is our addressable opportunity.
Attacking this opportunity will be a multi year effort focused on several areas including maintain.
Maintaining pricing discipline visa V input cost inflation.
Stabilized stabilization of supply chain cost and performance.
Better leverage on fixed assets within refrigerated retail.
And improvements in manufacturing asset reliability aimed at minimizing plant downtime.
We do expect to face some temporary margin pressure in the U K as energy prices remain at historically high levels. Nonetheless, this bucket of margin opportunity.
It affords us the confidence to reference above average EBITDA growth over a multi year trajectory.
With.
Respect to cadence, we anticipate a fairly even split of adjusted EBITDA between the first and second half with.
With foodservice favoring the first half and retail channel business is favoring the second.
As you know, we expect to monetize our remaining ownership in building in the next several months.
Net of our Bell ring position, our leverage ratio was five four times.
Positions us permanent.
The market for M&A is interesting the high yield market is choppy and struggling to absorb some high profile credits our August financing left us with a cash rich balance sheet.
Just as an advantaged buyer and a challenging financing environment and we welcome all opportunities.
In addition to M&A, we continue to see additional opportunities in our own securities.
As appropriate we will invest in our bonds or equity our internal operations and the nonorganic growth.
We expect the capital expenditures in 2023 to yield attractive incremental EBITDA competitive with other forms of capital allocation.
You all know in 2021 post sponsored a novel corporate owns back we have until may to identify an attractive partner for a business combination.
While we continue to believe this is an elegant tool for corporate finance, our timing was terrible.
We continue to seek opportunities, but we will certainly not chasing opportunity simply to transact, we're perfectly comfortable acknowledging that some experiments fail.
In closing.
Want to thank everybody for a successful 2022 against a backdrop that bordered on chaotic we've.
We've had over two years of heightened uncertainty and my confidence level is higher than it has been since COVID-19 began with that I will turn the call over to Jeff.
Thanks, Rob and good morning, everyone.
Fourth quarter consolidated net sales were $1 6 billion and adjusted EBITDA was $280 million.
Net sales increased 16, 5% and benefited from pricing actions in each segment and continued volume recovery in our foodservice business.
Supply chain disruptions, each slightly but our per unit product cost remained elevated and our customer order fulfillment rates remained below optimal levels.
Turning to our segments, starting with post consumer brands net sales and volumes increased 13% and 2% respectively.
Cereal average net pricing increased 10, 5% driven by pricing actions, partially offset by unfavorable product mix.
Peter Pan Pebbles, private label cereal and mom bags drove the volume increase.
Clients and honey bunches of boats, partially offset these increases as we lap the change in the timing of the club promotion.
Adjusted EBITDA increased 10% versus prior year as volume growth and our pricing actions outweighed significant cost inflation.
Weetabix net sales decreased 8%.
In local currency, however, sales were up approximately 8%.
A significantly weaker British pound caused a foreign currency translation headwind of approximately 500 basis points.
Net sales benefited from significant list price increases.
And sales from the recently acquired Euclid brand.
These benefits were partially offset by unfavorable mix, reflecting growth in private label products.
Excluding the benefit from use it volumes declined 9% as growth in private label was not enough to offset declines in other products, which were largely driven by supply chain constraints and related shortfalls in order fulfillment.
Segment, adjusted EBITDA was 13% lower than prior year, primarily because of the aforementioned foreign currency translation headwind.
Unfavorable mix also weighed on profitability this quarter.
Our foodservice business saw net sales and volume growth of 37% and 4% respectively.
Revenue growth continued to outpace volume growth as revenue reflects the impact of inflation driven pricing actions.
Effect of our commodity cost pass through pricing model in.
And avian influenza driven pricing actions to offset higher costs to procure <unk> on the spot market.
Segment, adjusted EBITDA grew to $110 million benefiting from improved average net pricing.
Volume growth, which combined mitigated the impact of higher cost to produce.
Refrigerated retail net sales decreased 1% while volumes decreased 15%.
Excluding the divested Willamette egg farms business net sales increased 3% and volumes declined 7%.
Pricing actions drove increases in average net.
Average net pricing across all products.
Dish and sauces bonds were relatively flat while volumes in egg and cheese products declined.
In addition, elevated at cost and limited cage free egg availability from avian influenza hurt both volume and margins.
Overall segment volumes were pressured by changes in promotional timing when compared to the prior year.
Modest elasticity, resulting from inflation driven price increases.
Segment, adjusted EBITDA increased 49% benefiting from pricing actions and favorable product mix. This was partially offset by higher dairy and egg costs.
And higher manufacturing costs.
Turning to cash flow, we had a strong quarter generating $165 million from continuing operations.
<unk> profitability and working capital were the key drivers of this quarter's improved performance.
For the full year cash flow from continuing operations was $384 million with $241 million coming from in the second half of the year as our profitability improved sequentially throughout the year.
Capital expenditures were $88 million in the fourth quarter and totaled $255 million for the year.
As a reminder.
Annual maintenance Capex is approximately $190 million to $200 million.
This year's elevated Capex was primarily driven by construction costs related to our new RTD shape manufacturing facility for Bel Ray.
As you saw in our guidance, we expect continued elevated capital expenditures in FY 2023, as we complete this project and make additional investments in equipment reliability and other profit enhancing projects.
Moving to capital markets transactions.
In the fourth quarter, we issued $575 million in principal value of two 5% convertible senior notes that mature in 2027.
We used a $100 million of these proceeds to repurchase $1 $1 million of our shares at a price of $90 30, <unk> 30 per share.
For the full year, we purchased $4 9 million of our shares.
Subsequent to the end of the quarter, we purchased approximately 200000 shares at an average price of $82 76 per share.
We now have $283 million remaining under our share repurchase authorization.
Our net leverage at the end of the fourth quarter as measured by our credit facility was approximately five six times.
Net leverage decreased six times versus the third quarter, reflecting both growth in adjusted EBITDA and a reduction in our debt, resulting from the debt for equity exchange completed in August .
With that I'd like to turn the call back to the operator to do Q&A.
Thank you Sir at this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.
You may remove yourself from the queue at any time by pressing star two.
Once again that is star one to ask a question.
We'll pause for a moment to allow questions to queue.
And again Thats Star one to ask a question we will take our first question from Andrew Lazar with Barclays.
Great. Thanks, Good morning, everybody Hey, good morning, Andrew.
Maybe to start off Rob.
I think last quarter, you had provided some sort of a preliminary guidance for fiscal 'twenty three EBITDA and I think it was basically annualize the second half of 'twenty two run rate and then obviously clip whatever whatever makes sense from a foreign exchange perspective.
I guess by our math this would get post roughly in line with sort of the high end of its sort of now formal guidance range. So just trying to get a sense, whether there was something that had changed.
Or if this is more just conservatism in the event of kind of unforeseen challenges and such a little bit of conservative.
Conservativism, but also.
The fourth quarter over performed a bit so.
That comment would have been more appropriate given our outlook versus the actuals.
Got it and then I guess that leads me into the next one around the outperformance obviously profitability as you talk about in foodservice certainly came in well ahead of expectations and maybe even it looks like it even far surpassed what post had been delivering pre pandemic. So I'm just trying to get a sense. If there was something discrete in the quarter that provided sort of the outsized benefit or if this is more of a.
Our run rate, we should think about for this business moving forward. Thanks, so much.
As you recall from our prior experiences with these.
Exigencies that can create some disruption.
<unk> and the pricing mechanism and sometimes they work in our favor. So we had some unusual earnings in the quarter and we've tried to reflect that in our guidance is not being repetitive I think that what we're seeing is continued strength.
Strengthening of the core franchise, and we expect the profitability to normalize at higher levels than pre pandemic.
And gives us continued confidence in the growth rate in perpetuity, but not we're not trying to suggest that.
<unk> this quarter.
Quarter is a current run rate for the business.
Alright, thank you so much.
Thank you.
Thank you. Our next question comes from Chris Growe of Stifel.
Hi, good morning, Chris.
I had a question for you around the around the gross margin it really pricing to cost inflation.
The just to understand kind of as you look forward here. It looks like pricing has caught up with cost inflation I know, that's a broad statement, but generally across your business. Your gross margin was up a little bit sequentially does that continue to improve throughout 'twenty. Three as you think about or talked about like this grows this margin recovery phase you're entering is there an expectation that.
Supply chain disruptions get better, but also that the pricing has caught up to the inflation that we should see that manifest itself in a strong gross margin throughout the year.
Yes, obviously, there is some uncertainty around future trajectory of inflation, but as you as you lap the pricing that we still have some catch up to do.
But equally important is we make sure we're running more efficiently with fewer unplanned outages and all the things that we've been dealing with last two years those all flow through gross margins. So we do expect to see gross margin expansion.
'twenty three and we expect it to continue on into 2004.
Okay. That's great. Thank you and then just a quick question for you Weetabix.
This unique business, but an area, where they have seen a little trade down.
To private label and obviously capture some of that which is which is good.
Wanted to get a sense of any areas of your business, where you're seeing that sort of incremental price competition any incremental trade down and maybe just a comment around elasticity do you just naturally build at a higher rate of elasticity going forward and kind of see how it goes I mean, so far less to say he's been been great for your business. If you will very very favorable.
Starting at the end of that in general that condition remains elasticity has continued to be relatively low and I think it's just the reality of inflation being as widespread it is or as it has been so relative choices are remaining relatively the same.
Because inflation is so widespread.
But as it as the absolute price grows we are starting to see some trade down to private label.
North American cereal, the UK is a little bit different because the.
<unk> has been more dramatic and.
Specifically tied to home energy so the trade down there has been a bit more dramatic.
We're not seeing it broadly outside of cereal and I think as I commented in my.
In my prepared remarks.
We don't see the slight assigned yet pulled back and away from home consumption, which is frankly surprised us a little bit.
So right now it still feels like the consumers in a pretty solid state.
Okay. Thank you for that color.
Thank you.
Thank you. Our next question comes from Michael Lavery of Piper Sandler.
Thank you and good morning.
Morning, Michael.
Hugh.
It had called out.
Restoring more normal foodservice margins in <unk>, and obviously, we saw that and they were even a little ahead of what we might've been modeling, but can you give us a sense of how that looks going through 2023.
Is there more upside have you sort of hit the run rates and I guess I'll tack on my follow up now.
Now, which is that the broader level as well you touched on total.
Total company above average EBITDA growth looking ahead and you touched on margin restoration, how much can you get ahead of higher margins as well I know that would be a little bit further out but maybe.
Maybe just at a high.
High level margins and foodservice margins would love some color on both of those.
Yes, so foodservice margins.
I suggested in my remarks.
Tend to normalize at higher levels than prior to an experience.
Like the.
Whether it's COVID-19 or AI or whatever the emergency might be because I think that the.
The businesses, so competitively advantaged in the.
The bio security is so good and the.
Cost structure is so impressive that it really does allow for.
A demonstration of the value of.
Relatively unique proposition that we offer so.
In crisis characters revealed and I think that's what happens.
This with our foodservice business by no means do we expect the margin to remain as elevated as it has been in the last couple of months, but we wouldn't expect it to remain.
Two.
<unk>.
Become institutionalized at a higher level than it had been historically with the rest of the business I'm not ready to say that we will get past margins that we had entering COVID-19 I think.
Broadly margin structures are under pressure as we start to rethink some.
Supply chain and I'm talking about not just postponed very broadly.
So I think our objective is to recover those couple of hundred basis points of margin.
I'm from the things that we can manage and I'm, making a distinction between the fact that foodservice grew and that we've acquired some businesses at lower margin structure is very attractive acquisitions, but lower margin structures. So we're laser focused on.
Getting back to bright and if we see opportunities to expand beyond that obviously, we won't we won't stop there, but that's not where we're targeting as we speak today.
That's great color. Thanks, so much thank you.
Okay.
Thank you. Our next question comes from David Palmer of Evercore ISI.
Thanks, Good morning.
Another one on foodservice.
Obviously impressive EBITDA could you talk about maybe some of the drivers there.
Perhaps as is outsized versus what you think would be a typical quarter and you mentioned that the fourth quarter.
Was something we shouldn't annualize I'm wondering if there is a typical quarter I'm looking at the third quarter that.
<unk> $85 million to $90 million range might if you think that might be more of a typical quarter that we could think of it in terms of annualizing for for fiscal 'twenty three.
Yes.
We specifically give guidance at the enterprise level to allow ourselves.
Room to be wrong at the individual company level and one of the things. We think that we offer investors is the benefit of our portfolio and I think that nothing has demonstrated that more than the last couple of years.
So I think.
I don't want to get into the to the.
Game of giving individual segment guidance I'm going to Dodge that question, a little bit in terms of.
In terms of some of the things that were unusual in the quarter. There were some customers excuse me there were some competitors that had some supply issues that we were able to.
Take advantage of there was some pricing in the marketplace that was a bit unusual given again some of the exigencies.
We performed very well, we're able to react to it to keep our customers as well.
Filled as possible, even though we're not filling at really very attractive rates ourselves.
So I don't I don't want to call. This normal quarter. It was it was a quarter in which we took advantage of opportunities that we had and we did it well, but most importantly, what we are trying to do is continue to service our customers as they believes we can make sure our value proposition is supportive of their business efforts and I think something to recognize about the long term.
Prospects for Michael Foods is Michael Foods in our foodservice segment I, sometimes use those interchangeably.
Our basic selling proposition is that we take labor out of operators and.
And as labor escalates and is up for kind of flavor. It becomes more challenging from even an availability perspective, our selling proposition becomes that much more valuable.
Provides a tailwind to our volumes, which ultimately that drives margins.
And then just a quick one on consumer brands and refrigerated retail do you think that we should see shipments to ship sales.
More or less approximate consumption going forward or do you think maybe even a little bit more than that if if some of these supply chain constraints.
Constraints ease out there and you get some increase in inventory.
Fill rates thanks.
So I mean within plus or minus a couple of percentage points that they should track each other there will be periods of time with.
Retail inventories ebb and flow a bit but in general yes.
I think both companies continue to have supply chains that are not where they need to be and that has cost aspect and that has a inhibition a volume aspect that we need to remedy.
Thank you.
Thank you.
Thank you. Our next question comes from Bill Chappell of <unk> Securities.
Hey, Good morning, guys. This is city on mango offer this is Stephen Lang on for Bill Chappell. Thanks for taking my question sure.
I wanted to kind of touch on labor, we've heard from some of the other players in the food space Theres still kind of experiencing some minor issues at some of their facilities and you kind of mentioned some challenges last quarter is there any color you can kind of provide on how the labor situation is progressing and how things are shaping up for 'twenty three.
What I would tell you as soon as that the quantum of labor has improved a bit.
But what we still face.
The higher than ordinary turnover level.
And if you now look at that having compounded for three years, we have in general less experienced workforce than we had in 2019 and that most experienced workforce has knock on implications in terms of the ethics.
Efficiencies within our factories and within our supply chain. So labor is generally better but there but there are some second order effects that we are all dealing with that we will continue to deal with for some time as we train and retain.
Yes.
Less experienced or less tenured.
<unk>.
A portion of our workforce.
Awesome, Thanks, very much guys. Thank.
Thank you.
Thank you. Our next question comes from Ken Zaslow of Bank of Montreal.
Hey, good morning, guys good morning.
Hey, Jeff as you kind of think about your new role you walk into this role and I know you've been there and so you kind of know.
The thing that you're going to do but can you talk about.
What your strategy is as you walk into his new role what are your priorities.
Where do you think you can affect the most change.
Sure.
The primary goal that I have is to try and seek out opportunities for collaboration between the business units. We've made some strides in that regard over the last couple of years, but I think there's still opportunity to push that ball forward.
We redid the culture of each of our businesses being independent which is very important too.
Two there.
Independent operations, but there are opportunities that we have foregone over these years to better collaborate.
Perhaps improve our cost structure.
Perhaps improve opportunities for.
For the other activities.
That we can.
Hopefully over the long term retail.
<unk> equilibrium that both benefits from our scale.
As well as maintain the independence of the operating companies to maintain their focus on what specifically drives their profitability.
That's it.
Our long term objectives, so it's going to take some time to get some of those improvements, but thats where were going to try and focus.
Okay.
And my last part of the question is what milestones you expect to achieve or is there a.
In order to which that you expect to hit certain divisions or is it just again.
Everything together, but what are your key milestones.
I'll leave it there. Thank you very much to be honest with you we havent established that but thats something we can talk about down the road.
Okay I appreciate it thank you.
Okay.
Thank you we've reached the allotted time allowed for Q&A. This will conclude post holdings fourth quarter 'twenty two earnings conference call and webcast. We thank you for your participation you may disconnect at any time. Thank you.
Okay.
[music].
Okay.
[music].