Q1 2024 Post Holdings Inc Earnings Call
Operator: Good day, and thank you for standing by. Welcome to the Q1 2024 Post Holdings Earnings Conference Call. At this time, all participants are in a listen-only mode.
Good day and thank you for standing by welcome to the Q1 2020 for post Holdings earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during this session.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised.
You will need to press star one one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again.
Operator: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today. Daniel O'Rourke, Investor Relations for POST. Please go ahead. Good morning.
Please be advised that today's conference is being recorded.
I'd now like to hand, the conference over to your speaker today.
Daniel O'rourke Investor Relations for post. Please go ahead.
Good morning, and thank you for joining us today for post first quarter fiscal 2024 earnings call.
Daniel O'Rourke: Thank you for joining us today for POST's first quarter fiscal 2024 earnings call. I'm joined this morning by Rob Vitale, our President and CEO, Jeff Zadoks, our COO, and Matt Maynor, our CFO and Treasurer. Rob, Jeff, and Matt will make prepared remarks, and afterwards, they'll answer your questions.
I'm joined this morning by Rob Vitale, our President and CEO, Jeff Statics are C O O and Matt Mainer, our CFO and treasurer.
Robin and Jeff and Matt will make prepared remarks, and afterwards, we'll answer your questions.
Daniel O'Rourke: The press release that supports these remarks is posted on both the investors and the SEC filings sections of our website, and is also available on the SEC's website. As a reminder, this call is being recorded, and an audio replay will be available on our website at postholdings.com. 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.
The press release that supports these remarks is posted on both the investors and the SEC filings sections of our website and is also available on the Sec's website.
A reminder, this call is being recorded and an audio replay will be available on our website at post holdings dotcom.
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.
Daniel O'Rourke: 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.
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.
Robert V. Vitale: Thank you, Daniel, and good morning. As Daniel mentioned, we're dividing the call a little bit differently this morning. I will make some opening comments about the state of the business. Jeff will provide a more detailed overview of the segment performance, and then we will provide a customary overview of the financial results.
You Danielle and good morning.
As Daniel mentioned, we're dividing the call a little bit differently. This morning, I will make some opening comments about the state of the business, Jeff will provide more detail overview of the segment performance.
Matt will provide his customary overview of the financial results.
Robert V. Vitale: The business is off to a tremendous start to Fiscal 24 with an exceptional first quarter, vastly improved manufacturing performance, and Discipline in Pricing and Cost Management enabled us to continue the momentum we built through the back half of Fiscal 23. Our business continues to benefit from diversification in product, channel, and price. As a result, our volume story is a bit more of a mixed bag.
Business is off to a tremendous start to fiscal 'twenty four with an exceptional first quarter.
Improved manufacturing performance and.
Disappointing pricing and cost management enabled us to continue the momentum we built through the back half of fiscal 'twenty three.
Business continues to benefit from diversification and product channel and price point.
As a result.
Our volume story is a bit more of a mixed bag, we saw volume decreases across our branded retail businesses, but foodservice remained resilient our value offering benefited from consumer trade down and we saw encouraging stabilization of our refrigerated retail side business.
Robert V. Vitale: We saw volume decreases across our branded retail business, but food service remained resilient, our value offering benefited from consumer trade-down, and we saw encouraging stabilization of our refrigerated retail side. Both the grocery and pet division of our consumer brands platform performed well. We continue to be extremely pleased with our investment in the PET category.
Both the grocery and pet division of our consumer brands platform performed well.
We continue to be extremely pleased with our investment in the pet category.
We expect it to see expanded margins. However, we have been we have seen decent volume growth. Despite a slow build and the incremental investment we will still incur some.
Robert V. Vitale: The Bulletproof Executive 2013, www.postholdingsinc.com. We will still incur some incremental costs, but our confidence is growing with respect to our ability to sustain higher volumes and higher margins than our underlying case, www.postholdingsinc.com. Our food service business continues to thrive and shows promise in terms of increasing its stabilized run rate. Refrigerator retail has dramatically improved the supply chain, and Weetabix continues to perform well in Suffice to say, each business contributed to exceeding expectations, and each business contributed to our confidence in raising our outlook. Jeff will go into greater detail in his comments. From a consumer standpoint, while the rate of inflation and interest rates have pulled back, there remains significant cumulative inflation and higher interest rates. Moreover, economically sensitive consumers face reduced benefit support. We continue to see shoppers be more selective with their spend, in an interesting dichotomy. We see that those millennial shoppers prioritize convenience and on-the-go purchases.
Incremental cost, but our confidence is growing with respect to our ability to sustain higher volumes and higher margins in our underwriting case.
Our grocery business is well positioned in value and it's holding share in premium.
Our foodservice business continues to drive mix and shows promise in terms of increasing its stabilized run rate.
Retail has dramatically improved the supply chain and.
Weetabix continues to perform well in a challenging environment suffice.
Suffice to say each business contributed to exceeding expectations in <unk>.
Each business contributes to our confidence in raising our outlook, Jeff will go into greater detail in his comments.
From a consumer standpoint, while the rate of inflation and interest rates have pulled back there remains significant cumulative inflation and higher interest rates.
Moreover, economically sensitive consumers face reduce benefits support.
We continue to see shoppers be more selective with their spend and an interesting dichotomy.
We see those same shoppers prioritize convenience and on the Gulf purchasing.
As far as capital allocation.
Robert V. Vitale: As far as capital allocation in the first quarter, we prioritized M&A over share or debt repurchase, as we spent approximately $250 million on two Tuckin' Apples. Despite funding these transactions with debt, we reduced our net leverage to 4.5 times, with the Smucker Pet Acquisition and Two Tuck-In Transactions. We have integration commitments as a priority. However...
First quarter, we prioritized M&A over share or debt repurchase as we spent approximately $250 million on two tuck in acquisitions.
Despite funding these transactions with debt, we reduced our net leverage to four five times.
With the Smucker pet acquisition and two tuck in transactions.
We have integration commitments as priorities however.
However, the broader capital markets have seen a significant reduction in long term fixed rates.
Robert V. Vitale: The broader capital markets have seen a significant reduction in long-term fixed rates. We monitor this cost closely as it underpins our allocation decisions with respect to share buybacks, debt reduction, or further M&A. This trend of lower rates, in tandem with our strong operating performance and reduced leverage, results in POST having greater optionality than at almost any time in our corporate history. With that, I will now turn the call over to Jeff.
Further M&A.
This trend.
Sure rates in tandem with our strong operating performance and reduce leverage.
<unk> and post having greater optionality than almost any time in our corporate history.
With that I will now turn the call over to Jeff.
Jeff A. Zadoks: Thanks, Rob, and good morning, everyone. Beginning with PCB, both Pet Food and Grocery had a strong quarter. Pet food exceeded our expectations as strong manufacturing performance supported growth in our value brand, and we saw encouraging signs of stabilization in our premium brands. We began making the investments in this business that we spoke about last quarter, but some costs ramped up slower than we expected. For Grocery, the main profit drivers were carryover pricing and strong cost performance, which enabled us to recover some gross margin lost to inflation. U.S. serial category dynamics remain relatively unchanged, with volumes down 5%.
Thanks, Rob and good morning, everyone.
Pet food exceeded our expectations as strong manufacturing performance supported growth in our value brands.
Encouraging signs of stabilization in our premium brands.
We began making the investments in this business that we spoke about last quarter. However, some costs ramped up slower than we expected.
For grocery the main profit drivers were carryover pricing and strong cost performance, which enabled us to recover some gross margin loss of inflation.
U S cereal category dynamics remained relatively unchanged with volumes down 5%.
Jeff A. Zadoks: Although the rate of category volume decline moderated late in the quarter, our expectation remains that the category will return to its pre-pandemic volume trends as we lap the pullback in SNAP benefits in March. From a dollar share perspective, we were pleased to hold share versus the prior year, ending the quarter at 19.1%. From a network and supply chain perspective, we are focused on optimizing our serial manufacturing network. Similarly, for PET, we are working on optimization as we prepare to come off the contract manufacturing agreement with Smuckers and integrate Perfection PET into our network. Shifting to food service, we had a very strong quarter driven by continued volume growth, especially in our higher-margin pre-cooked egg products, and a significant improvement in our service level. We've had no additional avian influenza outbreaks within our egg network beyond the two reported in December.
Although the rate of category volume declined moderated late in the quarter.
Our expectation remains that the category will return to its pre pandemic volume trends as we lap the pullback in snap benefits in March.
From a dollar share perspective, we were pleased to hold share versus prior year ending the quarter at 19, 1%.
From a network and supply chain perspective, we are focused on optimizing our serial manufacturing network.
Similarly for pet we are working on optimization as we prepare to come off the contract manufacturing agreement with smokers and integrate perfection pet into our network.
Shifting to foodservice, we had a very strong quarter driven by continued volume growth, especially in our higher margin precooked egg products and a significant improvement in our service levels.
We've had no additional avian influenza outbreaks within our egg network beyond the two reported in December we.
Jeff A. Zadoks: We remain confident that we can mitigate any cost impact with modest price increases. This will develop over the course of the year and may contribute to some quarter-to-quarter volatility. Lastly, we began selling RTD shades at the Bell Ring in January, and we continue to ramp up production. Turning to Weedabix, manufacturing performance has improved, and UFIT continues to provide a nice source of volume growth to the business. However, the operating environment continued to be challenging.
We remain confident that we can mitigate any cost impact with modest pricing.
This will develop over the course of the year and may contribute to some quarter to quarter volatility.
Lastly, we began selling RTD shakes the bell ring in January and we continue to ramp up production.
Turning to Weetabix manufacturing performance improved and you pit continued to provide a nice source of volume growth to the business.
However, the operating environment continued to be challenging.
Jeff A. Zadoks: The refrigerated retail business entered the fiscal year poised to take advantage of the peak first quarter holiday season with stable manufacturing and improved inventory levels. This enabled us to meet customer demand with less reliance on third-party co-packers. Additionally, the cost performance within our manufacturing facilities was outstanding. The combination of these factors translated to strong profit for performance for the sector. Overall, fiscal year 2024 is also a fast start, although we continue to face the same retail volume challenges as most of our peers. However, our diversified business model continues to thrive as pockets of growth. We are most encouraged by supply chain performance across the company, which is paying significant dividends. With that, I'll turn the call over to...
Our refrigerated retail business entered the fiscal year poised to take advantage of the peak first quarter holiday season, with stable manufacturing and improved inventory levels.
This enabled us to meet customer demand with less reliance on third party co Packers. Additionally, the cost performance within our manufacturing facilities was outstanding.
The combination of these factors translated to strong profit performance for the segment.
Okay.
Overall fiscal year 'twenty 'twenty four is off to a fast start although we continue to face to say the same retail volume challenges as most of our peers. Our diversified business model continues to provide its pockets of growth.
We are most encouraged by supply chain performance across the company, which is paying significant dividends.
With that I'll turn the call over to Matt.
Matt Maynor: Thanks, Jeff, and good morning, everyone. First quarter consolidated net sales were $2 billion, and adjusted EVA dollars were $360 million. Net sales increased 26% driven by our recent acquisitions. However, including these acquisitions, retail volumes decreased, driven by continued declines in U.S. and U.K. cereal.
Thanks, Jeff and good morning, everyone.
First quarter consolidated net sales for 2 billion and adjusted EBITDA was 360 million net sales increased 26% driven by our recent acquisitions. Excluding these acquisitions retail volumes decreased driven by continued declines in the U S and UK cereal on the other hand foodservice volumes continued to increase driven by our higher margin.
Matt Maynor: On the other hand, food service volumes continued to increase, driven by higher-margin products and improved service levels. Across the portfolio, we saw sequential improvement in our supply chain performance and customer order fill rates. However, we still have opportunities, especially in our pet food and wheat-based business. Inflationary pressures persist in areas such as sugar prices and labor costs, partially offset by improved grain and freight costs.
Products and improved service levels.
Across the portfolio, we saw a sequential improvement in our supply chain performance and customer order fill rates. However, we still have opportunities, especially in our pet food in weetabix businesses.
Inflationary pressures persisted in areas, such as sugar prices and labor costs, partially offset by improved green and freight costs.
Matt Maynor: Finally, SD&A costs increased across the business as we continue to make targeted marketing investments in our retail businesses and incurred charges for the scheduled closing of our cereal manufacturing facility in Lancaster, Ohio. Turning to our segments, and starting with Post Consumer Brands, Excluding the benefit of the pet food acquisitions, net sales increased 1%, and volumes decreased 7%. Average net pricing, excluding pet food, increased 8%. We saw volume declines in branded and non-retail cereal and peanut butter.
Finally, SG&A costs increased across the business as we continue to see our targeted marketing investments in our retail businesses and incurred charges for scheduled closing of our single manufacturing facility in Lancaster, Ohio.
Turning to our segments and starting with post consumer brands, excluding the benefit of the pet food acquisitions net sales increased 1% and volumes decreased 7% average net pricing, excluding pet food increased 8%.
We saw volume declines in branded and non retail cereal and peanut butter.
Matt Maynor: Segmented Adulthoody Vidae increased 68% versus prior year as we benefited from the strong contribution of pet food and improved grocery performance. Weedabix Nutsales increased 9% year-over-year, benefiting from lacking a weaker British pound which led to a foreign currency translation tailwind of 590 basis points. On a currency and acquisition-neutral basis, net sales increased 2% attributable to list price increases.
Segment, adjusted EBITDA increased 68% versus prior year as we benefited from strong contribution of pet food and in periods of grocery performance.
Weetabix net sales increased 9% year over year benefited by lapping a weaker British pound, which led to a foreign currency translation tailwind of 590 basis points.
On a currency and acquisition neutral basis, net sales increased 2% attributable to less price increases while volumes decreased 2% driven by a decline in branded products.
Segment, adjusted EBITDA increased 3% versus prior year as increased net pricing and favorable FX were partially offset by lower volumes and increased manufacturing costs.
Matt Maynor: Segment adjusted EVDA increased 3% versus prior years, increased net pricing, and favorable FX were partially offset by lower volumes and increased manufacturing costs. While margins remain compressed, they are in line with our multi-year recovery plan. Food service net sales declined 6%, and volumes increased 4%.
While margins remain compressed they are in line with our multi year recovery plan.
Foodservice net sales declined 6% and volumes increased 4% revenue reflects the elimination of avian influenza pricing premiums and the pass through of lower grain costs.
Volumes reflect strong demand and improved service levels over prior period impacted significantly by avian influenza.
Matt Maynor: Revenue reflects the elimination of avian influenza's pricing premiums and the pass-through of lower grain costs. Volumes reflect strong demand and improved service levels over a prior period impacted significantly by aiding and influencing. Adjusted EBITDA decreased 3%; favorable volume, freight costs, and a mixed share of the pre-cooked eggs were offset by the elimination of the prior year HBAI price premium. Refrigerated retail net sales volumes both decreased 4%, however, side dish volumes were flat in the quarter, with side dish average net selling prices up 6%.
Adjusted EBITDA decreased 3% as favorable volume freight costs and a next excuse me a mix shift to pre good days were offset by the elimination of prior year HPA I price premiums.
Refrigerated retail net sales and volumes both decreased 4%. However side dish volumes are flat in the quarter was <unk> average net selling prices up 6%.
Segment, adjusted EBITDA increased 34% led by improvements in plant cost performance commodities and freight.
Turning to cash flow in the first quarter, we generated $174 million from operations driven by increased profitability in the quarter. Our net leverage decrease a 10th of a turn to four and a half times.
In the quarter, we repurchased 400000 shares at an average price of $84 28 per share. In addition, we purchased approximately $26 million worth of our debt at an average discount of 13%.
Matt Maynor: Segmented Delta-D-Beta revenue increased 34%, led by improvements in plant cost performance, commodities, and freight. Returning to cash flow, in the first quarter, we generated $174 million from operations driven by increased profitability in the quarter. Our net leverage decreased a tenth of a turn to four and a half times. In the quarter, we repurchased 400,000 shares at an average price of $84.28 per share.
Our board approved a new $400 million share repurchase authorization that begins next week.
Capital expenditures in the quarter were approximately $81 million driven by the expansion of our Norwalk, Iowa, Precooked facility and new protein Shake co manufacturing facility.
And then finally, given the strong start to the every raised our guidance significantly within this new guidance range. So when you see the remaining quarters of the year is fairly balanced to each other.
That I will turn the call over to the operator for Q&A. Thanks for joining us today.
Operator: In addition, we purchased approximately $26 million worth of our debt at an average discount of 13%. Additionally, our board approved a new $400 million share repurchase authorization that begins next week. Capital expenditures in the quarter were approximately $81 million, driven by the expansion of our Norwalk, Iowa precooked facility and new protein shake home manufacturing facility. And then, finally, given the strong start to the year, we have raised our guidance significantly. Within this new guidance range, we see the remaining quarters of the year as fairly balanced between each other. With that, I will turn the call over to the operator for Q&A. Thanks for joining us today. Thank you. As a reminder, to ask a question, please press star 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Thank you.
A reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again please.
These standby, while we compile the Q&A roster.
Our first question comes from the line of Andrew Lazar from Barclays.
Good morning, everyone.
Rob just really really great to have you back.
Sure.
My first question is just thinking through what Pat margins looked like in the quarter and sort of where we go from here.
Maybe just back of the envelope, if we put our mid Twenty's EBITDA margin on the legacy PCB business excluding Pat.
The high end of your and the company sort of low to mid Twenty's normalized range suggests about $140 million of EBITDA for PCB ex Pat and that would mean about $50 million EBITDA contribution from Pat.
We're about a 12% EBITDA margins and I know last quarter margins were also in that 12% range, but you would kind of warned it might be a bit transitory due to some benefits in the quarter. I think you had a pipeline fill and you've talked about the need for some incremental investment moving forward.
Andrew Lazar: Please stand by while we compile the Q&A roster. Our first question comes from the line of Andrew Lazar from Barclays. Good morning, everyone.
It sounded to us at least as if that would revert.
Robert V. Vitale: And Rob, just really, really great to have you back. Thank you. My first question is just thinking through what pet margins will look like in the quarter and sort of where we go from here. Maybe just back of the envelope, if we put a mid-20s EBITDA margin on the legacy PCB business excluding pet, and that's kind of the high end of your – the company's sort of low to mid-20s normalized range, suggesting about 140 million of EBITDA for PCBX pet, and that would mean about 50 million EBITDA contributions from pet, or about a 12% EBITDA margin.
The margins any way beginning in the first quarter.
First just wondering if my math is right.
Reasonably accurate and then second I guess, what drove the strong performance in with two quarters.
At this level now under your belt is it fair to assume this sort of margin level moving forward for Pat.
I think your math is more than reasonably accurate.
We can't report.
And what we do for segment purposes.
And the.
As I mentioned in my comments, and both Jeff and Matt reiterated.
We do continue to expect to see required incremental investment, but it is pacing at a slower cadence than we expected and Meanwhile, we are seeing some benefits of expanded manufacturing capacity at a time when demand is moving in our favor. So we're seeing better volume in some of our valued products at.
Robert V. Vitale: The last quarter's margins were also in that 12% range, but you would kind of warn it might be a bit transitory due to some benefits in the quarter, again, a pipeline sale, and you talked about the need for some incremental investment moving forward, and so it sounded to us at least as if that would reverse the margins anyway beginning in the first quarter. So I guess first, just wondering if my math is reasonably accurate, and then second, I guess what drove the strong performance in the two quarters at this level now under your belt is a fair assumption to assume this sort of margin level moving forward for Pet. I think your math is more than reasonably accurate. You know, we can't report beyond what we do for segment purposes, and the, you know, as I mentioned in my comments, and both Jeff and Matt reiterated.
At the same time, we're putting some incremental investment into relaunching our premium brands.
So the margin structure, you articulated just reasonable but should see some pressure on a percentage basis, while we seek to grow the dollars by growing volumes.
Thank you and then I guess second a number of food companies have talked about.
Consumer stretching their food budget at home, but also having not seen any real benefit at least yet from the shift from away from home to at home eating.
I guess with your sort of foot in both worlds is that consistent with what youre seeing to it sounds like it is and I guess, if so why do you think that's the case. Thanks so much.
Robert V. Vitale: We do continue to expect to see required incremental investment, but it is pacing at a slower rate than we expected. Meanwhile, we're seeing some benefits of expanded manufacturing capacity at a time when demand is moving in our favor. We're seeing better volume in some of our value products. At the same time, we're putting some incremental investment into relaunching our premium brands. The structure you articulated is reasonable but should see some pressure on a percentage basis while we... grow the dollars by growing volume. Great, thank you. And then, I can second what a number of food companies have talked about, you know, consumers trusting their food budgets at home but also having not seen any real benefit, at least yet, from the shift from away from home to at home eating. I guess with your sort of foot in both worlds, is that consistent with what you're seeing, too? It sounds like it is. And I guess, if so, why do you think that's the case?
If I could give you an emoji the.
A shoulder shrug, we're not quite sure remote you would be what I would use.
Alright.
<unk>.
I think you referenced price piece was interesting in terms of I think.
Consumers are still trying to find that historical reference price and.
And behaviour until a.
Gain some.
Familiarity with the new pricing environment at the same time in terms of our away from home business.
We see breakfast, which I think behaves a little bit differently than some of the other day parts and we're continuing to see some pretty good strength in that day part even as some of the away from home business in other day parts may start to soften so it's still a bit.
Bit of a.
Head scratch here in terms of the total volume story, Jeff mentioned snap, we think snap is a big component of it may be student loan resumption that are a component of it but there's a lot of unknowns still out there yeah got it. Thanks, so much appreciate it.
Robert V. Vitale: Thanks so much. If I could give you an emoji, the, you know, the shoulders drawn, we're not quite sure an emoji would be what I would use, but the, I think your reference price, http://www.postholdingsinc.com, are change invaders until they gain some. The Bulletproof Executive 2013, at the same time, in terms of our away from home. You know, we do breakfast, which I think behaves a little bit differently than some of the other day parts. www.postholdingsinc.com. This is a bit of a head scratcher in terms of the total volume story. We think SNAP is a big component of it, maybe student loans. www.postholdingsinc.com. Thank you. One moment for our next question. www.postholdingsinc.com. Our next question comes from the line of John Baumgartner from Mizuho Securities. Good morning.
Thank you.
One moment for our next question.
Our next question comes from the line of John Baumgartner from Mizuho Securities.
Good morning, Thanks for the question and Rob really great to hear from you welcome back.
Yes.
I guess first off coming back to pet food in your initial underwriting case, you weren't really assuming materials sales growth, but looking at the premium segment struggled subsequent to the acquisition in your opening comments today about volume growth in your brands.
I'm wondering to what extent you might now be reevaluating that underwriting case, maybe stronger revenue opportunities going forward and maybe your first thought given the value propositions for nutrition and recipe.
Well I think to be fair, we didn't underwrite growth, but we did expect with the changing economic environment there to be some opportunities in the value segment.
John Baumgartner: Thanks for the question. And Rob, it's really great to hear from you. Welcome back. I guess, first off, coming back to pet food, in your initial underwriting case, you weren't really assuming material sales growth, but looking at the premium segment struggles subsequent to the acquisition, and your opening comments today about volume growth in your brand, I'm wondering to what extent you might now be reevaluating that underwriting case, for maybe stronger revenue opportunities going forward than you first thought, given the value propositions for Nutrish and Recipe Well, I think to be fair... We didn't underwrite growth, but we did expect, with this changing economic environment, there to be some opportunities. The Bulletproof Executive 2013, This is a bit of a contrarian view, because all the growth has been in the premium segment at Center of the Valued Commitment. Someone anticipated that that could be it, and it wasn't.
It was a bit of a contrarian position at the time because all the growth had been in the premium segment at the expense of the value segment.
Yes.
<unk> anticipated that that could be at an inflection point.
No.
We continue to be cautious on growth just because constitutionally we tend to be cautious on growth and we focus on margin and costs and will continue to do so but we do think that there are some opportunities.
To expand in some of the value offerings.
There are some capacity constraints, which will inhibit some of that those constraints can be relieved over time and if the demand equation continues to move in favor of value we will do so.
But we'll do so somewhat cautiously so it's not terribly different than our underwriting case.
But our underwriting case contained a considerable amount of caution.
Okay and on Weetabix, some nice sequential large recovery this quarter, but the business is still far below that 30% normalized rate. We saw prior to fiscal 'twenty. Three can you break out where the business stands at this point in terms of the drag on margin mix from private label, and the extent to which either business improvements or execution.
Robert V. Vitale: So, you know, we continue to be cautious on www.postholdingsinc.com Be Cautious on Growth and Focus on Margin and Cost, but we do think that there is some opportunity...
Jeff A. Zadoks: , https://www.postholdingsinc.com, Some of that, those constraints can be relieved over time. Demand, www.postholdingsinc.com, So it's not terribly different than our underwriting. The Bulletproof Executive 2013, Okay. And on Weedabix, a nice sequential margin recovery this quarter, but the business is still far below that 30% normalized rate you saw prior to fiscal 23. Can you break out where the business stands at this point in terms of the drag on margin mix from private label and the extent to which either business improvements or execution can sort of restore more profit in that segment going forward? So, John, we were certainly encouraged by the performance in the first quarter. We think there's going to be choppiness along the way in terms of the margin recovery, but ultimately, the expectation is that we can return, if not fully to Bright, very close to Bright.
Restore more profit in that segment going forward.
So John we were we were certainly encouraged by the performance in the first quarter.
We think theres going to be Choppiness, along the way in terms of the margin recovery. Ultimately the expectation is we can return if not fully to bright very close to bright, but it is going to be a multiyear process largely driven by cost.
<unk> activities, which you can imagine our multi quarter, sometimes multiyear.
The activities. So what we would expect to see even though there will be sequential perhaps choppiness along the way that the trend line will go from where we are today towards those.
30% below 30 margins over the next couple of fiscal years.
Thanks, Jeff Thanks, Rob.
Jeff A. Zadoks: But it's going to be a multi-year process, largely driven by cost-out activities, which, you can imagine, are multi-quarter, sometimes multi-year. So what we would expect to see, even though there will be sequential, perhaps choppiness along the way, that the trend line will go from where we are today toward those, you know, 30 percent, low-30 percent margins over the next couple of fiscal years. Thanks, Jeff.
Thank you.
One moment for our next question.
Yeah.
Yeah.
Our next question comes from the line of Michael Lavery from Piper Sandler.
Hello.
Thank you good morning and welcome.
Welcome back right around great to have you.
Okay.
Just wood.
Love to.
I understand how much of the margin strengths had any one time benefits versus.
Being more sustainable and I guess, maybe specifically would love to start on.
Operator: Thanks, Rob. Thank you. One moment for our next question, www.postholdingsinc.com. Our next question comes from the line of Michael Lavery from Piper Sandler, www.postholdingsinc.com. Thank you, good morning, and welcome back, Rob. Great to have you. Just would love to understand how much of the margin of strength had any one-time benefits versus being more sustainable.
Refrigerated retail you mentioned about a better share of in house production, but that obviously is a way that you have some flexibility is is that something that looks pretty sticky.
How do we think about the run rate there and that is a piece of it in terms of that.
In house versus outsourced volume.
The first thing to keep in mind is first quarter.
Our fiscal first quarter is the seasonal peak for.
Matt Maynor: And I guess maybe specifically, we'd love to start on refrigerant retail. You mentioned a better share of in-house production, but that obviously is a way that you have some flexibility. Is that something that looks pretty sticky?
That business. So we get a lot of good leverage in our manufacturing costs. So I wouldn't necessarily say that first quarter is something that you should consider from a margin and certainly not from us.
Matt Maynor: How do we think about the runway there and that as a piece of it in terms of the in-house versus outsource volume? The first thing to keep in mind is that our fiscal first quarter is the seasonal peak for that business, so we get a lot of good leverage in our manufacturing costs, so I wouldn't necessarily say that the first quarter is something that you should consider from a margin, and certainly an optional Absolute Dollar Perspective, consider your repayment. But, generally speaking, to your specific question about manufacturing performance. We believe that that portion of it is very important.
Absolute dollar perspective considered a repeat but generally speaking to your specific question about the manufacturing performance.
We believe that.
That portion of it is very sticky now it will ebb and flow with leverage in terms of the volumes that we run through the plants and again first quarter is going to be the the high level high watermark for that but the fundamental cost performance the the efficiencies and the manufacturing.
Footprint that we have for that business, we think is a.
Matt Maynor: Now, it will have been floored with leverage in terms of the volumes that we run through the plan. And again, the first quarter is going to be the high level, the high water mark for that, but the fundamental cost performance, the efficiencies in the manufacturing footprint that we have for that business, we think is... I hesitate to use the word permanently, but we believe we've right-sized and set that up to be successful quarter after quarter. Okay, great. That's helpful. And maybe just specifically on food service, you've seen the sticky, mixed shifts that you raised your runway thinking there to around $95 million. Obviously, you should keep reading that as well.
<unk>.
I hesitate to use the word permanently but we.
We believe we bright sized and Seth.
Set that up to be successful.
Quarter after quarter.
Okay, Great that's helpful and maybe just specifically on foodservice.
<unk> seen the sticky mix shifts that you.
Raised.
Your run rate thinking there to around 95 million obviously.
Leading that as well.
Just to kind of giving that update any kind of revised thoughts on.
How to think about the level there or is this you know obviously, you're just a quarter where it ran ahead of that.
Matt Maynor: I think you just kind of gave that update. Any kind of revised thoughts on how to think about the level there, or is this obviously just a quarter where it ran ahead of that? Well, we're not ready to spike the football on it.
Well, we're not ready to spike.
Spike the football on on.
The run rate being north of that but we certainly have some optimism that that run rate could be north of that $95 million that we commented on last quarter, but we'd like to get a few more quarters under our belt.
We're absolutely encouraged by the mixed shift.
Matt Maynor: The run rate being north of that, but we certainly have some optimism that the run rate could be north of that $95 million that we commented on last quarter, but we would like to get a few more quarters under our belt. We're absolutely encouraged by the mixed shift that we saw through our pre-cook eggs, which helps our margin structure significantly. And then there were some things in the quarter that went against us, and some things that went for us.
That we saw to our pre cooked eggs, which helps our margin structure significantly.
And then there were some things in the quarter that went against us and things that went.
For us.
So it certainly was a strong quarter.
We don't want to.
Yet proclaim victory on a permanent basis, but there is encouraging signs that that may be the case.
Okay, great. Thanks, so much.
Thank you.
One moment for our next question.
Yeah.
Okay.
Matt Maynor: So, it certainly was a strong quarter. We don't want to yet proclaim victory on a permanent basis, but there are encouraging signs that that may be the case. Okay, great. Thanks so much.
Our next question comes from the line of Ken Goldman from Jpmorgan.
Kenneth B. Goldman: Hi, Thank you and Rob welcome back it's great to hear your voice obviously, thank you Ken.
Just curious.
There was a comment made about as we think about the remaining quarters that they are I think the phrase was fairly balanced.
Operator: Thank you. One moment for our next question. Our next question comes from the line of Ken Goldman from J.P. Morgan. Hi, thank you, and Rob, welcome back. It's great to hear your voice, obviously.
I assume this means perhaps wrongly I assume this means in terms of EBITDA dollars just wanted to make sure I was understanding what the term fairly balanced men in that context.
Kenneth B. Goldman: Just curious, you know, there was a comment made about, as we think about the remaining quarter, that they are, I think the phrase was fairly balanced. I assume this means, perhaps wrongly, I assume this means in terms of EBITDA dollars. Just wanted to make sure I was understanding what the term fairly balanced meant in that context.
That's correct.
Great. Thank you and then.
<unk>, the EBITDA beat consensus and a little less than 60 million you raised the midpoint of guidance by <unk>.
$65 billion or so.
With the understanding that consensus is not the same as your internal expectation.
Matt Maynor: Yep, Ken, that's correct. Great, thank you. And then, you know, 1Q, the EBITDA beat consensus by a little less than $60 million. You raised the midpoint of guidance by, you know, $65 million or so. You know, with the understanding that consensus is not the same as your internal expectation, I guess the question is, is it fair to say that 1Q beat your internal expectation by a similar degree, somewhere in that 60-65 range, and that you're, as a result, not assuming the remaining three-quarters are better than you previously anticipated, or am I kind of reading too much into that? No, I think we are gaining some confidence for the balance of the year.
I guess the question is is it fair to say that <unk> beat your internal expectation by a similar degree somewhere in that 60 to 65 range and that you are as a result, not assuming the remaining three quarters are better than you previously anticipated or am I kind of reading too much into that.
No I think we are gaining some confidence in the balance of the year and I think.
You have to put our planning and guidance in the context of.
We acquired the pet assets and I.
I think we closed in April of last year, we've come out of two years, maybe three years of considerable.
Volatility with foodservice, starting with Covid and going into avian influenza.
Matt Maynor: You know, you have to put our planning and guidance in the context of... You know, we acquired the pet assets in, I think we closed in April of last year. We've come out of two years, maybe three years, of considerable volatility with food service, starting with COVID and going into aging information. So, you know, we had, when entering our F24 plan, a fairly considerable range of some uncertainties on margin structure and some... Talked about. As we get further along through the year and gain information and confidence, we're able to get greater precision on where the actual margin structure will land. And I think, as I mentioned in my comments, we're gaining confidence on both food service and PEP. The Bulletproof Executive 2013, Thank you.
Kenneth B. Goldman: We had entering our F. 'twenty four plan a fairly considerable range of some uncertainties on margin structure in some of these we've talked about even this morning. So as we get further along through the year and game information in confidence, we're able to give greater precision to where the actual margin structure will lag.
And and.
I think as I mentioned in my comments, we're gaining confidence on both foodservice and Pat with respect to where that <unk>.
Margin level will land and hence the incremental guidance.
Speaker Change: Thank you.
Thank you one moment for our next question.
Our next question comes from the line of Matt Smith from Stifel.
Hi, Good morning, I wanted to go back to the conversation around the retail environment as consumers start to reset index pricing.
Seen center of store and broadly the entire store volumes continue to remain weak and in decline do you have a view of how you think volumes in your retail business will progress through fiscal 'twenty for either on a branded perspective or your value offerings.
Operator: Thank you. One moment for our next question, www.postholdingsinc.com. Our next question comes from the line of Matt Smith from Schieffel. Hi, good morning.
Matthew Edward Smith: I wanted to go back to the conversation around the retail environment as consumers start to reset index pricing. We've seen Center Store and, broadly, the entire store volume continue to remain weak and in decline. Do you have a view of how you think volumes in your retail business will progress through fiscal 24, either on a branded perspective or your value offering? Well, I think, you know, what we try to do is develop a portfolio that will match up with consumer demands throughout different economic cycles, and we feel very good about our ability to manage volumes because of the different price points we hit across the portfolio. So... You know, as I answered with Andrew, I don't think we have a greater... Christopher Hall with respect to where the actual consumer demand is. What we may have is greater flexibility with respect to where they may go and the ability to pivot into different pricing. www.postholdingsinc.com. Thank you for that, Robin. I also wanted to add that you talked about nearly unprecedented optionality for POST.
Well I think what we tried to do is.
Develop a portfolio that will.
Matchup with consumer demands throughout different economic cycles, and we feel very good about our ability to manage volumes.
Because of the different price points, we heard across the portfolio. So.
As I answered with Andrew I don't think we have a greater crystal ball with respect to where the actual consumer demand is while we may have as greater flexibility with respect to where they may go and the ability to pivot into different price points. So we may.
Maybe a bit less volume sensitive than others.
Thank you for that Robin.
I also wanted to ask you talked about nearly <unk> unprecedented optionality for posed.
One outlet for that Optionality over time has been M&A can you talk about what youre seeing in the funnel and if the lower rate outlook has caused value expectation valuation expectations for sellers to change.
Speaker Change: Well, it's interesting the the discussion around reference price for consumers is not dissimilar from the way business owners think about reference price for selling and.
Robert V. Vitale: One outlook for that optionality over time has been M&A. Can you talk about what you're seeing in the funnel and if the lower rate outlook has caused valuation expectations for sellers to change? Well, you know, it's interesting that the discussion around reference price for consumers is not dissimilar from the way business owners think about reference price for selling. We've talked about this in the past.
We've talked about this in the past.
Win rates.
Move up dramatically there is an adjustment period, where the sellers leave the market because they are.
They've become accustomed to certain multiples those multiples are no longer available so they they sit on the sidelines.
Robert V. Vitale: When rates move up dramatically, there's an adjustment period where the sellers leave the market. Because they've become accustomed to serving multiples, those multiples are no longer available, so they sit on the sidelines.
That occurred but what what is interesting is we've had such a dramatic shift in the opposite direction now lease at the tenure level before this morning. This morning.
Robert V. Vitale: That occurred, but what is interesting is we've had such a dramatic shift in the opposite direction now, level before this morning, uh, spiking up, that we may, we may skip. Go to www.postholdingsinc.com to sign up for our mailing list. www.postholdingsinc.com are both top 10, and of course, we always have a couple. Transformative Operations.
Spiking up a bit.
That we May we may skip the glut of.
Deferred sellers.
We are waiting for are we may go back to sellers expecting a higher multiple because the rates have come down I think we need more time to answer that.
Our pipeline is always pretty active.
Deals that are both tuck in and of course, we always have.
Couple of more transformative opportunities in our pipeline.
Robert V. Vitale: Part 1, But we've got plenty in our place, or on our plate, from an integration perspective that gives us the luxury of simply..., the plan ahead of us and not needing M&A to necessarily drive value. If M&A comes along and makes sense from a multiple and a cost capital perspective, great. But we're certainly not.
But we've got plenty of our plate are on our plate from an integration perspective that gives us the luxury of simply executing.
The plan ahead of us and not meeting M&A to necessarily drive value of having that comes along and it makes sense from a multiple at a cost of capital perspective, great. We'll pursue it but we're certainly not.
Robert V. Vitale: Thanks Rob, I appreciate the call; I'll pass it on. Thank you. One moment for our next question. Our next question comes from Karla Costello from J.P. Morgan. Hi, thank you, www.postholdingsinc.com everywhere. Sure, so in terms of the... We purchased this for any quarter. Those were all 2031 Carol.
Needing it.
Thanks, Rob I appreciate the color I'll pass it on.
Thank you.
One moment for our next question.
Our next question comes from the line of Carla Casella from J P. Morgan.
Hi, Thank you.
Did you say bonds you bought back in the current quarter.
Karla.
For hard to hear could you say that again.
I was wondering if you could give us any color on which bonds you bought back in the corner and then kind of what you think between.
Balancing bank debt versus bonds, if you look to.
Integrate the acquisitions I know it looks like you drew some revolver in the quarter as well.
Matt Maynor: So we were focused on just getting the... The best yield we could get during the quarter. That's correct. We funded the production test transaction with our revolver.
Sure so in terms of the us.
Repurchases during the quarter those were all the 2030 one's Carla.
We are focused on just getting the dive.
The best yield retired that we could.
In terms of during the quarter, that's correct, we funded that perfection pet transaction with our revolver.
Matt Maynor: And then I think obviously we've got our eyes closely on capital markets and where rates are, and we'll look for opportunities we think about the entire complex that we'll see you in a little bit. Okay, and you reported your net leverage at 4.5. Can you give us a sense for what that would be pro forma if you had the opportunity? For more information, visit www.postholdingsinc.com. Thank you.
And then I think obviously, we've got our eye closely on capital markets and where rates are in.
We will look for opportunity as we think about.
The entire complex, but.
We'll see where that takes us.
Okay, and then you reported your net leverage four five can you give a sense for what that would be pro forma if we enter if you had the acquisitions for a full year for all of the acquisition and that is that is like a credit facility calculations. So it does include the pro forma contribution for Pat for the four months, we didn't own the business and for.
Perfection for the 11 months, we didn't own the business. So it is all in.
Perfect. Thank you Sir.
Thank you.
Operator: One moment for our next question. Our next question comes from the line of Bill Chappell from Truist Securities. Thanks, good morning. And Rob, welcome back.
One moment for our next question.
Okay.
Yeah.
Our next question comes from the line of Bill Chapell from <unk> Securities.
Thanks, Good morning, Andrew.
And Rob welcome back MBA ish.
William B. Chappell: I'm a little bit a little concerned just throwing out emojis and quoting the tenure so quickly, but that means you're fully back in this area. Okay, two questions. One, I guess just help us understand kind of U.S. consumer volumes, and even Weed-A-Bitch for that matter. I mean, it's not just you, obviously, it's the whole packaged food industry.
A little concern youre throwing out emojis and quoting the tenure so quickly but that means youre fully back in the chair.
Two questions one.
I guess just help us understand.
Kind of U S consumer volumes and even weetabix for that matter.
What is that just you obviously its a whole kind of packaged food industry. So what do you think changes the volume growth.
Robert V. Vitale: So what do you think will change volume growth to actually growth again as we move through this year? And do you think POST needs to improve advertising, marketing, and promotions to kind of get things going? Do you think you need to, or will it just naturally start to stabilize?
Actually growth again, as we move through this year and do you get there as opposed to need to step up advertising marketing promotions to kind of get things going does the industry need to or will it just naturally.
Start to stabilize.
Robert V. Vitale: I think we're more of the latter camp because part of it is laughter, www.postholdingsinc.com, Uh, and then I think... here on the have had enough time past the fairly rapid run-up in inflation to allow for that psychological resignation to the new price levels. So I don't think it's a... Please see the complete disclaimer at https://sites.google.com or at www.google.com. From our perspective, it's more allowing time to carry. Got it. So you don't see the promotional level stepping up, even from your peers, be it cereal or other packaged goods, in other words.
I think we're more of the latter camp because part of it is lapping.
Snap part of it is lapping student loan resumption. So you've got some exogenous variables that are impacting the volume trends.
And then I think getting the enough time passed the.
Fairly rapid run up in inflation to allow for that psychological resignation to the new price levels.
Don't think it's a major change in behavior from our perspective, it's more allowing time to cure some of it.
Yeah.
Got it so you don't see the promotional level stepping up even from your peers.
It's serial or or other packaged goods categories.
Robert V. Vitale: We're seeing fairly normal, what we would consider pre-pandemic levels of promotion. So there will be pockets of time, as has been the case all through history, that some of our competitors will promote more in certain periods of time, and others, but as a general rule, we're not seeing the promotional landscape being fundamentally different than what it has been historically. That's great. And then just to make sure I understand the process for the test.
We're seeing fairly normal.
Would consider pre pandemic levels of promotion so there will be pockets of time as.
It has been the case all through history that some of our competitors will promote more in certain periods of time than others, but as a general rule, we're not seeing in cereal the promotional landscape being fundamentally different than what it has been historically.
That's great and then does it Bob.
I understand the profit.
Robert V. Vitale: So, is the process, Again, once you beat the quarter and then once you raise the guidance, it's just trying to understand are you thinking the timing of advertising and merchandising and marketing behind these brands a little longer, or is the actual spend maybe not as high as you thought it would need to be to kind of get the growth that you're looking for? Well, we're not sure yet. I think the timing certainly delayed a bit, and the send... could mean anything from lower to higher depending on the results of the spend. We've got the luxury because of the...
So is the thought there.
Again than what you beat the quarter and then what you raised the guidance.
Just trying to understand are you thinking the timing of advertising is just.
In merchandising and marketing behind these brands is a little longer or is the actual spend maybe not as high as you thought it would need to be to kind of get the growth that youre looking for.
Speaker Change: Well, we're not sure yet I think the timing it certainly.
Delayed a bit.
And the spend.
I don't mean to be glib, but could mean anything from lower same to higher depending on the results of this band. So we're we've got the luxury because of the.
Robert V. Vitale: Incremental Volume over our beta to make some strategic decisions about where we want to invest. Part of it is also some manufacturing and sourcing that is actually going on, in the short-term margin diluted because we're changing some contract packaging and contract manufacturing relationships, bringing them in-house, and we're going to have to invest a bit behind that. Ultimately, that will be margin accretive, but it'll take a little bit of time to get there. Great. Thanks so much.
The incremental volume over our base case to make some strategic decisions about where we want to invest.
Part of it is also in some manufacturing and sourcing that is actually going to be.
In the short term margin dilutive.
Because we are changing some contract packaging.
Correct manufacturing relationships, bringing them in house, and we're going to have to invest a bit behind that ultimately that will be margin accretive, but it'll take a little bit of time to get there.
Great. Thanks, so much thank you.
Operator: Thank you. One moment for our next question. Our next question comes from Mark Torrent from Wells Fargo Securities, LLC. Hey, good morning. Thank you for the question. And Rob, welcome back from our team as well.
Thank you one moment for our next question.
Our next question comes from the line of Mark <unk> from Wells Fargo Securities LLC.
Hey, good morning, Thank you for the question and Rob walking back from our team as well.
Yeah.
Mark Torrent: Um, on Shake Manufacturing, the facility came online during the quarter with first shipments of bell rings in January. How is the ramp initially looking, uh, when would you expect to get to that sort of $20 million USD run rate level, is that sort of the target exiting fiscal 24? It is the target exiting fiscal 24, but, you know, I think we've had some startup costs and startup learning curve issues that have pushed us from the full fourth quarter being a run rate to more like the last month or two of the year being the run rate. So we're probably, call it 60 days behind where we expect it to be at this time.
Sheikh manufacturing facility came online during the quarter with first shipments of <unk> in January how is the ramp initially looking when would you expect to get to that sort of $20 million EBITDA run rate level is that sort of the target exiting fiscal 'twenty four.
It is a target exiting fiscal 'twenty four but.
I think we've had some.
Startup costs and start up learning curve issues that push us from the full fourth quarter being a run rate to more like last month or two of the year being the run rate. So we're probably call. It 60 days behind where we expect it to be at this time.
Robert V. Vitale: I think there will be some benefits to this learning curve as we have closer proximity, etc., www.postholdingsinc.com going forward, but it has been a bit slower than we thought. Okay, great. And then on D-FED, a small acquisition, but I guess somewhat meaningful to the lead effects segment, how should we think about the contribution and margin profiles that will attest to this segment? And is this the type of deal that you're looking for more near term? The Decide was very, very small.
I think there will be some benefits to this learning curve as we.
We have closer proximity to.
Some of the issues with tetra and position ourselves ready to expand going forward, but it has been a bit slower than we expected it to be.
Yeah.
Okay, Great and then on Deeside small acquisition, but it got somewhat meaningful to the Weetabix segment, how should we think about the contribution margin profile relative to the segment and is this the type of deal that you are looking for more near term.
The D side was very very small.
Robert V. Vitale: It basically gave us some factory capacity. www.postholdingsinc.com You know, we'll... be essentially margin neutral or profit neutral in 2024, and then contribute a handful of million pounds in 2025. That's very, Okay, great. Thanks again. Thank you. There are no further questions at this time. Thank you for joining us today. You may disconnect.
It basically gave us some factory capacity.
We will be.
Essentially margin neutral or profit neutral in 2024, and then contribute a handful of million pounds in 2025, but very small.
Okay, great. Thanks again.
Yes.
Thank you.
There are no further questions at this time. Thank you for joining US today you may disconnect. Thank.
Thank you.
Okay.
Yeah.
[music].
Okay.
[music].
Okay.
[music].