Milling & Baking News - February 13, 2018 - 22

Financial Results

Post c.e.o.: Competitive intensity
remains high in R.-T.-E. cereal
ST. LOUIS - Results in the North
American cereal business of Post Holdings, Inc. were soft in the first quarter
of fiscal 2018, reflecting greater competitive intensity that put pressure on
the company's Honey Bunches of Oats
and Malt-O-Meal bag cereals.
Operating income for the Post Consumer Brands segment totaled $72.9
million in the first quarter ended Dec.
31, 2017, down 12% from $82.9 million in the same period a year ago. Net
sales increased 1.9% to $456 million.
"We expect the balance of the year
to be more favorable from a promotional calendar perspective," Robert
V. Vitale, president and chief executive officer, said during a Feb. 2
conference call with analysts. "However, recall that this year we expect
more impact from commodity inflation, and we are making incremental
brand investments. We also expect
the competitive intensity in cereal
to remain high. This is all reflected
in both our initial 2018 guidance as
well as our updated guidance."
The competitive intensity in the
ready-to-eat cereal market includes
the entry of General Mills, Inc. into
bagged cereal. Asked to quantify the
impact of General Mills' entrance into
bagged cereal, Mr. Vitale said: "A competitor as effective as General Mills
entering the bag category matters to
us and has an impact. I think long
term, the impact is kind of mixed. It

POST CONSUMER BRANDS, L.L.C.

certainly validates the bag. I think I've
commented on this in the past that it
validates the bag as a packaging format that historically has been viewed
as more of a value with less obvious
quality. But when you see some of
these box brands enter the bag category, we think there will be some
positive carryover into the aggregate
bag section. We frankly think that a
more vigorous innovation pipeline,
some more vigorous advertising and
some more vigorous behavior from
22 / February 13, 2018

Milling & Baking News

the category leaders potentially had
some short-term implications for us.
But long term, it is helpful in creating
excitement in the category, and we're
by no means above riding coattails."
Overall, net income at Post Holdings totaled $291.5 million in the first
quarter, equal to $4.42 per share on
the common stock, up sharply from
$98.4 million, or $1.42 per share, in

positions in value-added eggs and
refrigerated potatoes. The conversion
from fresh to refrigerated potatoes at
food service is the same value proposition that Michael has so successfully
sold in eggs, and we expect that conversion rate to accelerate."
In the company's Active Nutrition
business, operating income fell to
$19.8 million from $24.9 million, while
sales increased to $186 million from
$153.9 million.
Operating income in the company's Private Brands business, which

'There are significant consolidation
opportunities within Private Brands, and we
believe the best structure for pursuing these
opportunities is outside our full ownership.'
- Robert V. Vitale,
Post Holdings, Inc.

the same period a year ago. Net sales
increased 15% to $1,433.1 million
from $1,249.8 million.
Elsewhere in Post's business, the
company's Weetabix segment posted a
profit of $16.8 million in the first quarter on sales of $99.7 million. Although
Weetabix consumption has been in
line with the market, Mr. Vitale said
the first quarter was a weak one for
the U.K. Weetabix business.
"The price realization was unfavorable as we overpromoted," he said.
"Promotions have grown too frequently and diminished their value
in driving incremental sales. We have
chosen to pull back some promotion
and incur some near-term volume loss
in order to reestablish the consumer
proposition of our promotions. Ultimately, just like in the U.S., we need
less frequency and more depth in order to avoid trading dollars between
base and incremental."
Volumes and margins for Michael
Foods have improved, contributing
to sales growth and a return to profitability in the segment. In the first
quarter ended Dec. 31, operating income at Michael Foods totaled $74.9
million, which compared with a loss
of $17 million in the same period a
year ago. Net sales in the quarter
increased 7% to $577.1 million from
$539.8 million.
"We appear to be back on the steady
growth trajectory that preceded avian
influenza," Mr. Vitale said. "We're excited about bringing the Bob Evans
food service business onto the Michael
platform. We now have leadership

comprises nut butter, fruit and nut,
pasta and granola products, increased
47% to $8.4 million from $5.7 million,
while sales increased 5% to $114.3 million from $108.7 million.
During the conference call, Mr. Vitale said Post is exploring a range of
alternative structures for the Private
Brands business, including an initial
public offering, a partnership with a
private equity firm, a sale or a strategic
combination.
"There are significant consolidation
opportunities within Private Brands,
and we believe the best structure for
pursuing these opportunities is outside our full ownership," he explained.
Asked to elaborate on the company's opportunities for its Private
Brands business, Mr. Vitale indicated
there is "a real opportunity" to be a
consolidator in private brands.
"We think category selection is
critical, but the opportunity is meaningful," he said. "I think the other
reality we face is that in order to
pursue that opportunity, we need
to be set up to do frequent, smaller
transactions, whereas Post is now
more oriented toward fewer, larger
transactions. So we think there's
a disconnect between our engagement and the capital allocation and
the opportunities that exist. So we
want to try to structure a company
that allows direct capital access, a
highly engaged team. And we have
a great leader in Jim Dwyer (president and c.e.o. of Private Brands),
who's excited about executing this
opportunity." MBN
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Milling & Baking News - February 13, 2018

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