Dive Brief:
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First-quarter net sales for Post Holdings were $1.43 billion, a 14.7% increase, from $1.25 billion during the same period a year earlier. Sales in all four of Post's U.S. segments rose during the quarter. Ready-to-eat cereals and granola rose 1.9%, Michael Foods (egg, potato, cheese and pasta products) increased 6.9%, protein shakes and powders jumped 20.9%, and private brands (peanut and other nut butters, dried fruit and nut products) climbed 5.2%.
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Gross profit for the quarter was $451.7 million, an increase of $72.5 million, compared to $379.2 million for the year-ago period. Operating profit rose 115.9% to $164.5 million, while adjusted earnings before interest, taxes, depreciation, and amortization increased 22.4% to $281.6 million.
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Post updated its fiscal 2018 outlook upward for an adjusted EBITDA of $1.22 billion to $1.25 billion, including the Jan. 12 acquisition of Bob Evans Farms. The company increased the expected cost synergies from the Bob Evans acquisition to $35 million to $40 million from $25 million. The company also expects recent tax law changes to reduce cash taxes by approximately $30 million to $35 million.
Dive Insight:
Not everything was rosy in this report, much of it tied to acquisitions which have been a major focus for a company best known for its cereals. Post expects to pay out $30 million during fiscal 2018 to integrate its Weetabix U.K. cereal and Bob Evans acquisitions, which is $5 million more than previously anticipated. The money will go toward severance, retention and third-party consulting expenses, the company said. And first-quarter net sales for Weetabix, which Post bought last year, came in at $99.7 million, down from $112.4 million the previous quarter.
Post also plans between $235 and $245 million in capital expenditures this fiscal year, including Bob Evans-related spending. Of that, $50 million will be spent on converting to cage-free housing at the company's egg layer farm facility in Bloomfield, Nebraska, which was acquired as part of its 2014 Michael Foods' purchase.
Post announced in January it was exploring various options for its private brands business, which includes Golden Boy, a maker of nut butters, dried fruits and trail mixes; Dakota Growers, a pasta manufacturer; and Attune Foods, a manufacturer of non-GMO granolas, cereals and snacks. The fact that its private brands segment continues to do relatively well will presumably play into whatever option the company chooses for its future: sale, IPO, private equity placement or a strategic combination.
While first-quarter sales of Post's well-known cereal brands — Honey Bunches of Oats and Grape-Nuts — slid a bit from the fourth quarter (up 1.9% and 4%, respectively), the trend is still upward. Post recently resurrected its Oreo O's sugary cereal and also introduced Chips Ahoy! and Nutter Butter cereals being exclusively sold online and at Walmart for a limited time. By appealing to nostalgia, indulgence and the snacking trend, Post could see another bump in cereal sales after the current quarter.
Many ready-to-eat cereal companies have reported soggy sales as consumers turn to breakfast bars and other grab-and-go or healthier options instead of taking the time and trouble to have traditional cereal in a bowl with milk. Between 2009 and 2016, U.S. cereal sales fell by 17%. Post has also been smart to put spending behind promoting its Malt-O-Meal cereals — which it acquired in 2015 — through new packaging and supermarket displays that other manufacturers have been quick to copy.
While the company didn't say anything in the earnings report about further acquisitions, it might be best for Post to pause to integrate its latest deals, see what the future holds for its private brands, and focus energy on moving forward with boosting its core products this year. Sometimes a steady course can be the best and most profitable one.