Post Holdings Inc (POST 1.51%) has been adjusting for the new realities of the food business, and there are signs of stabilization in some of its markets. Eggs continue to be volatile, but if nutrition products maintain their level of growth, this sleepy company could become a growth stock once again. Here's what you need to know about Post's fiscal first-quarter 2017 results.
Eggs are a surprising source of volatility for Post Holdings. Image source: Getty Images.
Post Holdings Inc results: The raw numbers
|
Metric |
Q1 2017 |
Q1 2016 |
Year-Over-Year Change |
|---|---|---|---|
|
Net sales |
$1.25 billion |
$1.25 billion |
0.1% |
|
Net income from continuing operations |
$94.2 million |
$10.5 million |
797% |
|
Diluted EPS |
$1.22 |
$0.15 |
713% |
Data source: Post Holdings Inc Q1 2017 earnings release.
What happened with Post Holdings Inc this quarter?
The results above look extremely positive on the surface, but the drivers of net income growth may not be what you think.
- On a comparable basis, which adjusts for acquisitions and divestitures, net sales were down 2.2% in the quarter.
- Post Consumer Brands sales rose 2.2% in the quarter to $420.6 million, despite a 0.5% decline in volume. Segment profit did rise from $62.9 million a year ago to $81.6 million.
- Michael Foods Group continued to be the weakest segment, with revenue down 7.9% to $539.8 million, and it saw a loss of $17.0 million versus a profit of $80.8 million a year ago. The loss was driven by a $74.5 million legal settlement, so the decline wasn't as sharp as it may first appear.
- Active nutrition sales jumped 32.9% to $153.9 million on the back of Premier Protein products. Segment profit rose from $10.5 million a year ago to $24.9 million.
- Private brands had flat sales in the quarter at $135.6 million, and segment profit fell to $7.0 million from $12.9 million a year ago.
- The main reason net income jumped as much as it did was a benefit from non-cash mark-to-market adjustments on interest rate swaps. That led the "other (income) expense" line to be a $144.5 million benefit in the quarter. Without it, operations would have been weaker on the bottom line.
- Post repurchased 1.7 million shares in the quarter at an average price of $76.32 per share.
What management had to say
Slowly but surely, most of Post's business continues to improve, with the big exception of Michael Foods Group. The business has been hit by volatility in the egg market, which continues to be unfavorable to the company.
On the bright side, Active Nutrition continues to grow and is becoming a more significant portion of results each quarter. Long-term, this may become a bigger driver of the bottom line than anything lost by Michael Foods' decline.
Looking forward
Management said 2017 adjusted EBITDA is expected to be between $920 million and $950 million, compared to adjusted EBITDA of $933.9 million in fiscal 2016. There should also be better financial performance in the second half of the year.
The food business isn't going to start growing rapidly, but overall Post appears to be taking solid steps toward better profitability long-term.
