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Shares of Post Holdings Inc Pop on Acquisition-Fueled Results

By Alex Dumortier, CFA - May 8, 2015 at 3:00PM

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Post Holdings Inc blows past analysts' expectations and raises guidance for the full year.

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What's happening: Shares of Post Holdings (POST -0.80%) rose as much as 13% on Friday after the company announced fiscal-second-quarter results that blew past Wall Street's expectations and raised guidance for the full fiscal year.

Why it's happening: Here's how the headline numbers shook out:

 

Actual

Analysts' consensus estimate

Q1 Revenues – BEAT

% Surprise

$1.053 billion

+3%

$1.02 billion

Q1 Earnings-per-share – BEAT

% Surprise

$0.87

+770%

$0.10

 

Guidance

Analysts' consensus estimate

2015 EBITDA*

$585 million-$610 million

$580 million

*Adjusted
Source: Thomson Financial Network, Zacks Investment Research, Post Holdings

The pendulum has swung all the way to the other side: The huge "beat" on earnings-per-share in the March-ended quarter follows a massive miss in the previous quarter (a ($1.15) per-share loss versus a consensus estimate of ($0.15)).

Note also that the new guidance range for full-year EBITDA (earnings before interest, taxes, depreciation and amortization -- a measure of profits) of $585 million to $610 million represents a significant increase from the previous range of $540 million to $580 million. The company cited three factors to explain the revision: "better than expected year-to-date performance, the completion of the acquisition of MOM Brands [~$50 million] and the impact of avian influenza [~ negative $20 million]."

Regarding the last of those factors, Post Holdings said it now estimates that 14% of its egg supply has been affected by avian influenza, compared to its first estimate of 10%. The company, which sells All Whites egg whites, also warned that the development of avian influenza and its impact on the egg market could alter the company's profit expectations "materially."

With that said, the biggest contributor to the progression in results is the addition of acquired businesses -- quarterly revenues rose 140% year-on-year. Furthermore, earlier this week, the company announced it had completed the acquisition of MOM Brands, which manufactures ready-to-eat cereals in the value segment, with resulting cost synergies of $50 million (annual run rate.)

Finally, it's nice to see a business investing for growth. Post Holdings expects to spend $40 million on capital expenditures related to growth projects in the current fiscal year, nearly a third of its total capital expenditures forecast ($125 million to $135 million.) That's a pleasant surprise in a market in which companies appear to prefer spending cash on buying back their own shares.

In a somewhat overheated market, with Post Holdings shares valued at just 9.2 times cash flow, per research firm Morningstar, it doesn't seem all that surprising the stock should "pop" on evidence of growth and the prospects for more of the same.

Alex Dumortier, CFA has no position in any stocks mentioned. The Motley Fool recommends Post Holdings. The Motley Fool owns shares of Post Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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