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Acquisitions Drive Growth and Profit for Post Holdings Inc.

By Travis Hoium - Feb 5, 2016 at 1:23PM

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Declining organic sales at the packaged-goods food company in its fiscal first quarter were more than offset by the performance of its recent acquisitions.

There isn't a lot of organic growth in the food business these days, but Post Holdings (POST 2.45%) has been able to reduce its costs, which allowed it to regain profitability in the fiscal first quarter, according to results reported Friday morning. Better yet, management is expecting operating conditions in 2016 to be even better than expected. Here's what you need to know.

Post Holdings results: The raw numbers

 Metric

Q1 2016 Actuals 

Q1 2015 Actuals

Growth (YOY)

Sales

$1.25 billion

$1.07 billion

16.3%

Net Income

$10.5 million

($101.6 million)

n/a

Earnings Per Share

$0.15

($2.04)

n/a

Source: Company earnings release.

What happened with Post Holdings this quarter?
The theme of the quarter was negative organic growth offset by acquisitions and lower costs across the board. The segment numbers paint the picture for Post Holdings.

  • Sales growth of 16.3% was driven by the $1.15 billion acquisition of MOM Brands in 2015. Factoring out that acquisition, sales were down 4.2% on declines from Michael Foods Group and Active Nutrition.
  • Gross profit margin increased from 23.2% a year ago to 29%. This margin expansion drove its improvement in net income.
  • MOM Brands drove Post's consumer brands segment to more than double sales to $411.6 million, although on a comparable basis, net sales declined 0.9%.
  • Michael Foods Group, Post's largest segment, saw sales decline 2.2% to $586.4 million, and on a comparable basis sales declined 6.2%. But segment profit nearly doubled from $42.1 million a year ago to $80.8 million last quarter.
  • Active Nutrition, which includes the Dymatize and PowerBar brands, saw sales decline 11.2% in the quarter to $115.6 million. Once again, despite declining sales, segment profit was $10.5 million versus a $6.3 million loss a year ago.
  • A positive segment was private brands, where sales grew 6.1% to $135.6 million and segment profit nearly doubled to $12.9 million.

What management had to say
The performance of MOM Brands and the recent acquisition of Willamette Egg Farms have helped boost overall revenue growth, and given management the confidence to increase the outlook for fiscal 2016. They now expect adjusted EBITDA for the year to be in the $810 million to $840 million range, up from a previous range of $780 million to $820 million.

There is also a new share repurchase plan of $300 million in place over the next two years. At Thursday's closing price, that would amount to nearly 10% of the total shares outstanding.

Looking forward
In 2016, the keys for Post Holdings will be maintaining margins and slowing the pace of comparable sales declines. Near term, cost reductions have effectively increased margins and returned the company to profitability. It's that bottom-line improvement that has investors buying shares on Friday, and continued expansion will be key to the stock's performance in 2016.

Long term, it will be key for Post to generate organic growth. Acquisitions can be valuable, but they can be a costly way to acquire growth if a company's core business is in decline. Keep an eye on growth as the year goes on, because that's what will generate real long-term value for shareholders.

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