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Post Holdings Inc. Sales Shoot Higher as Growth Initiatives Start to Show Results

By Travis Hoium – May 7, 2016 at 2:05PM

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The packaged food stalwart saw revenue rise, and its guidance for the full year was very bullish.

Image source: Post Holdings.

It isn't often that a company like Post Holdings Inc. (POST -1.11%), a maker of everyday products like cereal and granola bars, gets investors excited about its growth prospects. But the narrative for Post may have changed when it reported first-quarter 2016 results Thursday and released guidance for the full year. Finally, its industry may be exiting the doldrums its endured for the last five years, and entering a space where profits could conceivably rise again. The stock rose as much as 10% on Friday. Here's what we saw in the quarter.

Post Holdings results: The raw numbers 

 Metric

Q1 2016 Actuals

Q1 2015 Actuals

Growth (YoY)

Sales

$1.27 billion

$1.05 billion

20.7%

Net Income

$1.5 million

$26.3 million

(94.3%)

Adjusted EPS

$0.02

$0.45

(95.6%)

Source: Company earnings report.

What happened with Post Holdings this quarter?
When you dig into the numbers the sales growth and net income drop may not be quite what they appear to be on the surface. But they both show an improving fundamental picture for the food company. Here are a few highlights to keep in mind.

  • Growth was driven by the acquisition of MOM Brands in 2015. Organically, revenue increased 0.9%, which is small, but a notably good result in the food business right now.
  • The bottom line might look like it dropped, but one-time items heavily skewed the numbers last quarter. Adjusted net earnings were actually $69.0 million, or $0.87 per share as margins rose almost across the board.
  • Gross profit increased significantly more than revenue, driving the adjusted earnings increase. Gross profit was up 48.6% to $409.3 million and operating profit more than tripled to $162.5 million. It was an increase in interest and other expenses that led to the GAAP net income reduction.
  • Management also increased 2016 guidance with adjusted EBITDA now expected to be in the $893 million to $913 million range, up from a previous range of $810 million to $840 million.

What management had to say
Management said the strength was spread across the business, with Post consumer brands revenue up 0.8% organically, Michael Foods group up 1.3%, active nutrition up 6.8%, and private brands up 3.8%. Those may not be eye-popping numbers, but growth in any established grocery business is hard to come by these days.

They also said that synergies from the MOM Brands acquisition are expected to save $50 million on an annualized basis by the end of the year, and another $25 million a year by the end of 2018. If that's true, we could see margins expand even further over the next three years.

Looking forward
It's been a long time since the grocery aisle was an exciting place for investors, but Post Holdings appears to have positioned itself well with its recent acquisitions, and is now on a growth trajectory, both on the top and bottom lines.

What's most impressive was the increased guidance. If management can hit that, the stock may not be done rising, despite hitting a 52-week high on Friday.

Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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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