Post Holding's earnings still reeling after AI outbreak

by Keith Nunes
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 Post Eggs
Post's Michael Foods Group continues to recover from the after-effects of the 2015 avian influenza break. 
 

ST. LOUIS — Post Holdings Inc., remains challenged as its Michael Foods Group continues to recover from the after-effects of an outbreak of avian influenza that affected the egg market in 2015. The egg market headwinds overshadowed a positive performance from the company’s Post Consumer Brands business unit, which features the company’s line of ready-to-eat cereals.

Net income in the third quarter ended June 30 totaled $3.3 million, but after a payout of $3.3 million in preferred stock dividends net income attributable to shareholders was breakeven for the period. The results compared negatively to the same period of the previous year when net income totaled $24 million, equal to 34 cents per share on the common stock.

Sales for the quarter rose slightly to $1,246 million compared with $1,211 million for the same period during the previous year.

Sales for the Michael Foods Group fell to $518 million during the quarter from $565 million the previous year. Segment profit rose to $66 million from $48 million the year prior.

Addressing the challenges the Michael Foods Group continues to face, Rob Vitale, Post’s CEO, said flock repopulation following last year’s outbreak of AI is nearly complete.

Rob Vitale
Rob Vitale, CEO of Post  

“Our own farms were operating at full output by the end of the fiscal third quarter,” he said. “Third-party contract farms continue to repopulate and we expect them to reach full production capacity by the end of calendar 2016.”

Yet even as repopulation efforts continue, demand in specific market segments continue to normalize.

“Our volume within the foodservice channel continues to normalize but the food ingredient channel has been slower to normalize,” Vitale said. “Our continued long-term optimism about our egg business is grounded by its leading market in a position in a growth category. We have had a successful year and well-navigated the AI crisis. In the short term, we anticipate declining margins and profit levels from the egg business.”

The Post Consumer Brands business, which includes the company’s ready-to-eat cereal portfolio, saw its sales rise to $435 million from $357 million the previous year. Segment profit also rose to $75 million from $52 million in 2015.

 Post Cereal
Post's primary focus is supporting its four core brands: Honey Bunches of Oats, Pebbles, Great Grains and the Malt-O-Meal branded bags. 
 

“Specific to Post (Consumer Brands), our consumption dollars increased 0.4 percent and pounds declined 0.8 percent for the quarter,” Vitale said. “Our primary focus is on supporting our four core brands; Honey Bunches of Oats, Pebbles, Great Grains, and the Malt-O-Meal branded bags.

“Pebbles and our main Great Grains products continue to see solid consumption growth with pounds growing 7.2 percent for Pebbles and 3.7 percent for these Great Grains products. Malt-O-Meal branded bags had good consumption growth of 5.4 percent. This was driven by base volume consumption growth of 5.6 percent. Overall, consumption base sales for Post Consumer Brands increased 0.9 percent, while higher-promoted prices and less merchandising support reduced incremental consumption.”

Both the company’s Active Nutrition and Private Brands business segments reported flat performances during the quarter. Active Nutrition sales were $156 million compared with $154 million the year prior, and Private Brands sales were $138 million during the quarter compared with $137 million the year prior.

 Peanut Butter
Efforts to improve the performance of Active Nutrition include the introduction of new PowerBar products that feature a clean label, reduced sugar  and new packaging. 
 

Looking ahead, efforts to improve the performance of Active Nutrition include the introduction of new PowerBar products that feature a clean label, reduced sugar and new packaging. The company is also in the process of relaunching its Dymatize business.

“This will be the first packaging update in the brand’s 15-year history,” Vitale said. “The first round will ship this month with additional products targeted to ship throughout the rest of calendar 2016.

“During our fourth quarter, we are investing heavily in marketing support across each of Premier Protein, Power Bar, and Dymatize. This will result in a sequential margin decline for the quarter but well-position the segment for an exciting 2017. We are expecting growth from Active Nutrition in 2017, full-year impact of distribution gains for protein shakes, strong velocities, and the normalization of costs at Dymatize to support our expectations.”

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