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    Post Holdings Inc (POST)

    Q3 2024 Earnings Summary

    Reported on Feb 10, 2025 (After Market Close)
    Pre-Earnings Price$113.71Last close (Aug 2, 2024)
    Post-Earnings Price$113.71Last close (Aug 2, 2024)
    Price Change
    $0.00(0.00%)

    What went well

    • POST's Foodservice segment is seeing strong growth in high-margin pre-cooked egg products, with 15% volume growth, indicating strong performance in value-added eggs. The pre-cooked eggs business grew 15% volumetrically over the quarter, and management expects this long-term trend to continue.
    • POST's pet food business is achieving margin improvements through manufacturing efficiencies and cost reductions, contributing to strong profit performance. Manufacturing performance and cost improvements are the keys for the margin improvement in the pet food business.
    • POST is observing a significant increase in M&A opportunities, which could provide avenues for strategic growth. Management noted that the quantum of opportunities has increased significantly year-over-year and sequentially, though they will remain disciplined with capital allocation.

    What went wrong

    • Refrigerated Retail profitability deterioration due to ineffective trade spend: The company overspent on promotional activities in the Refrigerated Retail segment, particularly for Bob Evans side dishes, without achieving the expected volume lift. They anticipated a lift of over 10% but only realized a 4% increase in volumes, resulting in subsidizing base sales and deteriorated profitability. Management acknowledged the need to recalibrate trade investments.
    • Delayed profitability from the Norwalk plant expansion: The ramp-up of the Norwalk, Iowa pre-cooked egg facility has been slower than anticipated, delaying the expected profitability from this expansion beyond previous communications. This slower ramp-up may impact earnings projections associated with the facility.
    • SG&A expenses growing faster than sales, pressuring margins: Over the last 12 months, SG&A expenses have grown more rapidly than sales, bringing SG&A as a percentage of sales back up to mid-18%. This increase is due to targeted marketing investments and elevated bonuses. If SG&A continues to rise faster than revenue, it could pressure margins and profitability. Management indicated they may need to recalibrate these investments.

    Q&A Summary

    1. M&A Pipeline
      Q: Has the M&A landscape changed since last quarter?
      A: Management notes that the M&A pipeline has accelerated, with increased opportunities from private equity-owned assets and potential corporate portfolio pruning.

    2. Fiscal '25 Outlook
      Q: How are you feeling heading into fiscal '25?
      A: Management expects a more constructive consumer environment and plans to offset volume pressures with positive contributions from the Lancaster facility, which is on track to deliver $25 million in EBITDA for the full year.

    3. SG&A Expenses
      Q: Will SG&A dollars continue rising faster than revenue?
      A: SG&A has increased due to targeted advertising investments and elevated bonuses, but some expenses are expected to reset next year, which may reduce the growth rate of SG&A.

    4. CapEx and Cash Flow
      Q: How should we think about CapEx levels for '25?
      A: CapEx in fiscal '25 is expected to be similar to '24 levels due to multiyear projects like Norwalk and Bloomfield, affecting free cash flow conversion.

    5. Pet Segment Performance
      Q: Has pet promotional spending been effective?
      A: Promotional investments in pet did not yield the expected lifts; volumes were impacted by seasonality and prior pipeline fills, but manufacturing efficiencies have improved margins.

    6. Foodservice EBITDA
      Q: What is the ongoing Foodservice EBITDA run rate?
      A: The run rate is around $105 million, but Q4 will face pressure from avian influenza costs ahead of pricing adjustments.

    7. Refrigerated Retail Promotions
      Q: Why didn't promotional activity lift volumes?
      A: Promotions overshot expectations, subsidizing base sales without sufficient lift; management is recalibrating the strategy to improve profitability.

    8. Trade Spending Plans
      Q: Will trade spending increase this year?
      A: Trade spending may see a slight uptick but will be targeted and not reactive, focusing primarily on potatoes and side dishes.

    9. Capacity Expansion Timing
      Q: When will Norwalk capacity come online?
      A: The Norwalk expansion will come online in fiscal '26, with a ramp-up period that could extend up to 12 months.

    10. Cereal Category Dynamics
      Q: How is cereal performing amid consumer pressures?
      A: Private label cereals outperformed branded cereals in the quarter; volume declines were in line with the category, affected by SKU rationalization in Canada and a pullback in bid business.

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