Post(US:POST)2023-08-04 15:05PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Post Holdings, Inc.'s unaudited condensed consolidated financial statements for the quarter ended June 30, 2023 Condensed Consolidated Statements of Operations Net sales increased for the quarter and nine months, while net earnings decreased due to significant prior-year gains Consolidated Statements of Operations Highlights (in millions, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,859.4 | $1,524.9 | $5,045.6 | $4,272.1 | | Gross Profit | $501.6 | $364.7 | $1,330.3 | $1,074.9 | | Operating Profit | $158.3 | $105.5 | $445.9 | $283.7 | | Net Earnings | $89.6 | $170.2 | $235.6 | $672.7 | | Diluted EPS | $1.38 | $2.72 | $3.82 | $10.82 | Condensed Consolidated Balance Sheets Total assets increased to $11.89 billion driven by acquisitions, with total liabilities and shareholders' equity also rising Balance Sheet Highlights (in millions) | Account | June 30, 2023 | September 30, 2022 | | :--- | :--- | :--- | | Cash and cash equivalents | $208.8 | $586.5 | | Goodwill | $4,649.0 | $4,349.6 | | Other intangible assets, net | $3,272.4 | $2,712.2 | | Total Assets | $11,886.9 | $11,308.0 | | Long-term debt | $6,186.1 | $5,956.6 | | Total Liabilities | $7,927.1 | $7,735.7 | | Total Shareholders' Equity | $3,959.8 | $3,265.7 | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved, while investing activities used more cash due to acquisitions, and financing activities included debt and share transactions Cash Flow Summary (in millions) | Cash Flow Activity | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $480.5 | $218.1 | | Net Cash Used in Investing Activities | $(567.9) | $(133.1) | | Net Cash Used in Financing Activities | $(279.7) | $(635.9) | | Net Decrease in Cash | $(363.3) | $(556.7) | Note 5 — Business Combinations The company acquired Smucker's pet food business for $1.21 billion in cash and stock, contributing $275.3 million to net sales - The company acquired Smucker's pet food business (including brands like Rachael Ray Nutrish) for $1,207.5 million, comprising $700.0 million in cash and $492.3 million in Post common stock63 Preliminary Purchase Price Allocation for Pet Food Acquisition (in millions) | Assets Acquired / Liabilities Assumed | Fair Value | | :--- | :--- | | Inventories | $204.6 | | Property, net | $191.7 | | Other intangible assets, net | $626.0 | | Total identifiable net assets | $1,013.2 | | Goodwill | $194.3 | | Fair value of total consideration transferred | $1,207.5 | - The acquired Pet Food business contributed $275.3 million to net sales in the three and nine months ended June 30, 202364 Note 15 — Long-Term Debt Total long-term debt increased to $6.19 billion, with significant transactions including a new term loan and senior note repurchases Long-Term Debt Composition (in millions) | Debt Instrument | June 30, 2023 | September 30, 2022 | | :--- | :--- | :--- | | 2.50% convertible senior notes | $575.0 | $575.0 | | 4.50% senior notes | $1,129.3 | $1,270.5 | | 4.625% senior notes | $1,452.9 | $1,482.2 | | 5.50% senior notes | $1,235.0 | $1,235.0 | | Fourth Incremental Term Loan | $400.0 | — | | Total Long-term debt (carrying value) | $6,186.1 | $5,956.6 | - On April 26, 2023, the company borrowed $400.0 million via the Fourth Incremental Term Loan to fund the Pet Food acquisition63129 - During the nine months ended June 30, 2023, the company repurchased $141.2 million of its 4.50% senior notes and $29.3 million of its 4.625% senior notes, resulting in a net gain on extinguishment of debt134 Note 19 — Segments The company operates four segments, with Post Consumer Brands leading in sales and Foodservice being the most profitable with significant growth Segment Performance for Nine Months Ended June 30 (in millions) | Segment | Net Sales 2023 | Net Sales 2022 | Segment Profit 2023 | Segment Profit 2022 | | :--- | :--- | :--- | :--- | :--- | | Post Consumer Brands | $2,025.1 | $1,655.1 | $237.8 | $232.6 | | Weetabix | $377.2 | $360.5 | $58.8 | $81.8 | | Foodservice | $1,856.4 | $1,469.5 | $264.9 | $81.0 | | Refrigerated Retail | $786.4 | $787.4 | $57.2 | $41.0 | | Total | $5,045.1 | $4,272.5 | $618.7 | $436.4 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting increased net sales and operating profit driven by the Pet Food acquisition and Foodservice recovery Overview This section provides an overview of business segments, significant transactions, and market trends including supply chain challenges and avian influenza - On May 11, 2023, PHPC announced it would not complete a partnering transaction and would liquidate, resulting in the redemption of all public shares on May 30, 2023, and dissolution in June 2023167169 - The company fully divested its remaining 14.2% interest in BellRing Brands through two debt-for-equity exchanges, completing the final transaction on November 25, 2022172174 - The company continues to face supply chain challenges and significant raw material and packaging inflation, mitigated by pricing actions, cost savings, and hedging, with pressures expected to continue through fiscal 2023178 - Outbreaks of avian influenza in fiscal 2022 and early 2023 impacted the Foodservice and Refrigerated Retail segments, leading to increased costs and supply constraints, mitigated by volume management and pricing actions181 Results of Operations Net sales and operating profit significantly increased for both the quarter and nine-month period, driven by the Pet Food acquisition and Foodservice performance Overall Performance vs. Prior Year | Metric | Three Months Ended June 30, 2023 vs 2022 | Nine Months Ended June 30, 2023 vs 2022 | | :--- | :--- | :--- | | Net Sales | +$334.5M (+22%) | +$773.5M (+18%) | | Operating Profit | +$52.8M (+50%) | +$162.2M (+57%) | | Net Earnings | -$80.6M (-47%) | -$437.1M (-65%) | - Interest expense for the nine months ended June 30, 2023 decreased by $43.2 million (18%) year-over-year, driven by lower average debt balances and increased interest income from investments held in trust before the PHPC dissolution189 Segment Results This section details segment performance, with Post Consumer Brands sales growing, Foodservice profit surging, Weetabix profit declining, and Refrigerated Retail profit improving Post Consumer Brands Performance (Q3 2023 vs Q3 2022) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $871.3M | $574.7M | +52% | | Segment Profit | $83.0M | $81.8M | +1% | - Post Consumer Brands' sales increase was primarily due to $275.3 million from the Pet Food acquisition, with volume declining 6% excluding Pet Food due to lapping prior year competitor out-of-stocks in nut butters203 Weetabix Performance (Q3 2023 vs Q3 2022) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $134.2M | $124.9M | +7% | | Segment Profit | $17.9M | $27.8M | -36% | - Weetabix's profit decline was driven by raw material inflation of $10.6 million and higher manufacturing costs of $4.4 million, not fully offset by price increases210 Foodservice Performance (Q3 2023 vs Q3 2022) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $622.7M | $579.0M | +8% | | Segment Profit | $107.7M | $45.9M | +135% | - Foodservice profit surged due to higher net sales, lower freight costs ($10.0 million), and lower raw material costs ($6.3 million) from favorable grain and egg market prices216 Refrigerated Retail Performance (Q3 2023 vs Q3 2022) | Metric | Q3 2023 | Q3 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $230.7M | $246.4M | -6% | | Segment Profit | $18.0M | $10.4M | +73% | - Refrigerated Retail sales declined on 11% lower volumes due to price elasticities, but profit increased due to pricing actions, lower manufacturing costs ($7.2 million), and lower freight costs ($1.5 million)218220 Liquidity and Capital Resources Liquidity remains solid with operating cash flow increasing, while major cash uses included the Pet Food acquisition and share repurchases - Cash from operating activities increased by $260.8 million year-over-year, driven by favorable working capital changes and lower interest and swap payments234 - Key financing activities in the first nine months of fiscal 2023 included: - Borrowing $400.0 million via a new term loan - Issuing 5.4 million shares for the Pet Food acquisition - Repurchasing 2.9 million shares for $250.5 million - Repurchasing $170.5 million in principal of senior notes at a discount226 - As of June 30, 2023, the company was in compliance with all financial covenants under its Credit Agreement, which include a secured net leverage ratio and a minimum interest coverage ratio240 Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from commodity prices, foreign currency exchange rates, and interest rates using derivative instruments - A hypothetical 10% adverse change in the market price of principal hedged commodities would have decreased the fair value of the commodity derivatives portfolio by approximately $4 million as of June 30, 2023251 - A hypothetical 10% adverse change in foreign currency exchange rates would have reduced the fair value of the foreign currency derivatives portfolio by approximately $1 million as of June 30, 2023253 - As of June 30, 2023, the company had $6.2 billion in debt, of which $5.8 billion was at a fixed rate; a hypothetical 10% adverse change in interest rates would have decreased the fair value of its interest rate swaps by approximately $13 million254256 Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2023, with ongoing integration of internal controls for the Pet Food business - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2023257 - The company is in the process of analyzing and implementing changes in controls and procedures related to the Pet Food acquisition258 PART II. OTHER INFORMATION Legal Proceedings The company resolved long-standing antitrust lawsuits related to egg products and expects other pending legal actions to have no material financial impact - In September 2022, the company's subsidiary MFI settled the final remaining claims in a long-running antitrust matter related to egg products; no expense was recorded for this matter in the current fiscal year as it was settled and paid in fiscal 2022139140 - Management believes that the ultimate liability from other various pending legal proceedings will not be material to the company's consolidated financial condition, results of operations, or cash flows141 Risk Factors The company incorporates by reference prior risk factors, clarifying that existing food business risks now apply to the newly acquired Pet Food business - The company incorporates by reference the risk factors from its FY2022 Annual Report and Q2 2023 Quarterly Report261 - Risks related to food for human consumption, the food and beverage category, and the industry should be read to include pet food, the pet food category, and the pet food industry, respectively, following the Pet Food acquisition261 Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 1.93 million shares for $167.2 million during the quarter and approved a new $400.0 million share repurchase authorization Share Repurchases for Quarter Ended June 30, 2023 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2023 | 77,003 | $87.74 | | May 2023 | 901,238 | $87.18 | | June 2023 | 947,210 | $86.03 | | Total | 1,925,451 | $86.64 | - On June 6, 2023, the Board terminated the prior share repurchase plan and approved a new authorization to repurchase up to $400.0 million of common stock, effective June 7, 2023, and expiring June 7, 2025262