Post(POST) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) The company reported increased net earnings for Q3 and nine months FY2022, primarily driven by a significant gain on its BellRing investment and favorable swap adjustments, despite operational profit declines from cost inflation and higher corporate expenses Condensed Consolidated Statements of Operations Q3 2022 net sales increased by 22.2% to $1,524.9 million, but operating profit declined 31.9% to $105.5 million, while net earnings swung to a $170.2 million profit due to investment gains and swap adjustments Q3 FY2022 vs Q3 FY2021 Statement of Operations (in millions, except per share data) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $1,524.9 | $1,247.5 | 22.2% | | Gross Profit | $364.7 | $368.1 | -0.9% | | Operating Profit | $105.5 | $155.0 | -31.9% | | Net Earnings (Loss) | $170.2 | $(54.3) | N/A | | Diluted EPS from Continuing Operations | $2.72 | $(1.30) | N/A | Nine Months FY2022 vs FY2021 Statement of Operations (in millions, except per share data) | Metric | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $4,272.1 | $3,624.8 | 17.9% | | Gross Profit | $1,074.9 | $1,095.6 | -1.9% | | Operating Profit | $283.7 | $403.0 | -29.6% | | Net Earnings | $672.7 | $136.8 | 391.7% | | Diluted EPS from Continuing Operations | $10.47 | $1.38 | 658.7% | Condensed Consolidated Balance Sheets Total assets decreased to $11.56 billion as of June 30, 2022, primarily due to the BellRing spin-off, while total liabilities also decreased to $7.85 billion and shareholders' equity increased to $3.41 billion Balance Sheet Summary (in millions) | Account | June 30, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Total Current Assets | $2,291.0 | $2,086.1 | | Total Assets | $11,560.2 | $12,414.7 | | Total Current Liabilities | $757.7 | $1,049.2 | | Long-term debt | $6,032.4 | $6,441.6 | | Total Liabilities | $7,848.1 | $9,355.5 | | Total Shareholders' Equity | $3,406.7 | $2,754.2 | - The balance sheet reflects the removal of assets and liabilities related to discontinued operations (BellRing), which amounted to $385.7 million in current assets and $248.9 million in current liabilities as of September 30, 2021[12] Condensed Consolidated Statements of Cash Flows Net cash from operations decreased to $218.1 million for the nine months ended June 30, 2022, while investing activities used $133.1 million and financing activities used $635.9 million, driven by debt and share repurchases Cash Flow Summary - Nine Months Ended June 30 (in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operating Activities | $218.1 | $395.3 | | Net Cash Used in Investing Activities | $(133.1) | $(737.4) | | Net Cash Used in Financing Activities | $(635.9) | $(75.2) | | Net Decrease in Cash | $(556.7) | $(411.1) | - Significant financing activities in the first nine months of 2022 included $1,340.0 million in debt proceeds, $904.4 million in debt repayments, $343.0 million in treasury stock purchases, and a net distribution of $547.2 million to BellRing Brands, Inc[13] Notes to Condensed Consolidated Financial Statements The notes detail significant corporate actions, including the 80.1% BellRing spin-off and its reclassification as discontinued operations, the 14.2% retained equity stake, and the acquisition of Lacka Foods for $32.2 million - On March 10, 2022, the company completed the distribution of 80.1% of its interest in BellRing Brands, Inc. to shareholders, with historical results now presented as discontinued operations[17] - The company's remaining 14.2% equity interest in BellRing was remeasured to a fair value of $482.8 million as of June 30, 2022, resulting in a recognized gain of $482.8 million for the nine-month period[62] - On April 5, 2022, the company acquired Lacka Foods Limited for approximately $32.2 million, reported within the Weetabix segment[66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses a 22% increase in Q3 net sales, offset by a 32% decline in operating profit due to cost inflation and higher corporate expenses, detailing segment performance, impacts of external factors, and liquidity management - The BellRing Spin-off, completed on March 10, 2022, represented a strategic shift, and BellRing's historical results are now presented as discontinued operations[161] - The business has been negatively impacted by external factors including labor shortages, input and freight inflation, supply chain disruptions from the COVID-19 pandemic, increased energy and commodity costs due to the conflict in Ukraine, and higher egg prices resulting from avian influenza[176][177][179] Overall Financial Performance Summary (in millions) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | % Change | | :--- | :--- | :--- | :--- | | Net Sales | $1,524.9 | $1,247.5 | 22% | | Operating Profit | $105.5 | $155.0 | (32)% | | Net Earnings (Loss) | $170.2 | $(54.3) | 413% | Results of Operations Q3 2022 net sales increased 22% to $1.5 billion and nine-month sales grew 18% to $4.3 billion, but operating profit declined 32% in Q3 and 30% over nine months due to higher corporate expenses and lower segment profit, despite significant gains from interest rate swaps and the BellRing investment - Net sales increased by $277.4 million (22%) in Q3 and $647.3 million (18%) in the nine-month period, driven by growth across all segments and contributions from recent acquisitions[182][183] - Operating profit decreased by $49.5 million (32%) in Q3 and $119.3 million (30%) in the nine-month period, primarily due to increased general corporate expenses and lower segment profit in most retail-facing segments[184][185] - The company recognized a net gain of $131.6 million in Q3 and $222.9 million in the nine-month period from mark-to-market adjustments on interest rate swaps, compared to a loss and a smaller gain in the respective prior-year periods[193][194] - A gain of $35.1 million in Q3 and $482.8 million in the nine-month period was recorded on the company's remaining 14.2% investment in BellRing[196] Segment Results In Q3 2022, Foodservice profit increased 65% due to pricing and volume recovery, while Post Consumer Brands' profit fell 7% despite 23% sales growth, and Weetabix and Refrigerated Retail profits also declined due to inflation and higher costs Q3 2022 Segment Performance (in millions) | Segment | Net Sales | % Change (YoY) | Segment Profit | % Change (YoY) | | :--- | :--- | :--- | :--- | :--- | | Post Consumer Brands | $574.7 | 23% | $81.8 | (7)% | | Weetabix | $124.9 | 1% | $27.8 | (3)% | | Foodservice | $579.0 | 33% | $45.9 | 65% | | Refrigerated Retail | $246.4 | 12% | $10.4 | (27)% | - Post Consumer Brands' profit was negatively impacted by $16.6 million in raw material inflation, $11.1 million in increased freight costs, and $10.8 million in higher manufacturing costs[204] - Foodservice sales and profit growth were driven by higher average net selling prices, partly due to passing on higher raw material costs from grain markets and avian influenza, and volume recovery from the COVID-19 pandemic[211][213] Liquidity and Capital Resources Liquidity was shaped by significant capital allocation, including debt transactions related to the BellRing spin-off, new senior note issuance, and repurchases, with cash from operations decreasing to $219.7 million but sufficient liquidity maintained through cash and credit facilities - Key financing activities in the nine months ended June 30, 2022 included repurchasing 3.8 million shares for $339.0 million, issuing $500.0 million of 5.50% senior notes, and redeeming $840.0 million of 5.75% senior notes[228] - The BellRing spin-off involved a complex debt-for-debt exchange where Post borrowed $840.0 million in a short-term loan, received $840.0 million in BellRing notes, and used those notes to repay the loan[228] - Cash provided by continuing operations decreased by $29.7 million compared to the prior year, driven by unfavorable changes in inventory pricing and timing of receivables[236] - As of June 30, 2022, the company was not required to comply with its secured net leverage ratio covenant as its outstanding revolving credit obligations did not exceed the 30% threshold[242] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from commodity prices, foreign currency, and interest rates, managing them with derivatives; a 10% adverse change in commodity prices would impact derivatives by $6 million, and a 10% adverse change in interest rates would decrease interest rate swap fair value by $38 million - The company is exposed to commodity price risk for inputs like natural gas, soybean oil, corn, and wheat; a hypothetical 10% adverse price change would decrease the fair value of its commodity derivatives portfolio by about $6 million as of June 30, 2022[256] - As of June 30, 2022, $6.03 billion of the company's total debt was fixed-rate, with a weighted-average interest rate of 5.0%[259] - The company held interest rate swaps with a notional value of $1,049.3 million; a hypothetical 10% adverse change in interest rates would decrease the fair value of these swaps by approximately $38 million as of June 30, 2022[261] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2022, with no significant changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[262] - No significant changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2022[263] PART II. OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings information is incorporated by reference from Note 16, primarily discussing antitrust litigation against Michael Foods, with no environmental proceedings meeting the $1.0 million disclosure threshold - Information regarding legal proceedings is incorporated by reference from Note 16 of the financial statements[264] - The company has elected a disclosure threshold of $1.0 million for environmental proceedings involving a governmental entity and reports no such proceedings for the period[265] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the Annual Report for fiscal year 2021 and the Q2 2022 Form 10-Q have occurred - There have been no material changes to the risk factors previously disclosed in the Annual Report for fiscal year 2021 and the Q2 2022 10-Q[266] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q3 FY2022, Post Holdings repurchased 1,907,301 shares of common stock at an average price of $76.43 per share, with $145.8 million remaining available under the repurchase authorization Common Stock Repurchases (Q3 FY2022) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2022 | 849,077 | $74.10 | | May 2022 | 1,034,539 | $78.25 | | June 2022 | 23,685 | $80.54 | | Total | 1,907,301 | $76.43 | - As of June 30, 2022, $145.8 million remained available under the company's stock repurchase authorization, which is effective through November 20, 2023[267] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including agreements related to the BellRing spin-off, corporate governance documents, debt indentures, and Sarbanes-Oxley certifications - Exhibits filed include agreements related to the BellRing spin-off, corporate governance documents, debt indentures, and Sarbanes-Oxley certifications[269]