Falling Egg Sales Lead to a Rotten Quarter for Post Holdings

By Travis Hoium Markets Fool.com

Post Holdings Inc. (NYSE: POST) had another quarter of ups and downs in the fiscal second quarter, as active nutrition products grew sharply, offset by declines in the egg market.

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Pricing challenges across the business have really held back growth so far in fiscal 2017, but management saw most of those challenges coming. And as the company moves forward, it hopes to be better positioned to capitalize on growth opportunities while adjusting to difficult segments of the market. Here are the highlights from the fiscal second quarter.

Image source: Getty Images.

Post Holdings Inc. results: The raw numbers

Metric Q2 2017 Q2 2016 Year-Over-Year Change
Net sales $1.26 billion $1.27 billion (1.2%)
Net income ($7.4 million) $1.5 million N/A
Diluted EPS ($0.11) $0.02 N/A

Data source: Post Holdings Inc.

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What happened with Post Holdings Inc. this quarter?

The surface numbers don't really tell the full story of Post's quarter, which had both positives and negatives. Here are the highlights and segment results.

  • Post announced last month that it would buy U.K.-based ready-to-eat-cereal company Weetabix Limited for 1.4 billion pounds, in an effort to grow internationally.
  • Post's consumer-brands division saw a 2% decline in revenue to $431.1 million in the quarter, with volumes down 0.8%. Segment profit was $90.1 million, up from $74.7 million a year ago.
  • Michael Foods Group had a 7.7% revenue decline to $515.0 million, despite a 2.4% increase in egg volumes. Prices for eggs have declined sharply, and that drop also drove a 52% decline in segment profit to $42.7 million.
  • Active-nutrition sales jumped 23.3% to $177.3 million on the back of strong growth from Premier Protein. Segment profit increased from $13.8 million a year ago to $21.2 million.
  • Private brands saw a 1.9% increase in sales to $132.1 million as peanut butter demand rose, offset by a decline in dried fruits and nuts. Segment profit did increase 23% to $9.5 million in the quarter.
  • Full-year adjusted EBITDA guidance was reaffirmed at $920 million to $950 million before any impact of the Weetabix acquisition.

What management had to say

The main challenge in the fiscal second quarter was falling egg prices, which has been a drag on the Michael Foods Group business. This decline was expected, however, given the unusually strong comparison a year ago that was affected by avian flu.

For the rest of the year, management expects protein products to grow significantly, with slow and steady progress from private brands as well.

Looking forward

The year-over-year comparisons will remain tough in 2017, but if management can hit its EBITDA target for the year, it would still be a fairly strong sign for the business. Watch for the closing and financial impact of the Weetabix acquisition, because long term, that could be another additive business for the Post consumer-brands side of the business. And an acquisition of that size could take years to really play out and show a significant impact on the bottom line.

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Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Post Holdings. The Motley Fool has a disclosure policy.