Post Holdings, Inc. (NYSE:POST) Q4 2019 Earnings Conference Call - Final Transcript

Nov 22, 2019 • 09:00 am ET


Post Holdings, Inc. (NYSE:POST) Q4 2019 Earnings Conference Call - Final Transcript


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Robert V. Vitale

can hear directly from the BellRing leadership team on our conference call later this morning. We continue to believe that we should receive government clearance for our acquisition of the Treehouse ready-to-eat cereal business. We believe that there is intense competition in the cereal business and that this deal is unambiguously pro consumer, and the efficiencies achieved will allow us to compete more aggressively. We are surprised that this combination has received the degree of scrutiny that it has, but we are actively engaging with the FTC, and we hope to convince the FTC to approve the transaction soon.

Our outlook for fiscal 2020 adjusted EBITDA, including 100% contribution from BellRing, is $1.22 billion to $1.27 billion, which added to midpoint is in line with our 3% long-term growth algorithm. We expect modest favorability to the second half of the year. As you likely have seen, BellRing has guided for fiscal 2020 adjusted EBITDA at a range of $192 million to $202 million.

Our guidance incorporates among others the following assumptions. We continue to see the domestic and UK cereal markets as flat to slightly declining. Our promotional timing, favors the second half of 2020 in response to product introductions and competitive activities. Demand growth remained strong for our Foodservice business, our Retail side dish business, and our convenient Nutrition products. We faced commodity inflation in our retail businesses, but we have various tools to offset it, including pricing and cost reduction.

Labor markets remain tight through most of our manufacturing footprint, accelerating demand in Foodservice and Retail Refrigerated potato products have pressured category wide capacities, we will incur costs associated with expanding trapped capacity and third-party sourcing as we navigate the supply constraint. These capacity limitations will temporarily dampen consumption growth.

BellRing adjusted EBITDA growth is expected to be below historical trends for 2020, as we invest to support substantial topline growth and incur approximately $7 million of incremental public company cost. And last, we assume the pound to dollar exchange ratio of 1.28. Again, we expect these assumptions to build a year that will be in line with our long-term algorithm, both with respect to growth and with respect to cash generation.

Recall that Post owns approximately 6% of the common equity of 8th Avenue Food & Provisions. We do not consolidate 8th Avenue because the capital structure and the control provisions are more akin to a minority investment. 8th Avenue had a challenging 2019 and its adjusted EBITDA forecast for 2020 is a range of $100 million to $105 million. The capital structure includes net debt and preferred equity of $920 million at September 30. These estimates exclude any impact of the planned acquisition, we announced last week.

Regarding capital allocation, in 2019, we generated $688 million in operating cash flow, and we invested approximately $270 million in internal capital projects. We repurchased 3.3 million shares of common stock for $331 million, considering adjusted EBITDA growth, organically generated cash flow and the proceeds from the IPO, we