Post Holdings (POST, Financial) is a packaged food company that seems to be on a buying spree, in order to grow its existing business. It has made a host of acquisitions in the last year and plans to do some more. However, the company is unable to be so attractive to investors, owing to its inability to control its expenses and boost the bottom line. Its shares have dropped 13% in the last year. However, it has been recovering, and the share price has increased by 18% since the beginning of the year.
The food retailer’s recently reported first quarter results were mixed, as the top line was in line with the Street’s estimates but the bottom line fell short. However, the news of its latest acquisition made investors hopeful about its future, sending its shares higher. Let’s check.
The revenue growth story
Revenue for the quarter jumped 260% to $1.07 billion, as compared to the previous year. This was in-line with the analysts’ expectations and was mainly driven by a number of acquisitions made last year. The buyouts included businesses, such as Golden Boy Foods, Dymatize Enterprises, Dakota Growers Pasta, American Blanching, Musashi and PowerBar brands.
Revenue from Michael Foods, which was acquired last year, surged 4% to $599.3 million during the quarter. Further, revenue from the consumer brands segment rose 27% to $347.9 million, over last year’s quarter. Sales in this segment surged mainly because of higher demand for ready-to-eat cereals and nutrition brands as people have become increasingly health conscious.
The woes
The gross margin of the company fell drastically from 38.6% to 23.2%. Also, the company reported an adjusted loss of $1.15 per share as against a profit of $0.02 per share in the prior year. However, the analysts’ estimate was a loss of $0.13 per share. Thus, the bottom line was way below the expectations and was affected by factors such as huge costs related to the acquisitions made and a business reorganization initiative taken by the company.
Moreover, Post Holdings is also suffering from an overall weakness in the breakfast cereal segment. Demand for cereals has declined as people have shifted to newer options such as Greek yogurts, smoothies and sandwiches. Thus, all the cereal providers have witnessed declining sales.
Acquisition – the only effort
Post Holdings has hardly made any effort to attract customers. It has not made new additions and variations in its menu to attract customers. However, it has been buying other businesses to grow. It acquired MOM Brands for $1.15 billion this month. Thus, it plans to expand its presence in the ready to eat food category and the hot cereals category through this purchase.
This acquisition is in addition to the purchase of Michael Foods in June. Further, it bought Premier Nutrition in September, which expanded its footprint in the nutrition and supplement business. As people are becoming health conscious, this segment is getting popular and should help in attracting customers.
Summarizing
Post Holdings is definitely growing its top line through its acquisition strategies, but is unable to give a boost to its bottom line. Increasing costs and expenses related to acquisition is taking its toll. Also, the cereals category is a matter of concern. Innovation is the need of the hour. If the company fails to do so, it will not be able to sustain it for long. Thus, this cereal maker should be avoided at the moment.
