Ralcorp Holdings Inc.

Company Description

Ralcorp Holdings, Inc. is primarily engaged in the manufacturing, distribution and marketing of private label and branded ready-to-eat cereal products and snacks, branded and private label crackers and cookies, and branded baby food and juices.

The company owns and operates substantially all of the ready-to-eat cereal and snack business conducted in the Western Hemisphere. Ralcorp is separated into two business segments: Consumer Foods and Resort Operations.

A 20% Surprise

On May 7 Ralcorp announced second-quarter results for fiscal 2009 that included earnings per share of $1.10, 20% above the consensus of $0.92. Earnings grew 28% since the same period last year when the company reported EPS of 86%.

Sales increased 48%, driven mostly by the acquisition of Post Foods. The merger, valued at $2.6 billion, was completed last August.

M&A Activity

Ralcorp purchased Harvest Manor Farms, known for private label and Hoody's branded snack nuts. Annual sales for the snack producer average roughly $180 million. Specifics were not announced and the company estimates that the acquisition will start to impact the bottom line towards the end of 2009.

Analysts React

Almost every covering analyst has raised full-year estimates for this and next year. Currently the consensus for 2009 is $4.31, up 16 cents since the report. Estimates for 2010 are averaging $4.80, also up 16 cents. These projections would yield year-over-year growth of 23% and 11%.

The Chart

Shares of RAH are pressuring a key level of resistance following the earnings release. The stock has only briefly traded above the level over the past six months. Take a look at the chart below.