Ralcorp Holdings, Inc.

Ralcorp Holdings, Inc. (RAH - Snapshot Report), which recently acquired Post Cereals, is raising prices to counter commodity inflation and finding profits along the way. The company has surprised on estimates 2 out of the last 4 quarters. RAH is trading with a forward P/E of 14.95.

Company Description

Ralcorp Holdings produces private label foods and foodservice products under a variety of brands, including Post Cereals. The company also sells frozen bakery products to foodservice providers, in-store bakeries, and retail and club channels.

Ralcorp operates several private label brands, including Bremner, the largest private label cracker and cookie producer in America, and Carriage House, the largest supplier of preserves and jellies, peanut butter, table syrups and dressings and sauces.

The company also owns approximately 19% of Vail Resorts, Inc. (MTN - Snapshot Report), a mountain resort operator.

Sales Jump 44% in the Fourth Quarter Due to Acquisitions

On Nov 12, Ralcorp announced fourth-quarter 2008 earnings that surprised on Wall Street estimates by 1.23%, or 1 cent. The acquisition of Post Foods from Kraft increased reported earnings per share by 18 cents for the quarter and 16 cents for 2008. Full year earnings per share were $5.38 compared to $1.17 in the year ago period.

Sales rose 44% to $265.3 million in the fourth quarter, mainly due to the Post Foods acquisition, which made up approximately $180.5 million of the sales.

However, base business sales in the cereal and cracker segment also rose 16% due to increases at both the Ralston Foods cereal and snacks division and the Bremner cracker and cookie division. The growth was a result of higher prices in both divisions as well as higher volumes at Ralston Foods.

Sales also rose in 2 of the company's other segments. The frozen bakery products segment's sales increased 10% year over year because of higher selling prices, partially offset by volume declines.

In the dressings, syrups, jellies and sauces segment sales jumped 23%, also the result of improved pricing as well as 7% volume growth. Only the snack nuts and candy segment was flat for the quarter.

Consensus Estimates Rise

Ralcorp provided a 2009 outlook, indicating that the company will face similar challenges as it did in 2008 including continued assimilation of Post Cereals into the company. RAH believes it will see growth in its base businesses during this period.

Covering analysts have raised estimates for 2009 by 3 cents to $4.16 in the last 60 days, with 1 analyst raising in just the last week. 2010 consensus estimates are also climbing, by 17 cents, to $4.58 per share in the last 2 months.

RAH is scheduled to report first-quarter 2009 earnings on Feb 5.

Value Fundamentals

Ralcorp Holdings is a Zacks #1 Rank (strong buy) stock. It has a forward P/E of 14.95. Its price-to-book is only 0.63. RAH has an outstanding 5-year average return on equity (ROE) of 15.11%.