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Post Holdings (POST) Foodservice Rebound Aids, High Costs Stay
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Post Holdings, Inc. (POST - Free Report) is benefiting from its focus on acquisitions, helping it expand its customer base. Recovery in the Foodservice channelis working well for the consumer-packaged goods company. These factors drove the company’s second-quarter fiscal 2022 results, with the top and the bottom line increasing year over year and beating the Zacks Consensus Estimate.However, supply-chain challenges and escalated costs have been hurdles.
Let’s take a closer look.
Image Source: Zacks Investment Research
Prudent Acquisitions Fuel Growth
The Zacks Rank #3 (Hold) company has strategically increased its presence through acquisitions. During the second quarter of fiscal 2022, Post Holdings’ top line included $102.1 million in net sales from acquisitions. These acquisitions include the Private label ready-to-eat (PL RTE) cereal business, the Egg Beaters liquid egg brand, the Almark Foods business and related assets and the Peter Pan nut butter brand.
On Apr 5, 2022, Post Holdings acquired Lacka Foods Limited. Lacka Foods is a U.K.-based marketer of high protein, ready-to-drink (RTD) shakes under the UFIT brand. Post Holdings acquired Almark Foods (or Almark) on Feb 1, 2021. Almark, which is renowned for its hard-cooked and deviled egg products, provides conventional, organic and cage-free products. On Jan 25, Post Holdings acquired the Peter Pan peanut butter brand. Notably, the Peter Pan peanut butter is one of the leading brands that cater to a diversified customer base in key channels.
Several other companies in the food space are benefiting from acquisitions like McCormick & Company (MKC - Free Report) , Hormel Foods Corporation (HRL - Free Report) and The Hershey Company (HSY - Free Report) . McCormick increased its presence through acquisitions to enhance its portfolio. MKC bought a 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick completed the acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand.
Hormel Foods is strengthening its business on the back of strategic acquisitions. In June 2021, the company acquired the Planters snacking portfolio. Prior to this, HRL acquired Texas-based pit-smoked meats company Sadler's Smokehouse in March 2020. The buyout is in sync with Hormel Foods’ initiatives to strengthen its position in the foodservice space.
Hershey is undertaking buyouts to augment portfolio strength and boost revenues. In December 2021, Hershey acquired Dot’s Pretzels LLC — the owner of Dot’s Homestyle Pretzels — a leading brand in the pretzel category. The addition of Dot’s Pretzels is a perfect match for HSY’s growing salty snacking portfolio. The company also acquired Pretzels Inc. from an affiliate of Peak Rock Capital. The acquisition expands Hershey’s snacking and production capabilities.
Foodservice Recovery Aids
Post Holdings is benefiting from a recovery in the Foodservice business. During the second quarter of fiscal 2022, Foodservice sales increased 22.4% to $451.9 million. Volumes rose 10.9% due to the increased away-from-home egg and potato demand and potato distribution gains. Management highlighted that volumes in certain channels and product categories in the foodservice business have almost fully recovered to pre-pandemic levels. In aggregate, overall foodservice volumes are still below pre-pandemic levels. That being said, management expects the foodservice business to return to pre-pandemic profitability in fiscal 2023.
Will Hurdles be Countered?
Post Holdings continues to battle supply-chain challenges in all segments due to labor shortages, input and freight inflation and other supply-chain hurdles, such as input availability. Per unit product costs have been rising while service and fill rates remain under normal levels. Also, inventories are low. While these factors are improving, they are likely to linger throughout fiscal 2022. We note that the Ukraine war has elevated inflationary headwinds. Management expects certain energy and raw material expenses to remain high due to the conflict.
The company’s second-quarter fiscal 2022 gross margin contracted from 30.3% to 26.8%. The downside can be attributed to higher raw material, freight and manufacturing costs. Apart from this, Post Holdings’ SG&A expenses increased 17% year over year to $235.4 million in the quarter.
It is yet to be seen if the aforementioned upsides can help Post Holdings stay afloat amid such hurdles. The company’s stock has decreased 12.5% in the past six months against the industry’s 8.4% growth.
Image: Bigstock
Post Holdings (POST) Foodservice Rebound Aids, High Costs Stay
Post Holdings, Inc. (POST - Free Report) is benefiting from its focus on acquisitions, helping it expand its customer base. Recovery in the Foodservice channelis working well for the consumer-packaged goods company. These factors drove the company’s second-quarter fiscal 2022 results, with the top and the bottom line increasing year over year and beating the Zacks Consensus Estimate.However, supply-chain challenges and escalated costs have been hurdles.
Let’s take a closer look.
Image Source: Zacks Investment Research
Prudent Acquisitions Fuel Growth
The Zacks Rank #3 (Hold) company has strategically increased its presence through acquisitions. During the second quarter of fiscal 2022, Post Holdings’ top line included $102.1 million in net sales from acquisitions. These acquisitions include the Private label ready-to-eat (PL RTE) cereal business, the Egg Beaters liquid egg brand, the Almark Foods business and related assets and the Peter Pan nut butter brand.
On Apr 5, 2022, Post Holdings acquired Lacka Foods Limited. Lacka Foods is a U.K.-based marketer of high protein, ready-to-drink (RTD) shakes under the UFIT brand. Post Holdings acquired Almark Foods (or Almark) on Feb 1, 2021. Almark, which is renowned for its hard-cooked and deviled egg products, provides conventional, organic and cage-free products. On Jan 25, Post Holdings acquired the Peter Pan peanut butter brand. Notably, the Peter Pan peanut butter is one of the leading brands that cater to a diversified customer base in key channels.
Several other companies in the food space are benefiting from acquisitions like McCormick & Company (MKC - Free Report) , Hormel Foods Corporation (HRL - Free Report) and The Hershey Company (HSY - Free Report) . McCormick increased its presence through acquisitions to enhance its portfolio. MKC bought a 100% stake in FONA International, LLC and some of its affiliates. FONA’s diverse portfolio helps McCormick bolster its value-add offerings and expand the flavor solutions segment into attractive categories. In November 2020, McCormick completed the acquisition of the parent company of Cholula Hot Sauce — a premium Mexico-based hot sauce brand.
Hormel Foods is strengthening its business on the back of strategic acquisitions. In June 2021, the company acquired the Planters snacking portfolio. Prior to this, HRL acquired Texas-based pit-smoked meats company Sadler's Smokehouse in March 2020. The buyout is in sync with Hormel Foods’ initiatives to strengthen its position in the foodservice space.
Hershey is undertaking buyouts to augment portfolio strength and boost revenues. In December 2021, Hershey acquired Dot’s Pretzels LLC — the owner of Dot’s Homestyle Pretzels — a leading brand in the pretzel category. The addition of Dot’s Pretzels is a perfect match for HSY’s growing salty snacking portfolio. The company also acquired Pretzels Inc. from an affiliate of Peak Rock Capital. The acquisition expands Hershey’s snacking and production capabilities.
Foodservice Recovery Aids
Post Holdings is benefiting from a recovery in the Foodservice business. During the second quarter of fiscal 2022, Foodservice sales increased 22.4% to $451.9 million. Volumes rose 10.9% due to the increased away-from-home egg and potato demand and potato distribution gains. Management highlighted that volumes in certain channels and product categories in the foodservice business have almost fully recovered to pre-pandemic levels. In aggregate, overall foodservice volumes are still below pre-pandemic levels. That being said, management expects the foodservice business to return to pre-pandemic profitability in fiscal 2023.
Will Hurdles be Countered?
Post Holdings continues to battle supply-chain challenges in all segments due to labor shortages, input and freight inflation and other supply-chain hurdles, such as input availability. Per unit product costs have been rising while service and fill rates remain under normal levels. Also, inventories are low. While these factors are improving, they are likely to linger throughout fiscal 2022. We note that the Ukraine war has elevated inflationary headwinds. Management expects certain energy and raw material expenses to remain high due to the conflict.
The company’s second-quarter fiscal 2022 gross margin contracted from 30.3% to 26.8%. The downside can be attributed to higher raw material, freight and manufacturing costs. Apart from this, Post Holdings’ SG&A expenses increased 17% year over year to $235.4 million in the quarter.
It is yet to be seen if the aforementioned upsides can help Post Holdings stay afloat amid such hurdles. The company’s stock has decreased 12.5% in the past six months against the industry’s 8.4% growth.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.