ST. LOUIS — Post Holdings intends to benefit from its recent acquisition of a “basket of iconic pet food brands” from The J.M. Smucker Company, as Robert Vitale, president, chief executive officer and director of Post Holdings, described it in the company’s M&A call on Feb. 8, shortly after the intention to acquire was announced.
“We think this is a compelling opportunity that nicely fits the bill,” he added. “At nearly $1.4 billion in revenue, focused on mainstream and entry premium price points, we have enough scale to matter and to build upon.”
Post Holdings completed its acquisition of several pet food brands formerly owned by The J.M. Smucker Company on April 28, including the Rachael Ray Nutrish brand, Nature’s Recipe, 9Lives, Kibbles ’n Bits and Gravy Train, as well as related private label assets, three manufacturing facilities, one distribution center, and more than 1,000 employees.
“We are optimistic that this acquisition will open exciting doors for Post as have all our previous transactions,” Vitale said in the company’s second-quarter earnings call on May 4. “I want to thank the teams from both Post and Smucker who drove this deal to a successful closing. I also want to welcome the 1,100 colleagues who have joined us from Smucker.”
For the acquisition, Vitale noted his company paid $1.2 billion in combined cash and stock — specifically $700 million in cash and roughly 5.4 million in shares — to The J.M. Smucker Company. Post Holdings plans to manage its new pet business under the umbrella of its Post Consumer Brands segment under Nicolas Catoggio, president of the segment.
“Even prior to closing the transaction, this quarter, we repurchased 700,000 shares or about 13% of the number of shares issued,” Vitale said. “We paid an average price below the issue price in the acquisition. Our capital allocation priorities will remain opportunistically balanced among share repurchases, debt reduction and M&A.”
During the M&A call in February, Vitale noted one-time costs to integrate the pet food brands are estimated at $75 million.
When asked about opportunities and priorities for Post Holdings’ newly acquired pet food segment, Vitale mentioned exploring retail channels and meeting current consumer demand.
“One of the nuances to this business is most of its businesses track channels, unlike a lot of the other competitors in pet,” he said. “We think one of the opportunities is to go beyond traditional FDM channels. With respect to the near-end opportunities, though, the biggest opportunity is to improve supply chain and deliver to the demand that exists already. We are selling everything that we can make, but we're not making enough. So, step one is to drive throughput in each of the factories that we've acquired.”
Post Holdings also hopes to capitalize on momentum in value-priced pet food offerings and will look to “expand into additional price points,” Vitale noted.
“You all know pet is a great category,” he said. “Like many others, it is really a series of price-driven subcategories. In recent years, premium and super premium have seen terrific growth, frankly, at the expense of some of the brands we are buying. More recently, mainstream and entry premium have gained traction as consumers have shifted to value. We expect this to persist for some time. Hopefully, over time, we will expand into additional price points.”
Vitale also noted the company is open to additional pet industry acquisitions and further expansions into the category down the road.
“We are open for M&A, particularly around opportunities within and outside of pet that have the ability to be freestanding businesses within our portfolio,” he said. “We would be a little bit more cautious on full integrations right now simply because of the amount of work that is being dedicated to the… recently closed opportunity. So, it’s somewhere in the belt. We have a lot of opportunities, as you would imagine… and I expect to continue to expand. But we look through a lens of both human and financial resources when we start to think about what the next step should be.”
Overall, Post Holdings had net earnings of $54.1 million, or 98¢ per share on the common stock, in the quarter, which were down from $526 million, or $8.51 per share, in the previous year’s second quarter. Earnings in the current year’s second quarter included a loss of $448 million related to an investment in BellRing, which was treated as an adjustment for non-GAAP measures. Expense on swaps was $9 million, which compared to income on swaps of $128 million in the previous year’s second quarter. Adjusted EBITDA was $276 million, up 20% from $230 million in the previous year’s second quarter. Net sales were $1.62 billion, up 15% from $1.41 billion.
The forecast for adjusted EBITDA in the fiscal year was raised to $1.09 billion to $1.13 billion from $1.03 billion to $1.07 billion. Post Holdings stated this outlook for adjusted EBITDA considered a five-month contribution from the pet food acquisition, which is estimated at $100 million in the twelve-month period following the acquisition. Capital expenditures for the company will range from $275 million to $300 million in fiscal 2023, which includes estimated integration and improvement costs for pet food operations.
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