Post Holdings, Inc.

Welcome to Post Holdings' fourth quarter and full year 2020 earnings conference call and webcast. Hosting the call today from Post are Rob Vitale, President and Chief Executive Officer, and Jeff Zadoks, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 12 p.m. Eastern Time. The dial-in number is 800-585-8367. and the passcode is 303-9636. At this time, all participants have been placed in a listen-only mode. It is now my pleasure to turn the floor over to Jennifer Meyer of Post Holdings for introductions. You may begin.

Good morning, and thank you for joining us today for Post's fourth quarter fiscal 2020 earnings call. With me today are Robert Vitale, our president and CEO, and Jeff Zadoks, our CFO. Rob and Jeff will begin with prepared remarks and afterwards we'll have a brief question and answer session. The press release that supports these remarks is posted on our website in both the investor relations and the SEC filing sections at postholdings.com. In addition, the release is available on the SEC's website. Before we continue, I would like to remind you that this call will contain forward-looking statements which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call and management undertakes no obligation to update these statements. As a reminder, this call is being recorded and an audio replay will be available on our website. And finally, this call will discuss certain non-GAAP measures. For reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Rob.

Good morning. Thank you, Jennifer, and thank you all for joining us. I want to start my comments this morning by again thanking our many colleagues who each day honor the commitments we have to each other, to our customers, and to our consumers. This quarter ends our fiscal year, and it has certainly been extraordinary. I am proud of the way this organization navigated the extreme shocks created by the global pandemic. For the full year, a year in which a key channel shut down and only slowly reopened, our sales were flat and EBITDA declined 5.8%. I believe this evidences the resilience of our business. The fourth quarter itself delivered largely as expected. We saw the initial signs of recovery in food service and we saw some moderation of the outside profitability in our segments that serve as retail channels. Across the board, our retail channel businesses continue to perform well. While post-consumer brands decline in total volume, Jeff will provide details explaining that this overall decline masks strong growth in the premium branded portfolio, offset by intentional declines in lower margin business, plus some channel shifting impacting the bomb bag portfolio. Isolating bid business only, we priced out of approximately $15 million of revenue that contributed only approximately $2 million of profits. We also saw the anticipated reversal of share trends from early summer as we returned to modest levels of merchandising. Within our refrigerator retail platform, we likewise prioritized higher margin branded product over lower margin private label in managing through tight capacity. Bob Evans' branded side continues to grow impressively with net sales up 24%. Both segments saw meaningful margin expansion. Additionally, both Weetabix and Bellring had quite strong quarters. Our food service business returned a positive EBITDA this quarter and continues to recover. However, this is a slow build, and ultimate recovery to pre-pandemic levels will not occur quickly. We continue to see profound weakness in key channels, such as education and travel and lodging. At the same time, we are quite encouraged by the adaptations in all sectors of the restaurant industry that have led to impressive volume recovery. You have seen that we provided guidance for only the first half of fiscal 2021. Based on the recent vaccine news, we are cautiously optimistic that the pandemic will have waned by the midpoint of our fiscal 2021. Meanwhile, we have growing concern that the ensuing months will bring new challenges with respect to managing our supply chains without some degree of interruption as COVID impacts our workforce. While we have clusters of outbreaks across our business, this is a generalized concern We have made substantial investments in plant redesign, protective equipment, and additional training, and we believe our work environments are well protected. Nonetheless, we will continue to be affected by outbreaks in these communities in which our factories are located. Our first half guidance is roughly in line with the results of the second half of fiscal 2020, the timeline impacted by the pandemic. However, we expect greater contribution from food service and less from our retail channel businesses. To provide a bit more context, we expect to continue to see performance in our retail channel businesses at levels ahead of pre-pandemic metrics, but we do not expect to repeat the surge demand results that occurred in April and May. Relative to pre-pandemic levels, we expect the first half in food service to materially underperform. We expect it to materially improve from the most recent six months. While we have seen solid volume recovery in several channels and we are better able to manage costs at this demand level, we do continue to see anemic performance in a handful of key channels. Last, food service contains some first-half headwinds related to timing of commodity changes versus the automatic timing of repricing of its grain-based contracts. There tends to be a three-month lag. We believe we have been appropriately cautious with respect to our volume and profit assumptions. Risk to this mid-year outlook would be supply interruptions for retail channel businesses and food service demand sensitivity to mobility restrictions. If our assumptions regarding the virus trajectory prove accurate, we would expect the second half to accelerate over the first. If you participate in the bell ring call, you will hear that we expect attractive profit growth in bell ring to be skewed to the latter half of the year. Food service recovery would be the second material driver. Our outlook on the first half is sufficiently cautious for consumer brands, Weetabix, and refrigerator retail that we do not expect a profit decline despite greater consumer mobility. One comment specific to Weetabix. We are well prepared for the final breakfast departure on December 31st. Our primary preparations surround a working capital buildup to protect against delays in inbound raw materials. We do not expect this to have a material impact on our operations, but it could cause some currency fluctuations in the short term. We did provide full year guidance with respect to capital expenditures. We are investing aggressively in our business to drive productivity and better leverage the recovery. In terms of capital allocation, recall that in March we were single-mindedly focused on liquidity as we learned each day how to operate in this new environment. Today, we are much better equipped to manage challenges, and we are being more aggressive with respect to our share repurchases and our consideration of M&A opportunities. While we can never be assured of success, we are actively evaluating opportunities where we may find value. The market for such opportunities seems more rich than it has been in quite some time. I want to return to where I began. It has been an extraordinary year. All of us have been tested. Together we have risen to the challenge. While we can now see some light at the end of this ordeal, our resolve must and will remain as we navigate what we hope to be the final stretch. I am deeply grateful to all my colleagues for the efforts, large and small, across the world and in each community we serve. At last, before turning the call over to Jeff, I want to specifically thank Jay Brown, who decided to retire from the board this year. Jay was one of the initial directors when Post separated from RALCorp in 2012. Over the years, his support, his challenges to us, and his counsel helped make Post a better company and a better investment. We thank him for these contributions. Jeff.