Post Holdings, Inc.

Welcome to Post Holdings Second Quarter 2021 Earnings Conference Call and Webcast. Hosting the call today from Post are Rob Vitale, President and Chief Executive Officer, and Jeff Zadoks, the 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 1-800-585-8367. and the passcode is 339-2864. 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, Investor Relations of Post Holdings for Instructions. You may begin.

Good morning, and thank you for joining us today for Post's second quarter fiscal 2021 earnings call. With me today are Rob 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. Thanks, Jennifer, and thank you all for joining us. We had a quite solid quarter despite some meaningful headwinds in the form of inflation and a fairly significant weather event. This morning, I will briefly cover the quarter. I will give you an update on strategic activities and then comment on our second half outlook. This quarter, the cereal category in the U.S. remained elevated from 2019 levels. Post-branded products performed quite well, but we saw some softness in our value products. Our aggregate share remained 19.5%. As you have heard from many reports, we too saw cost inflation escalate faster than expected. We expect inflation to remain a lingering issue for the foreseeable future, and we expect to maintain profit and margin levels through a combination of revenue management and ongoing cost reduction. In addition to cost pressure, the deep freeze in the south caused some supply disruptions in our Georgia distribution center and our Arkansas plant, but all in all, a really solid quarter. Our innovation around protein and snacking has performed ahead of plan, and we expect to accelerate distribution of each product. We have talked about more fundamental innovation, and hopefully these initial results will prove sustainable. Moreover, I am quite pleased in the manner Peter Pan has integrated into post-consumer brands. Our legacy PCB team and our new colleagues from Peter Pan have done a great job. This bodes quite well for future tuck-in acquisitions. We have invested heavily in process improvement these last two years aimed at driving high ROIC acquisitions for this platform, and we are active in reviewing such opportunities. I cannot say enough about the resiliency shown by our food service team. This quarter, we continue to track towards recovery in tandem with national mobility trends. We are currently tracking approximately 80% to 2019 on a volume basis. To return to pre-pandemic volume requires a trend to continue in QSRs and full-service restaurants. Plus, we need three channels to heal. Education is the largest, and we expect full recovery by January, if not September. The other two are office and hospital cafeterias and business travel. We fully expect hospital cafeterias to reopen. The degree to which offices fully reopen and travel fully recovers remains uncertain, but we expect it to continue to grow from our current baseline. In general, these channels are more profitable than average. Inflation is a short-term inhibitor on margins for this segment, as its pricing model passes costs through on a 90-day lag basis. Therefore, in periods of escalating costs, we will see some margin pressure, and the opposite is also true. Corn and soy meal have been dramatically inflationary in the second quarter. and thus far in the third quarter. We expect that to moderate as the market turns to next year's crop during our fourth fiscal quarter. The decision to not aggressively attack infrastructure costs during COVID has proven to be exactly the right course. We are currently challenged to meet incremental demand because of a severe labor shortage in key manufacturing locations. We expect the shortage to last at least through September and is incorporated into our guidance. I am optimistic we will see continued recovery into fiscal 2022, reaching pre-pandemic profitability run rate sometime during the year. Our core refrigerated platform, the Bob Evans side dish business, turned in a good quarter. Volumes for Bob Evans branded side dish remain strong, and notably, we have seen Simply Potato's branded products return to growth. Favorable mix continues to drive gains and profitability. Despite these strong results, bottom line performance this quarter was significantly pressured by input cost inflation, particularly in sows. This, too, is mostly a timing phenomenon as we use trade management to normalize margins, but with a lag effect both in increasing and decreasing cost environments. This will remain a headwind through at least Q3. Weedabix continues to be a steady performer. Although the category softened during the most recent lockdown, it remains ahead of the pre-pandemic period, and Weetabix continues to gain share. Our new innovation leans into indulgence and is now on shelf with advertising beginning soon to support these launches. Our only disappointment is that we have not yet found the right acquisition for this team as we believe them capable of managing a larger business. You will have seen that Bellring raised its guidance for the year. We are quite pleased with the Q2 results and the outlook ahead despite the continuing ramp in input cost inflation. Finally, 8th Avenue announced the acquisition of Ronzoni, a quite attractive add-on to its pasta business. It expects to pay $95 million for the business and should earn over $15 million in adjusted EBITDA once fully synergized. With respect to capital allocation priorities, during the quarter we remained aggressive buyers of post shares. We also completed the two previously announced acquisitions of Peter Pan and Allmark. In general, I would share that the M&A pipeline has considerably expanded. The pent-up demand from the low activity in 2020 and the potential for increases in tax rates seem to be pulling sellers off the sidelines. We are looking at opportunities across our business segments. As you know, Post filed to raise the SPAC in February. We expect it to launch early in April, around the same time the SEC raised concerns regarding the SPAC market's historical practice of accounting for warrants. We are indifferent to the accounting treatment so long as the treatment is accurate. In order to ensure accuracy, we are taking some time to allow the issue to gain clarity. Once we are comfortable with the treatment, we will proceed with the issuance. We continue to believe this is a great corporate finance tool for POST, and we look forward to using it to grow our business. Yesterday evening, we issued our second half adjusted EBITDA guidance of $590 to $620 million with a modest favorability towards the fourth quarter. Incorporated into this guidance is a much higher cost inflation assumption than contemplated at the beginning of the year. Despite this cost elevation, we continue to expect to deliver on our initial commitment to exit the year with strong momentum, and we expect that momentum to continue into fiscal 22. This is chiefly from recovery of both volume and margin in food service, as well as continued strong performance for the balance of the portfolio. With that, I will turn the call over to Jeff.