Post Holdings, Inc.

Welcome to Post Holdings' third quarter 2021 earnings conference call and webcast. Posting 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 Standard Time. The dial-in number is 1-800-585-8367 and the passcode is 963- 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 Introductions. You may begin.

Good morning, and thank you for joining us today for Post's third 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 overlooking 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, Thank you all for joining us today.

In total, our results for the quarter were largely in line with expectations, but that belies considerable volatility in the environment and in our results. Bellring outperformed as demand for our quarter-shaped product continues to grow rapidly. Meanwhile, the balance of the course portfolio was a bit soft as we continued to navigate through very challenging macro factors, such as shortages in labor, transportation, and packaging, as well as the timing of cost inflation versus pricing recovery. We expect the current environment to persist through the fourth quarter and ebb as we enter fiscal 2022. My comments on outlook assume that we do not have a major economic disruption arising from the Delta variant. Despite the challenges, we expect the full year results to be largely consistent with our guidance, albeit with a different mix. and as you have seen, we lowered the top end of the guidance range from 620 to 610 million. Post-consumer brands had a soft volume quarter largely attributable to what we believe is a temporary consumer shift towards premium purchasing. The post-branded products performed in line or better than the category. Post-branded products now have a market share of 12.5%, driven primarily by exceptional performance of our Pebbles brand. However, we saw weakness in our value portfolio. We believe recent increases in discretionary income have produced a trade-up effect. We expect that to normalize, and we further expect that cost reduction enabled by our recent acquisition of two cereal plants from Treehouse will provide us further differentiation opportunities in the value segment. Our biggest challenge this quarter was in our refrigerated retail segment. I expect that to be the case in the fourth quarter as well. While demand remains strong, most notably on Bob Evans' dinner sides and sausage, manufacturing constraints resulting primarily from labor availability have reduced internal capacity. While we have expanded our use of external supply chain partners, they too face similar challenges with labor and come at a higher cost. The combined manufacturing network was not able to service the full customer demand in Q3 and will further pressure Q4 in the holiday season. We continue to see extraordinary volatility in sow pricing. We've taken steps to offset inflation, led by significant pricing, but of course pricing likes cost. Food service continued its trek to recovery with solid sequential gains. Setting aside uncertainty around the Delta variant, we remain extremely encouraged by the progress. We continue to look to 2023 for full recovery to baseline 2019, with continued progress in 2022. Margins are lagging volume recovery as a result of product mix within channels, overall channel mix, labor pressures, and the timing of inflation recovery. Anecdotally, we have 22 precooked egg lines, including the three we built in Norwalk immediately prior to the pandemic. Currently, we cannot staff more than 17. As a result, we are having to allocate demand to our capacity. As you may imagine, this creates inefficiencies in overall cost absorption. Weetabix just keeps rolling along, another solid quarter. We tried to add something fairly significant to it, but maintained our pricing discipline, and we were outbid. We will keep trying to expand their purview. We see less labor pressure in the U.K., but an equal amount of transportation challenges and a greater level of challenges in obtaining packaging materials. We took guidance down at 8th Avenue. While our retained investment there is not material, the option value of growing the business remains important to us. In short, our outlook was predicated on an expansion of our Alabama facility to meet strong peanut butter demand. A combination of labor challenges at capital equipment manufacturers, our own labor shortages, and overall poor execution has delayed the expansion. We incur approximately $7 million in unusual costs as we are working to remedy this particular issue in an accelerated fashion. In addition, cost pressures on manufacturing are hitting across the network and will be ongoing in the fourth quarter. We are aggressively taking price, but it will not be effective until October. Meanwhile, 8th Avenue did close on the Ronzoni pasta acquisition and is off to a fine start. As you saw, Bellring continues its terrific performance, and I will let Darcy provide details on her call. In short, we are navigating a challenging environment reasonably well. The pandemic and the public policy reactions have stressed our supply chains and produced some really unusual results around consumer behaviors, We believe many of these challenges are transitory and that the most likely planning scenario for 2022 is a continuation of elevated price levels and a flattening of the rate of inflation. Regardless of the transitory or permanent nature of some of these items, we are aggressively attacking productivity opportunities. Additionally, we are creating more bench strength in management. to enable greater resource deployment when we do face dispoke issues within our supply chain or elsewhere. And finally, we expect to see mean reversion across categories with respect to value shoppers. Turning towards capital allocation, we have been active in M&A. In addition to the Treehouse assets, we also acquired the Eggbeaters brand from ConAgra in the third quarter. Meanwhile, to maintain appropriate leverage, we were not active in share repurchases this quarter. This quarter we closed on the IPO of Post Holdings Partnering Corporation. We are encouraged by the volume of opportunity we are seeing and are optimistic about executing a transaction that results in value creation for both Post and PHPC shareholders. Last night we announced our intent to fully distribute our position in Bellring Brands. We consider this a natural evolution in the already remarkable Bellring story. It will enable Post shareholders to choose greater exposure to Bellring if they so desire. Operationally, this is a non-event. Bellring will continue to be managed exactly as it is today with its strong team led by Darcy Davenport. We have a base case plan of distribution, but it could be impacted by changes in market conditions during the pendency of the transaction. Therefore, we will provide these details as we approach the actual distribution timing. With that, I will turn the call over to Jeff. Thanks, Rob, and good morning, everyone.