Post Holdings, Inc.

Welcome to Post Holdings' 4th Quarter 2021 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 800-938-2490. No passcode is required. 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 fourth 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. Additional information regarding these risks and uncertainties is discussed under the forward-looking statement section in the press release we issued yesterday and posted on our website. We also urge you to read both registration statements, the proxy statement, and prospectuses and other documents related to the proposed distribution of our interest in Bellring Brands that will be filed with the SEC when they become available because they will contain important information. 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.

Thank you, Jennifer. Good morning, and thank you for joining us. Our fiscal year ended in quite a disappointing manner as cost inflation ran ahead of pricing and supply chain inefficiencies caused us to meet our estimates. We ended fiscal 2021 with adjusted EBITDA of $1.12 billion, down 1.5% to last year, as COVID affected rebounds in food service and declines in retail channel segments roughly offset each other. This morning, I will share with you the sources of the myths and frame our expectations for the upcoming year. I want to start with the detail on our shortfall from guidance. Sales were largely in line with our expectations. The miss was entirely the result of cost escalation. The two biggest drivers versus expectations were unfavorable manufacturing costs of nearly $18 million, resulting from plant inefficiencies and poor fixed cost absorption, and transportation costs, which were $12 million above forecast. In addition, capacity constraints largely resulting from labor and material shortages and contract manufacturing undershipments inhibited our ability to service demand. The capacity limitation resulted in customer allocations across food service, refrigerated retail, and Bellerin. Stepping back from supply chain, there is plenty of cause for optimism. Our demand remains quite strong in Post and Weetabix branded cereal, Bob Evans branded products, most of our food service categories, and especially in Premier Protein Shakes. We have pockets of softer demand in our value cereal segments, notably mom brands and private labels. Our post-branded cereals performed well this year, gaining half a share point on the strength of the Pebbles franchise. This was offset by weakness in our value portfolio. We expect consumers to return to value price points as consumer liquidity normalizes. Weetabix had a modest share gain this year lifted by innovation. Compared to two years ago, however, the business has gained one and a half share points. Our Bob Evans brand continues to gain new households with penetration up 3% over the prior year. This gain was achieved despite capacity constraints and out of stock, limiting its growth. We plan to fully support this brand with marketing and promotion investment in the back half of the year. Bellring's flagship product, Premier Protein Shakes, continued its impressive consumption, up 30% this summer. As with Bob Evans, Capacity constraints are limiting brand metrics. I continue to believe we remain in the early stages of category adoption and I'm quite bullish on Bellring's future. Finally, food service demand recovery continues to progress with the exception of travel and lodging and business cafeterias. For fiscal 2022, we expect adjusted EBITDA in the range of $1.6 to $1.2 billion or a growth rate of 3% to 7%. Two key assumptions supporting this range are that by the end of our second fiscal quarter, ingredient, packaging, and freight inflation will have peaked, and that labor markets will normalize. To the extent those assumptions prove optimistic, there could be pressure on our outlook. Specifically, with respect to inflation, the risk is primarily the timing, as we expect to continue to price inflation, albeit with a potential lag. That level of adjusted EBITDA does not reflect our expectation of the company's baseline earnings potential. There are three specific drivers. First, we do expect some of these cost pressures and capacity constraints to continue during the first half, easing throughout the fiscal year as pricing lapse cost increases and supply chains normalize. Second, we continue to expect that full profit recovery and food service will not occur until fiscal 2023. and finally, synergy realization of prior year acquisitions will largely occur in fiscal 22, with 2023 being its first full year in the P&L. As we expect each identified issue to improve sequentially, likewise, we expect each quarter to improve sequentially through the year, exiting the year on a more normalized run rate. To drill further into quarterly cadence, the continuation of fourth quarter 2021 is of course particularly acute during the first quarter. More specifically during the first quarter, we expect our food service platform to underperform the fourth quarter as a result of persistent labor shortages inhibiting volume demand growth and non-pass-through inflation that accelerated after year end. That inflation is being priced but will not be effective until the second quarter and will be perhaps a $15 million hit to the first quarter. In refrigerated retail, we will see significant sequential improvement. We are now largely staffed in this segment and it is improving rapidly. However, capacity constraints in the fourth quarter limited our ability to build inventory ahead of the holiday demand spike. Meanwhile, recall the balance of the businesses tend to have a seasonal sequential decline in the first fiscal quarter. With respect to capital allocation, we remained an active buyer of our own shares this quarter. Since July 1, we have acquired 1.5 million shares at an average price of 108.02. Recent M&A is performing to plan with the exception of Allmark. Allmark is performing to volume plan but has experienced the cost acceleration I mentioned and will need to take incremental pricing. All others are performing to both volume and profit expectations. Recall that the private label business we acquired from Treehouse is slightly negative EBITDA and is expected to remain so until the second half of the year. Likewise, I mentioned that synergy realization will largely occur in fiscal 22, with 23 being its first full year in the P&L. We continue a strong M&A pipeline for POST, and POST Holdings Partnering Corp. has numerous potential counterparties. However, for core POST, executing pricing and improving supply chain performance, including synergy delivery, remain a greater priority than near-term M&A. Hopefully you saw our release describing the Bellring brand's distribution. Recall the transaction has three steps. First, we will execute a debt-for-debt exchange, which will generate cash to be distributed to Bellring stockholders at closing. Second, we will distribute at least 78 million shares of Bellring in either a pro-rata spin or via an exchange offer for post shares. Finally, Roughly six months after the initial two steps, we will monetize our remaining stake. We believe this transaction will benefit both companies by enabling Bellring to trade on a more liquid, fully distributed basis. It will also result in reduced leverage and complexity around the remaining post franchise. There is no question this is a challenging environment and will remain one for a bit longer. I am grateful for the effort and the commitment of our teams. While the consequences of COVID had had far more reaching impact than expected, the experience is making us better as we identify and cure supply chain weaknesses and become ever more crisp on pricing and revenue management. With that, I will turn the call over to Jeff.