Post Holdings, Inc.

Welcome to Post Holdings Third Quarter 2022 Earnings Conference Call and Webcast. Hosting the call today from Post are Rob Vitale, President and Chief Executive Officer, and Jeff Zadix, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 12 o'clock p.m. Eastern Time. The dial-in number is 800-839-5679. 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 Matt Maynor, Investor Relations of Post Holdings, for introductions. Sir, you may begin.

Thanks. Good morning, and thank you for joining us today for Post's third quarter fiscal 22 earnings call. With me today are Rob Vitale, our President and CEO, and Jeff Sodex, our CFO. Rob and Jeff will begin with prepared remarks, and afterwards we'll have a brief question and answer session. Press release that supports these remarks is posted on our website and 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'd 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.

Thank you, Matt, and thank you all for joining us. Post had a successful quarter. We are building momentum for the final quarter of the year and into next year. This is despite some lingering problems in our supply chains as well as historical levels of inflation. I'm going to begin with some comments about margins. First, we have largely managed to offset the impact of inflation with pricing. Input costs remain volatile, and we anticipate additional inflation and additional pricing. we are confident in our ability to deliver the needed pricing. Percentage margins declined year over year, primarily resulting from the mechanics of our grain-based pricing model in food service, as well as the mix shift in our overall business portfolio. Within food service, EBITDA per pound grew nicely and is now on par with pre-pandemic levels. EBITDA per pound is our primary KPI rather than percentage margin, as the latter fluctuates with the direction of pass-through pricing. The mixed shift results from acquisitions that contribute, on average, lower margins, a shift to value within cereal, and the increase in food service as a percentage of total post-revenue. Each of these are margin-dilutive. They are each attractively profit-accretive. Last, and in this case least, we do continue to see elevated costs in our supply chains. With respect to our supply chains, The bad news is that they remain under stress. The good news is they continue to improve, albeit not in a straight line. We started the year expecting this basket of problems that fall under the umbrella of supply chain challenges to rapidly improve as the end of pandemic-driven stimulus increased workforce participation. The problem is both more nuanced and more blunt. There appear to be more structural changes in the workforce that require creative solutions and productivity initiatives. Meanwhile, there are more glaring disruptions in geopolitical relationships that have long-lasting impacts on where we source. As a result, we expect supply chain improvement to be more steady and gradual, ultimately leading to better volumes as reliability improves and expanding margin as controllable cost management and productivity improves. North American cereal business continues to benefit from consumption strength in key brands like Fruity Pebbles and Honey Bunches of Oats, as well as strength in private label and value. Our branded share reached 20% and total private label reached 6.7%. Recall, we are by far the largest provider of private label ready-to-eat cereal. A recent innovation, most specifically Premier Protein cereal, has also been quite well received. Food service effectively navigated the impact of avian influenza. We had predicted that by Q4 we would reach our pre-pandemic profit level. We will likely exceed that level and look to enter 2023 with momentum. Our risk to maintaining that momentum throughout the year is largely a function of continuing to improve our supply chain. We are still not fulfilling customer orders at an acceptable level. On the other hand, our refrigerator retail platform was hurt by AI as egg cost increases could not be passed through quickly enough. However, the business made great strides year over year. Recall that last year, our supply chain limitations left us unable to build inventory ahead of the key holiday season. We've expanded our capacity with third-party manufacturers and we are fully prepared for the upcoming season. Leveraging third-party manufacturers comes with some margin pressure and we expect that to reverse as we use internal capacity to support the growth of the franchise. This quarter, our side dish products grew volume over 10%. We expect attractive long-term growth as supply chain improvement enables us to re-engage more aggressively in marketing the brand. Eatabix keeps chugging along despite a challenging consumer marketplace. The UK inflation rate has run ahead of the US with particularly meaningful increases in core products like food and energy. Eatabix has been able to maintain sales and margin. It does appear that we will enter 2023 facing currency headwinds as it relates to Weetabix. As you all know, the capital markets have been choppy. We believe this plays to our long suit, an example being our recently completed bond tender that Jeff will discuss in more detail. We continue to aggressively pursue M&A and in the last two years have completed six token acquisitions. We expect the volatile markets to lead to some larger opportunities. Obviously, we cannot predict that any will convert to acquisitions. We will remain disciplined on price, regardless of market dynamics. Meanwhile, we continue to explore combinations for the SPAC. The weak IPO market has made execution more challenging. Here, too, we will remain highly disciplined in our efforts. We continue to believe in the elegance of the structure, but if the market timing is bad, we will not force an outcome. While we continue to focus on M&A, our capital allocation landscape is broader. In addition to the bond tender, Jeff will provide details on share buybacks. And lastly, recall that Post owns 19.4 million shares of Bellring Brands, which we expect to monetize within the next six months. Before turning the call over to Jeff, I want to reiterate how encouraged I am with the sequential and the year-over-year progression of our business during 2022. We see good cause for optimism entering 2023 as well as longer term opportunity in both volume and margin as we continue to proceed to make progress on our supply chains. With that, I will turn the call over to Jeff. Good morning, everyone. Third quarter consolidated net sales were $1.5 billion and adjusted EBITDA was $251 million. Net sales increased 22% and benefited from approximately $63 million of incremental sales from recent acquisitions, pricing actions in each segment, and volume demand recovery in the food service segment. Internal and external labor shortages and supply chain disruptions continue this quarter, causing our per unit product costs to remain elevated. Customer order fulfillment rates improved, but we're still well below optimal levels. Turning to our segments and starting with post-consumer brands, net sales and volumes increased 23% and 14% respectively. Excluding the benefit from the private label cereal acquisition, net sales and volumes grew 16% and 7% respectively. Branded and legacy private label cereal average net pricing increased 8.8%, driven by pricing actions partially offset by unfavorable product mix. Pebbles, Honey Bunches of Oats, mom bags, Peter Pan, and Legacy private label cereals relative to volume increase. Adjusted EBITDA value decreased 1.3% versus prior year, primarily driven by costs related to ongoing supply chain challenges and increased employee incentive costs. EBITDA net sales increased 1% despite a significantly stronger U.S. dollar against the British pound, which caused a foreign currency translation headwind of nearly 1,100 basis points. Net sales benefited from the significant list price increases and sales from recently acquired UFIT brands. These benefits were offset by unfavorable mix reflecting growth in private label products. Excluding the benefit from the UFIT acquisition, volumes declined 6% as growth from private label distribution gains and new products was not enough to offset declines in other products. Call to prior year period benefited from COVID-driven at-home consumptions. Supply chain disruptions, most notably in packaging, transportation availability, and equipment reliability, continue to suppress volumes and pressure segment profit. Segment-adjusted EBITDA was 2% lower than prior year, primarily because of the aforementioned foreign currency translation headwind. Food service business saw net sales and volume growth at 33% and 6% respectively, lifted by distribution gains and higher away from home demand. Revenue growth continued outpaced volume growth as revenue reflects the impacts of pricing actions and the effect of our commodity cost pass-through pricing model. Although we saw year-over-year growth this quarter, total segment volumes remained below pre-pandemic levels. Adjusted EBITDA grew 45%, benefiting from the volume recovery and improved average net pricing, which combined mitigated the impact of higher costs to produce. Refrigerator retail net sales increased 12%, while volumes decreased 3%. Excluding the egg beaters and all-mark acquisitions and the divested Willamette Egg Farms business, net sales and volumes increased 10% and 2%, respectively. Pricing actions drove increases in average net pricing across all products. Side dish and sausage volumes grew 10% and 4% respectively, while volumes in other product categories declined. Retail egg product volumes, in particular, declined from supply reduction from the impact of avian influenza. Adjusted EBITDA decreased to $30 million and was pressured significantly by dairy costs, egg costs due to avian influenza, higher manufacturing costs, and increased rates. Moving to capital markets transactions, in the third quarter, we purchased approximately 1.9 million of our shares at an average price of $76.43 per share. Year-to-date, we have repurchased approximately 3.8 million of our shares. At the end of the third quarter, we completed a modified Dutch auction to purchase approximately $140 million in principal amount of our 4.625% senior notes due April 2030 and approximately $382 million in principal amount of our 4.5% senior notes due September 2031. We paid $450 million for these notes reflecting a $72 million discount to PAR. Net leverage at the end of the third quarter as measured by our credit facility was approximately 6.2 times. On this basis, we expect to reduce leverage by approximately half a term once we fully execute the intended debt for equity exchange of our retained ownership of 19.4 million shares of Bell Ring. With that, I'd like to turn the call back to the operator for questions.