Post Holdings, Inc.

Thank you for standing by and welcome to the post-holding second quarter 2023 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentations, there will be a question and answer session. To ask a question at that time, please press star 11 on your telephone. As a reminder, today's call has been recorded. I would now turn the conference over to your host, Mr. Daniel O'Rourke, Investor Relations for Post Holdings. Sir, you may begin.

Good morning and thank you for joining us today for Post-Second Quarter Fiscal 2023 Earnings Call. With me this morning are Rob Vitale, our President and CEO, and Matt Maynor, our CFO and Treasurer. Rob and Matt will begin with prepared remarks and afterwards we'll answer your questions. The press release that supports these remarks is posted on both the Investors and the SEC sections of our website and is also available on the SEC's website. As a reminder, this call is being recorded and an audio replay will be available on our website at postholdings.com. 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. And finally, this call will discuss certain non-GAAP measures. For a 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, Daniel. Thank you all for joining us. We had a strong quarter, and we feel confident in our performance for the balance of the year. Continued strong performance in food service is enabling us to lean into incremental investment in our retail channel businesses, and it well positions us for fiscal 24. Last week we closed on the acquisition of a handful of pet food brands from J.M. Smucker. We are optimistic that this acquisition will open exciting doors for Post, as have all our previous transactions. I want to thank the teams from both Post and Smucker who drove this deal to a successful closing. I also want to welcome the 1,100 colleagues who have joined us from Smucker. To complete the pet food acquisition, Post delivered $700 million in cash and approximately 5.4 million shares to Smucker. Even prior to closing the transaction, this quarter we repurchased 700,000 shares, or about 13% of the number of shares issued. We paid an average price below the issue price in the acquisition. Our capital allocation priorities will remain opportunistically balanced among share repurchases, debt reduction, and M&A. Last night, we raised our guidance for the balance of fiscal 2023 to $1.09 billion to $1.13 billion. This updated guidance reflects no change to our initial assessment for the acquired pet assets. It is simply five months of the forward 12-month estimate of $100 million in adjusted EBITDA. Moreover, it assumes full-year food service performance of roughly $40 to $50 million over its sustainable run rate. Recall last quarter we shared our estimated normalized run rate of roughly $85 to $90 million per quarter before considering the benefit from ready-to-drink shake manufacturing that will commence at the end of the fiscal year. To say this another way, the legacy business outlook is increasing for the second half. It also includes five months of PET. If you begin with our revised guidance and add approximately $60 million to account for the full year of PET and reduce it by approximately $45 million food service over-earn, it would result in the baseline EBITDA outlook. Let me briefly comment on our segments. Starting with PCB, the U.S. Ready to Eat cereal category declined 4% this quarter as we lapped prior year Omicron lift. Post-branded market share has been quite stable at 19.5%. Meanwhile, our private label business grew volumes nearly 3%. Food service performance is supported by both attractive pricing dynamics as well as strong demand for away-from-home breakfast consumption. Our food service potato business has shown exceptional strength as well with gains in both distribution and consumption. We continue to see pockets of labor constraints, but in general, our supply chains are performing far better than last year. Refrigerated retail is a bit of a mixed bag. Despite substantial pricing, sales were down for two reasons. First, we abandoned low-margin business and have not yet lapped its exclusion. Second, our refrigerated side dish business is lapping an inventory build and has seen trade down to private label. We are countering this with a step up in advertising. The team has executed very effectively and supply chains are markedly improved over last year. We to Bix continues to operate well in a challenging environment. UK consumers remain under pressure from inflationary trends in food and energy. Consumer pressure has contributed to a trade down of private label. We are a large provider of private label biscuit, but it is margin diluted. Also, while small, UFIT continues to grow quite nicely. Across the business, EBITDA margins grew 80 basis points over last year. We expect continued margin expansion as we cycle the timing of pricing movements versus cost increases. We are certainly in interesting times in the capital markets. The increasing cost of debt, and the reduction in available credit will likely make M&A a bit more scarce in general. However, we think Post is positioned favorably as a buyer with greater financing flexibility and certainty of closing. Our pipeline of opportunities seems to reflect this perspective. On the other hand, with the May 28 deadline, we expect to terminate the SPAC this month. As I've said before, we believe a corporate-owned SPAC to be a good tool, but the timing was terrible. SPAC investors will receive their initial investment plus modest return. We will continue to seek creative ways to extend our capital deployment capabilities despite this particular structure not succeeding. With that, let me turn the call over to Matt.