Post Holdings (POST) Q3 2025 earnings call transcript

I would now like to turn the call over to Daniel O'Rourke, Investor Relations for POST. Good morning. Thank you for joining us today for POST's third quarter fiscal 2025 earnings call. I'm joined this morning by Rob Vitale, our President and CEO. Jeff Zadix, our COO, and Matt Maynard, our CFO and Treasurer. Rob, Jeff, and Matt will make 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 filings portions 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. 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.

Thank you, Daniel, and good morning, everyone. Before commenting on the quarter, I want to mention the leadership announcements from last evening. Jeff has decided to retire at the end of the year. Jeff and I started at POST the same day, and he has been instrumental to our success. While I'm happy for him, he will be sorely missed.

Nico is being named COO effective at the same time. For the time being, he will also continue as CEO of PCB. Nico has done an outstanding job leading PCB, especially the integration of our pet business. I look forward to working with him in this role.

Turning to the business, we had strong results in Q3 despite the challenging macro environment with adjusted EBITDA approaching $400 million. Diversification in our business segments continues to benefit us as we sequentially saw significant improvement in our cold chain businesses more than offsetting a pullback at PCB. While these dynamics were anticipated heading into the quarter, the magnitude of each was a bit bigger than expected.

Rounding out the portfolio, WIDABix maintained a steady improvement from the first half that was impacted by their ERP conversion.

Another highlight of Q3 was our acquisition of 8th Avenue, which closed on July 1st. We are pleased to have the business full laid back in the POST portfolio.

And while we see very clear synergies to PCB within nut butter and granola, we are waiting until FY26 to start integrating to provide some normalcy and stabilization for the business.

Meanwhile, the broader MNA environment remains challenged given market volatility. However, we view the recently announced Kellogg's transaction as an encouraging sign, highlighting the potential for larger, more transformative transactions.

Beyond M&A, we continue to be aggressive in share buybacks, having bought back 8% of the company fiscal year to date. Subsequent to the closure of the 8th Avenue transaction, we remain in a great spot from both a leverage and liquidity position to remain opportunistic with our capital allocation.

While tariffs and regulatory changes to food ingredients continue to increase costs and create uncertainty, the recent tax law changes are projected to result in substantial financial benefits to POST, Specifically, bonus depreciation and interest deductibility changes will drive an estimated $300 million in reduction in cash taxes paid over the next five years.

I am pleased with the overall state of our portfolio as we continue to perform well in a really tough environment. Food service has successfully navigated severe HPAI impacts this year and is executing a soft landing to normalcy. PET is working through a challenging but much-needed portfolio transition while continuing to sustain over 2X, our acquisition underwriting case. Meanwhile, on the grocery side of PCB, we remain focused on executing cost optimization to offset pressured cereal volumes.

Finally, both refrigerated retail and Wedebix continue to pursue their pipelines for targeted volume growth and cost reduction. With that, I will turn the call over to Jeff.

Thanks, Rob, and good morning, everyone. Post-consumer brands continue to face volume challenges in both cereal and pet, which drove the segment's performance decline.

Cereal category volumes were down 4.1% year-over-year, and our branded portfolio was slightly behind the category with a 4.9% decline. We remain on track with our previously announced cereal plant closures at the end of the calendar year to optimize our cost structure, And we will continue to pursue additional cost-out opportunities to mitigate the current serial category trajectory.

In fact, cost optimization efforts already implemented, along with favorable product mix, enable us to maintain serial profitability relatively flat sequentially, despite the volume challenges.

Our pet volume consumption was down 3.7% year-over-year versus a flat category, as we saw continued Gravy Train price elasticities and accelerating declines in Nutrish from its relaunch. As we learned from our mom's cereal reset a few years ago, we expected short-term volume challenges as we overhauled the Nutrish brand, but the magnitude has been larger than anticipated. We're making some course corrections based on market feedback and therefore expect the brand recovery timeline to be extended. With regard to Gravy Train, we have some price pack architecture changes hitting the market over the next few quarters, which we believe will set the proper balance between profitability and volumes for that brand.

Turning to food service, as expected, Q3 was a much stronger quarter sequentially, driven by temporary avian influenza pricing to recover Q2 costs ahead of pricing and to offset continued elevated egg costs. In addition, we saw volume growth in both eggs and potatoes driven by improved market egg availability and improved breakfast foot traffic for our end customers. We expect to wind down our temporary HPAI pricing and fully recover our egg supply by the end of Q4, setting us up to enter fiscal 26 at a normalized run rate. Although still early in our planning process, our early read of the normalized quarterly adjusted EBITDA run rate of our food service business is approximately $115 million.

Similar to food service, refrigerated retail benefited in the quarter from temporary avian influenza-driven pricing adders in liquid eggs, along with the shifting of the Easter holiday into Q3. Volumes were higher in nearly all categories. We are progressing well on the integration of the recently acquired PPI business, seeing the benefits of optimized manufacturing mix and elimination of toll and charges. We are also seeing further benefit from warehousing and freight efficiency.

Turning to Weedabix, our flagship yellow box product grew its consumption volumes 2.4% year-over-year in a category that was down 1.8%. We attribute this to a return to marketing and promotion after limiting those activities in the first half in stores More broadly we remain focused on executing our cost opportunities to drive our multi margin recovery Despite the challenging macro backdrop, we are expecting a strong finish for fiscal 2025 as we remain focused on the things we can control, such as cost-out optimization and making targeted investments to drive volumes.

With that, I'll turn the call over to Matt.

Thanks, Jeff, and good morning, everyone. Third quarter consolidated net sales were $2 billion, and adjusted EBITDA was $397 million. In pet, our volume declines accelerated to down 13%. As a reminder, we expected high single-digit declines for the second half of fiscal 2025 until we lapped prior year profit-enhancing decisions and completed the relaunch in Nutrish. Bridging the additional decline this quarter is twofold. First are the incremental consumption declines Jeff discussed for both Nutrish and Gravy Trade, and the second is the loss of some private-label business for which we expect to replace by early FY26. Segment adjusted EBITDA decreased 8% versus prior year as improved cost performance for both grocery and pet was not enough to offset the impact of lower volumes, particularly in pet.

One call out is the better cost performance is net of a $5 million service charge taken this quarter as PCB optimized its SDNA workforce to better align with our smaller cereal footprint.

Moving to food service, net sales increased 19% and volumes increased 7%. Excluding the impact of our PPI acquisitions, volumes increased 4%, driven by the inclusion of shake volumes in the quarter and higher customer foot traffic, benefiting both eggs and potatoes. Beyond volume, avian influenza-driven pricing drove the revenue increase. Adjusted EBITDA increased 32%, driven by increased pricing to recover elevated egg costs and continued volume growth in both our value-added egg and potato products.

Refrigerated retail net sales increased 9%, and volumes excluding the impact of BPI increased 1%. Volumes across all products benefited from the timing of Easter, which was in Q2 last year. Segment adjusted EVA dot increased 94% as we lapped a particularly weak quarter last year marked by trade overspend, while this year we benefited from avian influenza pricing adders and Easter-driven volume increases.

Weedabix net sales increased 1% versus the prior year. Foreign currency represented a tailwind of 560 basis points. Volumes decreased 3% driven by non-core discontinuations. However, as Jeff mentioned, our Cori Elves product grew volumes 3%, and UFIT grew volumes 31%. Segment adjusted EVA decreased 4% versus prior year, led by lower volumes and increased inflation-driven costs.

Turning to cash flow, we generated $226 million from operations and approximately $95 million in free cash flow, net of accelerated capital spend on our key investments in both PCB and food service. From a capital allocation standpoint, we have repurchased approximately 1.6 million shares since the beginning of Q3, bringing our fiscal year total to approximately 5 million, or 8% of the company. Our Q3 results drove our net leverage down slightly to 4.3 times. However, adjusting for the July 1st closing of 8th Avenue, our leverage is 4.5 times.

With our earnings released last night, we increased our adjusted EBITDA guidance range from $1.5 billion to $1.52 billion. At the midpoint, this suggests Q4 will be approximately flat to Q3, with the inclusion of a full quarter of 8th Avenue results, offsetting some normalization within the balance of the portfolio. Sequentially, we expect our cold chain businesses to decline as AI pricing adders wind down throughout the quarter. This will be partially offset by an increase of PCB due to back-to-school seasonality in serial and the absence of Q3 service charges. Thank you for joining us today, and I will now turn the call back over to the operator.

I think you laid it out pretty well, and the way we are thinking, first of all, I should say we are still in the planning process for 26, but the way we are thinking about it is if we normalize food service for the AI impact, it's essentially an on-algorithm year. So, again, with the caveat that we're still in the middle of planning.

Beyond that, I think you laid out the different puts and takes pretty well. Are there any that you want to add to, Matt?

No, I think you captured everything, Andrew. And, you know, like you took fiscal 25 and put in a full year of 8th Avenue and then normalized our cold chain businesses for AI. Jeff laid out the runway we see food service at, and we think it can grow in accordance with algo from there, just given the value proposition and just where we sit in the marketplace.

So I think we feel good about our prospects for next year, often normalized 25. Great. Okay, thank you for that.

Yeah, it's a bit of a mystery to me as well. I think perhaps some of the degree of promotion is bringing the price gaps down a little more than it should. I think that, you know, the pricing opportunity for us there is still compelling. But it's just not as compelling as it has been compared to Brandon.

Yeah, I think the only thing I'd add, Andrew, is our private label and cereal obviously skews to Walmart, and they're seeing quite a pullback in foot traffic. So we think there's some impact there as well, given our exposure there.

Yeah I think there was I mean a couple factors One is recovery of Q2 largely happened in Q3 and then also you know again we continue to see elevated egg markets so we have continued pricing to recover that as well so it kind of an ongoing process And once we get our egg supply back as we get through Q4 here obviously we won need that pricing and we'll see kind of a normalized view, and that's kind of back to the 115 that Jeff talked about is how we'd like to recalibrate the business.

And the only thing I would add is on a year-over-year basis, there's a normal pricing that we would take as we renegotiate contracts. So there's some of that phenomenon in place as well year over year.

No, it's really a matter of pacing that more than cost growth. So it's just we're spending a little faster. We have an opportunity to do that, and we want to accelerate those projects where we can. So it's not a matter of higher costs. It's just faster spend.

Yeah, I mean, I think if you look at some of the opportunities right now, they're impacted by the uncertainty of base earnings with tariffs and some of the impacts that could come from food ingredient changes that we called out in the prepared remarks. You know, I think it's an interesting commentary that the two large transactions that have happened in the last couple of months, or probably longer than that, are both private companies buying public companies.

So I think the transactions of public are impacted by the uncertainty I just mentioned. At the same time, multiples across the segment, including ours, are quite low, and the opportunity to use our stronger balance sheet to buyback shares is pretty attractive. So, you know, as we've talked about, I think, in the past, we look at it as a balancing process of what are the opportunities externally, i. e. , M&A, what are the opportunities internally, meaning share buybacks, and what do we need to do from a managing our leverage perspective? So, with all of that saying, you know, we continue to be open-minded to transactions small and large, and we just wait for the time to be right.

So I'll start with the last part first. The shake contribution in that number is pretty modest. While we're continuing to make progress, and I know we've said that probably three, four quarters in a row, and it's accurate. It's just a slow slog. So we're still climbing up to where we think normalized profitability would be. So over time, depending on your time horizon, over time, that is certainly a tailwind that we would expect to provide incremental profit as we progress through 2026 and beyond. In terms of the first part of the question, I think that's a reflection of what we currently see as the run rate of the business.

But recall that we view food service as a modest grower on a year-over-year basis, which has been the case throughout our ownership period and prior to our ownership period.

So that's a point in time, and we would expect that over time it would grow from there.

Yeah, I think starting with PET, again, we've got some, as we talked about at the beginning of the fiscal year, some profit-enhancing items and some decisions we made that we wouldn't lap until we got to the end of this fiscal year, and I think what you saw in the quarter was down 13%. I'd say those are about half of that, so as we lap the year, those would fall away, and you're left with the consumption trends, challenges we've seen mainly around nutrition, and also gravy train that Jeff talked about. Again, we've got plans in place to address both those. Obviously, the Nutrish launch, and we're making some course corrections as we move through that as well.

It's going to take a little more time than I think we initially anticipated, but we feel good about both of those leveling out or improving that consumption as we get into fiscal 26. And then the other piece was around just some private label business that we lost. We've got clear line of sight to replace one of that over the next couple of quarters.

So I think from a volume standpoint, we feel by the middle of next fiscal year, we will largely, you know, be closing in on flat relative to what we're seeing today. And then in terms of from a spend standpoint, obviously, we're putting some dollars behind Gravy Train and Nutrish in particular to support the relaunch. On the cereal side, from a spend standpoint, I think we continue to be really rational around spending.

And in terms of supporting the brands, we do that on a targeted basis. We still think there's additional network optimization we can do. It's not plants, but maybe more lines. But again, I think we're also keeping an eye on the category. It's been a tough year, and thinking as we lap next year, We expect to see some year-over-year comps improving in terms of just the rate of decline we've seen in cereal, but we'll keep an eye on that as we think about additional optimization.

Yes, I think tactical is a great way to describe it.

I think we're going to certainly have some innovation. So to David's question before, one of the things that we're going to do is attempt some innovation in cereal that's more targeted at the types of products that are performing well, protein-enhanced cereals, that sort of thing. And more broadly with regard to ingredients, I think we're going to take a pragmatic approach. You've seen some commitments from some of our peers to eliminate some of the ingredients.

We're certainly going to look at reformulation of our products over time, but are going to take a pragmatic view as to how quickly we do that and whether we do that across the board or within certain products. So I think the short answer is to say we're going to take a tactical view, we're going to make tweaks along the edges, but we're not anticipating any major changes in particular in fiscal 26 with regard to those items.

I think you have a situation of one very large and very respected company acquiring a smaller but also very well-respected company with the likely outcome being the category will be enhanced by the size of the acquirer. But I think until we actually see the transaction close, we would be hesitant to make further comment.

No material changes to this fiscal year contribution, and then as the outlook for next year remains similar, I'd say what we found, and not surprising as we watched the businesses with the backdrop it was under over the last six or nine months and uncertainty about where the business was going to land, definitely saw a pullback in performance of the business here as of the last couple quarters.

We see a path to improvement in line with what we called out when we acquired the business for next year, but no seasonality, I would really call out.

It's material within the business, and is there anything else you'd add, Jeff?

No, I think that covers it.

Yeah, so again, it doesn't really pull forward what the actions we're taking on the plan optimization. They're still on track for the end of the calendar year. And in terms of utilization, you know, we would expect that would get us back up into the mid-80s. And then I think it's really a matter of, like I said, how does a serial category perform? If it's more like this year, we'd have to move quicker on additional steps. If it levels out and becomes more normalized from what we've seen historically, then I feel like we're in a good spot for next fiscal year.

Thank you.

Well, I think there are many opportunities to change the composition of the portfolio, Whether it's channel or price point or even breed.

So I think there are many opportunities there. However, I think the most important thing to realize is that we want to make sure that what we bought sticks. And part of what we bought was a brand in Nutrish that we knew needed work. So we will continue to make sure that nutrition is where it needs to be before we do too much portfolio management.

Sure. I think we feel good. Yes, to your point, obviously, we had a lift with Easter, and then we've had good performance this quarter. Last year, we had some challenges with trade, where we overshot on trade, ate into the base performance of the business. And we've, of course, corrected that in a much better spot this year. I think we are seeing additional opportunities and gains within distribution and also price points. We've targeted opportunities there as well in terms of alternative products that we can offer and diversify similar to what we see in PCB.

So I think as we look to next year, I think we feel really good about some top-line opportunities for that piece of the business.

Yeah, it's something we definitely obviously keep an eye on the markets really closely. I think right now, just more in a monitoring mode, but I think at some point that certainly could be an option for us. But right now, I'm in a really good spot from a cash flow liquidity standpoint, so in no rush, and I think we'll remain opportunistic.