Post Holdings (POST) Q3 2026 earnings call transcript

I would now like to turn the call over to Matt Maynor, CFO of POST. Thank you, and good morning. Thank you all for joining us today for POST's third quarter fiscal 2026 earnings question and answer session. I'm joined this morning by Nico Catozio, our COO. Rob is unable to join us today as he is feeling under the weather, and Daniel is actually with his wife who is going into labor.

Before I turn the call to Nico, though, I want to remind you that this call is being recorded and an audio replay will be available on our website at postholdings. com. During today's call, we make 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 those statements. The press release and written management remarks that support today's call are posted on our website in the Investors section. 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 Nico.

Nico Thank you, Matt. Good morning, and thanks, everyone, for joining us today. Our third quarter results were slightly ahead of expectations, driven by stronger-than-anticipated performance of food service. And we are maintaining the midpoint of our fiscal 2026 adjusted EBITDA items while narrowing the range. From a capital allocation standpoint, we will purchase 4% of our outstanding shares, bringing our total fiscal year-to-day reduction to approximately 17%, while maintaining leverage within our target range.

Looking ahead, we believe it's important to provide early context for fiscal 2027. After adjusting our fiscal 2026 outlook for approximately $80 million of items affecting compatibility, we entered fiscal 2027 with a comparable adjusted EBITDA base of approximately $1.48 billion. While our fiscal 2027 budget remains under development, our preliminary outlook is for adjusted EBITDA that is relatively consistent with this level. I am very resistant to this level. Despite normalizing food service earnings, the absence of divested businesses, anticipated inflation, and ongoing volume pressure, we currently expect targeted pricing actions, cost savings, and food service man rate growth to support fiscal 2027 underlying EBITDA generally flat related to the comparable adjusted EBITDA base of approximately $1.48 billion that I mentioned before.

With that, operator, please open the line for Q&A.

Sure, I can take that one, Andrew. And really, it's consistent with how we've always thought about capital allocation when it comes to M&A versus debt reduction, and that's less a function of a leverage number and really more a function of what we're seeing in interest rates. And refinancing impacts. So while we don't have a bond maturity for four years, we factor in the cash flow impacts of refinancing that debt now at higher rates, and what would that do to free cash flow? And as we see rates continue to rise from a refinancing standpoint, that just weighs more heavily to say, hey, we've got to start allocating more capital to debt reduction to make sure we're bringing down debt so as we get to refinancing, we're not seeing a deterioration of our free cash flow.

Again, we'll still maintain the ability to buy back shares opportunistically, just in the current interest rate environment, it's certainly going to be at a slower pace than the last couple of years. I think on the counter, if we see rates somehow return and we're back in a 5% refinancing rate, then our view would change, but that's certainly the big driver and the primary lens, how we look at it. So, relative to the M&A points, I think another angle we view is, you know, where's a comfortable leverage level we could take leverage to, and where's a comfortable starting point? And that gets us to a similar spot. Hey, mid-four is somewhere we're comfortable for, but we wouldn't want to see that number rise because that would deteriorate some of the flexibility for cash M&A.

So, I think that's where the preliminary outlook for next year is more of a consideration. But, again, I'd say consistent with how we've always viewed it.

Thanks, Andrew, and it's a good question. So let me start again. So we are constantly accessing those opportunities across every business and in particular MPC. So before I get to Pat, and I will answer that one, we also just made the decision to shut down two peanut butter plants. And that's, again, to your point, it's exactly the same playbook that we use in C-DL. As we integrated the 8th Avenue business, and we streamlined that business and exited some businesses that we were literally losing money, we saw the opportunity to shut down Japan. So that's in the works. That's going to impact F28. And all of the money is similar to what you saw in CDL in the past.

So that's on peanut butter. On pet, it's a good question. So let me tell you that beyond footprint, we haven't even scratched the surface in cost, in pet, not the way we did it in CTO. And that's because we wanted to wait until we had the confidence that we had a stable pet business. And we feel that we're getting to that point.

We are now at a 30% market share, and what we are confident is if we can stay in that level, and we think we can because some of the initiatives that we pursue to turn around nutrition and are starting to actually show encouraging results. If we can stay in that, call it 3-2 market share range, then now we can actually go after costs aggressively. And it's more than just footprint. There are opportunities to simplify the portfolio, harmonize formulas, a lot of the things that we need in Cereal. When you do that, then that will allow us to actually optimize the footprint.

Yeah, so it's more of a, we saw refrigerated retail pullback a bit more than anticipated out of the Easter benefit in Q2 in terms of results in Q3. We see some improvement in that business in Q4 and really for the rest of the portfolio pretty flat, so we're not talking about significant changes overall.

Sure. I think just really a refinement of this year and the pacing we're seeing on the CapEx range just leads us, you know, a little bit higher in the range from where we started. But, you know, that's definitely a bit of a moving target. And, again, a lot of these capital projects we're trying to work through as fast as we can because they're in the plan for a reason.

When you think about next year, a bit too soon to say, I think just to add on to Nika's comments, As you think about potential network optimization, that's an area where if we see clearer opportunities, there could be some additional capital spend to clear the way for those. Outside of that, we'd expect just, you know, continued investment in food service and pursuing growth as we get our plan together for next year and the following year, thoughts, and then really more of a maintenance level across the balance of the business.

I think it's, again, I think we've got kind of a first look in ranges around our businesses, David, and just given the non-recurring things we were saying, we wanted to get some indication out there. I think we're a little cautious to get into details around each business segment until we have a more formalized plan. But certainly, we continue to, we've commented in our release that we see growth in food service next year offsetting some of these pressures we're seeing in terms of inflation and volume pressures. So I think fair, there's probably a bit of pullback in overall retail offset by food service, but don't really want to get into the buy segment comments yet.

Yeah, and what I would add, without actually too much point getting into the specific segments, but it's a comment that applies to all of retail, our retail businesses.

We expect, as Matt said, inflation, and it's going to be a year where we'll probably chase inflation. Typically, to be able to price, we need to wait to see the inflation. That's how you have the discussion with the retailers. So that's what that initial outlook actually reflects.

Again, we still don't know. We don't have all the details of the plans, but what I can tell you is that I would expect the cereal volume to move closer to the category next year. The reason why we've been lagging the category in the last year is a lot of decisions that we made. So, one is we talked about it in the last two quarters. We adjusted the assortment to have better performance or efficiency in our promotions. That is worth one percentage point of the gap versus the carry, so it's significant. It's 50 percent of the gap versus the carry.

And the rest, as we mentioned, is we lost some distribution in our multimeal brand, and it's kind of the tails can use, the lower velocities can use. But with the distribution going forward, the rest of the portfolio is performing really well. Our premium portfolio, we are gaining market share in our premium portfolio. That is a great deal. So I would anticipate moving closer to the carry. Where the carry is going to be, we don't know. The good news is it's actually slowly improving quarter after quarter. It's getting closer to what we see as the long-term sustainable trend in the carry of minus 1, minus 2%. And we're not there yet, but we're getting closer.

Yeah, absolutely. So let me, if you take the year-over-year decline for that business, 60% of that is our value brands, and most of that is nine lives. And we mentioned last quarter, we relaunched a third of that brand that we were not making money on. We saw elasticities higher than what we anticipated, but at the same time, we like the margins, right? Or we like the margins more than what we used to like, I would say.

So we had to do it. We are actually working as we speak, and we are seeing good progress on kind of resetting the value proposition for that. But at the same time, the cat segment, because it's where the growth is in the category, has been very, very active in terms of promotion. So Nine Lives, that stands essentially for value in the category, has seen a lot of promotions, competitive promotions, and with two of our main competitor runs actually hitting price points below our run. We are not going to follow them. We are very disciplined when we think about promotion. So we don't see that as something that will kind of remain like that over time, but in the short term, that's a lot of the pressure that Nine Lives is under.

Nutrients, so let me tell you the good news. So the good news is where the brand is fully relaunched, and we actively work our assortment to what we call our core assortment, beef, chicken, and salmon. The brand is performing well So our larger retailer is a good example of that We very aggressively manage our assortment We have what we call our must KUs they are on And there the brand went from losing market share year over year to now over the last 13 weeks we are gaining market share So in dry dock that where we measure So we feel good And we are seeing in some other retailers where we are actually transitioning we see a clear inflection point in the performance of the brand Now the transition has taken a bit longer than anticipated It been a bit more messy And the other thing is there a clear difference in performance between again what we call our cop assortment and the flankers case So what we are working on is for the next three set is doing a lot more of what we did in this one of the larger retailers, that is working the assortment to actually focus on that core set of SKUs that perform really well.

Again, the good news is where we will launch those, where they have fully transitioned. We are actually seeing a clear inflection point, and those SKUs actually turn in the top third of the category, and that's very encouraging.

Yeah. So I would actually say there are two things behind that. One is we constantly work to improve the return on spend and the effectiveness of spend. So, almost 100% of our spend now is digital and no linear TV. So, we improve our returns. So, that's across the portfolio, but mostly on the cereal side. So, we haven't pulled support out of the cereal brands. We just got more effective spend. In PEP, some of the ANC pullback is essentially, it's not necessarily ANC that we're pulling out. We are actually deploying dollars differently. So there's more spend on in-store activation or select rollbacks and support, retail support. That is, again, dollars that move from A&C to trade spend to reset some body equations that we talk about.

Do we anticipate some support back in some brands? It's brand by brand. We feel really good about the returns in our serial brands. Really, really good. And we're going to be selecting our support in our pet brands.

Sure. Very fair question. I think just to think about the $500 million run rate, it's really an estimate of what we see the current business earning power is under normalized circumstances. And I think you've got to define the view of normalized circumstances as really, I'd say, three things. It's our balance, I'm sorry, our business being back in balance from a supply and demand standpoint.

Really, our inventory is back to normal. And then also underlying market versus grain-based egg pricing. Happy to say the first two, so our internal supply and demand and our inventories, which we continue to build this past quarter are back to where we'd like to see them in imbalance. So we're really left with that third piece, which is a bit of imbalance between market and grain-based egg pricing. And that's really a function, all three were a function of HPAI last year and throwing the industry and our own supply out of whack. Again, I think the third piece we believe will correct itself just when you have a situation of oversupply is where we believe we are from an industry standpoint.

That is actually not going to survive long when you've got chickens. The cost to feed them is greater than what you can command on the open market. We expect people will take some actions to bring that in line. So I think that collectively is how we really view the underlying run rate and how we view the business heading into 27. Again, we feel we can fully grow off of that number in 27, off the $500 million run rate. But that's our attempt to try and carve those pieces out and get to what we see in underlying volumes and balance of the business where it's running today.

But one thing that I would add is in Q3, we probably took a bit more advantage of the market conditions than what we anticipated. So we exited the quarter with really high inventories. That's part of what is reflected in that number.

Yeah, I think we're hesitant to get into any broad-based assumptions. We really just wanted to rebase 26 to make sure we're very clear on food service run rate, where we're seeing that, and then also the impact of the two divestitures we made. I think beyond that, like I said, we're in the middle stages here and have some first looks and ranges, but really don't want to get into underlying assumptions. I think broad brush, we see those all balancing out, and that's why we're saying a stable, flat year to a rebalanced 26, but really not in a position to get into a lot of details around those assumptions. Certainly as we get to November, we'll be able to walk through much more specifically some of those assumptions.

Gilderoy I can touch on at least. So, again, we're still working on the budget. So, we don't have all the details. But I would actually say volumes are consistent with what we're seeing. Inflation, I mentioned in the last call that we wanted to see, we needed to wait to have a bit more visibility. And I think what we're seeing is coming in probably at the higher end of what we were expecting. I think. So it's within the range that we were expecting, but at the higher end of that range.

And again, that's part of what is reflected in that initial out-of.

Sure. So, yes, to your point, year over year, the Easter timing was a big factor. And then also as a reminder, in Q3 and Q4 of last year, we had pricing adders around AI that were beneficial for the business, and those just like our food service business that were taken off as we got into fiscal 27. So Easter and those pricing editors are the big year-over-year drivers.

And then in addition to that, which is more of the current run rate of the business, certainly as we've seen across the portfolio, but on a relative size basis, just more impactful for refrigerated retail has been the impact of higher fuel costs and freight costs that we seen and we talked about on our prior call And then the other impact is around eggs You know, the dynamic there is we're selling on the market. We're a grain-based buyer of eggs, and you've got a dynamic where market prices have plummeted. So it's a tough situation to try and take pricing in to equalize those when, you know, The early markets are suggesting price of eggs from a market standpoint is much lower than what we're procuring at.

So that's certainly been the dynamic we've seen here in Q3, and that's really maybe the gap to expectations, both internal and external, for Q3.

So, I think you're spot on. So, our assumption right now is that pricing will be more toward the end of the year.

Right now, what we see more of that happening is in PCD. But, again, early on in the process, but that's where we see most of the inflation and what we expect. Some pricing. Volumes, I think it's going to be similar to what we're seeing. So if you think about the carries, again, we don't know exactly what the carry is going to be, but Cedill expected to decline probably 2.5 percent. But again, we don't know. So, I mean, and then in pet, as a reminder, most of, so two-thirds of our portfolio, 60% of our portfolio is dry dog.

That segment is underperforming the carry. So, if you think about dog is underperforming cat, so dog is declining, cat segment is growing, and within dog, dry is underperforming. So, that's going to be a headwind. So, that's where we see some volume softness. But again, it's more driven by the carry than our rounds. We feel that we are going to be moving toward that carry average. But again, considering the mix of our portfolio.

Yes, I think you summarized it well. I mean, that's given our current view, and we'll continue to look at where rates are going and refinance rates. But, you know, just in the last quarter, as an example, our 10-year refinance rate, which is our benchmark, what we look at, has risen 50 basis points. So that certainly goes into the model and the factor. So, assuming rates stay elevated over the next year, that's the right way to think about how we're thinking about capital allocation favoring debt reduction over share repurchases. Again, we still have a pool of cash flow that we can deploy against share repurchases. It's just, and the balance is going to be more on the debt side in this interest rate environment.

Yeah, so if you remember, we lost some business 18 months ago. We were confident that we were going to recover some of that, and that's essentially what's happening.

We have a fairly unique position in the category. We are a premium private label player, so we produce mostly premium products. And that's a segment that is growing in the category. So we are well positioned. So we see more opportunities of that. And then the other opportunity is as we continue integrating the footprint, we see more opportunities of actually expanding private labor as we leverage the full footprint that we have. So we feel good about that. That business is actually performing really well.

Gilderoye Yes, it's a good question. So, the obvious one is e-commerce is growing, outgrowing every channel. And it's both the two pure plays, so that you know, and also the retailer. com businesses. So, all those are outgrowing brick and mortar. Within Brick and Mortar, a pet specialty is still as a channel underperforming relative to mass. So, mass is doing probably slightly better than the average of the carry pet specialty is underperforming, and e-commerce is clearly overperforming.

Well, snap weaving, I wish I knew exactly the answer for that. So most people see it as the headwind. I personally have had this theory, and I think it's what we're seeing in the country. It's probably consistent with that that it could be a tailwind for carries like cereal because of affordability. Cereal is still one of the cheapest carries for breakfast, and it's definitely the cheapest way to actually have the right nutrients in your breakfast. So, we, longer time, I still see it as an opportunity, but the reality is there's a lot of noise.

And I would add, it's not only SNAP, there are changes in the WIC program, the Women, Infant, and Children program, that also impact the category because there were changes to the dairy allocation that impacts the category. So, there's so much noise. So, I don't have the perfect answer for SNAP. I see it as potentially an opportunity for serial, and the reality is if you think about when SNAPs change, that is in our Q1, that's when we started seeing the CARD starting to perform a bit better.

Okay, great. Thanks for all the answers.