Post Holdings (POST, Financial), a leading consumer packaged goods company known for its cereal and pet food, saw its stock dip by 2% despite exceeding Q4 expectations. Initially, shares rose on strong quarterly results but quickly lost momentum.
The stock's decline is partly due to a broader market pullback and ongoing volume declines across most of Post's segments, excluding one-time benefits. Most segments, except Foodservice, experienced year-over-year volume reductions throughout FY24, testing investor patience.
Management has emphasized focusing on EBITDA and capital allocation, rather than volume. However, sustained volume declines are unsustainable long-term. Post plans to aggressively manage lower-margin businesses, confident that trends will rebound as it optimizes its operations.
- Post's profitability and capital allocation strategy have been successful, with Q4 marking the eighth consecutive quarter of double-digit earnings growth. Although adjusted EBITDA was flat year-over-year in Q4, it rose 45% over two years, split between organic growth and acquisitions. This has generated approximately $1 billion in free cash flow, enabling Post to pursue M&A opportunities.
- M&A has driven steady year-over-year revenue growth over the past two quarters, despite challenging comparisons. In Q4, sales increased by 3.3% to $2.01 billion. Post Consumer Brands, including cereal and pet food, grew 3.9% to $1.05 billion, aided by the $235 million acquisition of Perfection Pet Foods, preventing a 2.7% revenue decline. Positive growth was also seen in Weetabix, Post's U.K. brand, due to the Deeside acquisition and favorable FX rates.
- Sales in Refrigerated Retail, which includes side dishes, eggs, cheese, and sausage, fell by 2.9%. However, the segment saw a 0.7% volume increase, driven by growth in side dishes and sausage.
- Foodservice was the standout in Q4, with a 4.7% sales increase and a 3.6% volume boost, thanks to distribution gains in eggs and potatoes. This segment has consistently grown for Post and is expected to continue into FY25. Post projects adjusted EBITDA for FY25 to be $1.41-1.46 billion, a 2.3% year-over-year increase.
Post's Q4 results highlight management's focus on profitability amid economic challenges, including reduced restaurant traffic and persistent inflation. While demand remains tepid, Post has effectively maintained margins and strengthened its balance sheet, positioning itself to navigate a difficult economic landscape.
