Post Holdings: Shift away from promotions is healthy for us and cereal category

By Vince Bamford contact

- Last updated on GMT

Cereals brands contributed to 0.9% organic sales growth for Post
Cereals brands contributed to 0.9% organic sales growth for Post

Related tags: Net sales, Cereal

Post Holdings says a shift away from promotions is set to benefit the cereals category and its own cereals business.

Announcing its second-quarter results, the Honey Bunches of Oats owner reported net sales from its Post Consumer Brands segment – which includes its ready-to-eat cereal business – were up $196.2m year on year to $440.1m. The increase had been driven by the acquisition of MOM Brands in 2015, with sales up 0.8% - or $3.3m – on a comparable basis.

Net sales benefitted from growth in Malt-O-Meal branded bags, Pebbles and co-manufacturing as well as higher average retail prices. The company said this had been partially offset by anticipated reduced distribution for MOM branded boxes and decline in net sales and volume for Great Grains, Shredded Wheat and Grape-Nuts.

Segment Adjusted EBITDA (Earnings before interest, taxes, depreciation and amortization) was $106.3m, up from $62.8m the previous year.

Softness in mass food channel

Speaking to analysts after announcing the results, Post Holdings president and CEO Robert V Vitale said the ready-to-eat cereal category had declined 2% in dollars and 2.5% in lbs, and was being pressured by softness in the mass-market food channel.

He added that while base dollars and lbs were down slightly, incremental (promotional) sales remained soft as a result of reduced merchandising support for the category.

In general we are encouraged to see the sales mix shifting to base from promotion​,” he added. “In the long term we think this is healthy for the category and beneficial for us as we have historically under-indexed on our fair share of promotions​.”

Three of four core brands in growth

Post said that, of its four core brands (Honey Bunches of Oats, Pebbles, Great Grains and Malt-O-Meal branded bags), three had seen growth in consumption dollars and volume in the quarter.

The exception was Honey Bunches of Oats, where base volume growth of 2.5% did not fully offset incremental volume declines of 15% compared against a heavily merchandised period last year​,” he said, adding that the heavily promoted period would cycle through during the third quarter.

Post would be focusing its support on its four core brands, said Vitale, which would include concentrating Great Grains' support on its four core SKUs and reducing support for its ancillary lines.

Reducing cost

He told analysts that growth in cereal would be about managing the product mix and reducing cost.

We are focused on the physical aspects of the business such as the number of distribution centers, the locations of those distribution centers, and optimizing production planning to maximize throughout​,” he said.

Overall Post Holdings net sales in Q2 were $1,27bn, up 20.7% year on year as a result of MOM Brands and this year’s acquisition of Willamette Egg Farms, as well as organic sales growth.

On a comparable basis, net sales rose 0.9% year on year from organic sales growth within the Post Consumer Brands, Active Nutrition and Private Brands segments, but partially offset by a decline in sales in the Michael Foods Group segment. Second-quarter gross profit for was $409.3m, or 32.2% of net sales, an increase of $133.8m year on year.

Post has raised its EBITDA guidance for the full fiscal year from between $810m and $840m to between $893m and $913m.

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