Post Holdings, Inc.

Moat: 2/5

Understandability: 3/5

Balance Sheet Health: 3/5

Post Holdings, Inc. is a consumer packaged goods holding company, with a diverse portfolio of brands spanning across refrigerated retail, foodservice, and private label categories.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Post Holdings operates as a large, yet less well-known consumer packaged foods conglomerate.

Business Overview

Post Holdings, Inc. operates through several segments, each with its own distinct focus:

1. Post Consumer Brands: This segment is primarily responsible for the production and sale of branded ready-to-eat cereals, including iconic names like Honeycomb, Pebbles, and Malt-O-Meal.

  • Revenue is primarily derived through branded sales in the U.S. market.
  • This is the main driver of returns for the company.

2. Weetabix: Focused on international cereal production, particularly in the United Kingdom (U.K.) and other European markets.

  • While the main market is the U.K, it also distributes in other markets.
  • The segment has relatively stable growth and revenue.

3. Refrigerated Retail: This segment is involved in the manufacture, marketing, and sale of branded refrigerated egg and dairy products, including products such as “Egg Beaters”.

  • Products are primarily sold within the U.S. market.
  • This is one of the more competitive categories.

4. Foodservice: This segment serves the foodservice channels, including restaurants, cafeterias, schools and other institutions.

  • It provides ingredients and finished products.
  • It has the highest growth potential for the company.

5. Private Label: This segment is involved in contract manufacturing as well as selling private-label products, which include ready-to-eat cereal and nut butter, to various retailers. * This is the most volatile portion of the business.

Post Holdings, therefore, has a diversified set of revenue streams from varied industries. It spans from established and predictable markets, such as branded cereals, to those subject to volatility, like the private label markets, and to ones with strong growth potential such as foodservice.

While the company has many well known brands in its portfolio, each of those brands faces very strong competition from alternatives.

The consumer packaged goods industry is highly competitive, with companies constantly trying to differentiate themselves to appeal to customers. This industry is known for large companies that benefit from scale. Companies are always trying to keep on top of trends and provide products that are seen by the consumer to be healthy and good. Some factors that are driving the industry are:

  • Health and wellness trends Consumers are increasingly focused on healthy foods, which pushes companies to innovate around that.
  • E-commerce growth: There is an increasing shift towards online ordering. Companies are increasingly moving into the e-commerce market.
  • Inflation: Companies are increasingly passing on inflation to the consumer. This is hurting price-sensitive consumers and is putting more pressure on margins for companies that have not established high-value brands.

The competitive landscape is very intense in each of Post Holdings’ segments, with many players fighting for market share. * In cereal, companies like Kellogg and General Mills provide direct competition. * In refrigerated foods, competition ranges from smaller regional producers to large national ones. * In foodservice, most competition is based on price.

What makes the company different is its business model, which is focused on acquiring and improving businesses, instead of internal development. However, due to fierce competition, they face pricing pressures in many categories and a need to constantly evolve and provide innovative and interesting products to increase customer demand.

Financial Analysis

Revenue Distribution & Margins Post Holdings generated $6.96 billion in revenues in the latest fiscal year. Most of it comes from the Consumer Brands sector, followed by the Refrigerated retail sector. The company has a pretty solid gross margin, which averages around 30%, but the average net income remains quite low. A key driver behind this is high debt and operating expenses. * The company must constantly innovate and introduce new products in its branded consumer segment to keep ahead of the competition. * The company also tries to keep expenses in check. * The company faces challenges in offsetting rising input costs from inflation, particularly affecting the refrigerated retail sector.

Debt Post Holdings has a considerable amount of debt on its balance sheet.

  • They are actively trying to deleverage their balance sheet.
  • Most of it comes in the form of long-term debt, which is typically issued at a higher rate due to the risk associated with future payouts and inflation.

Liquidity The company has decent liquidity, which has risen in the recent times due to positive operational income.

  • They seem able to cover most of the short term debts.

Recent Concerns, Controversies, and Problems

While Post has had success in certain acquisitions, it has also taken on substantial debt to fund them, making it vulnerable to financial pressures.

  • High inflation has been causing problems to the company’s margin. Companies like Post Holdings, need to have strong pricing power to be able to pass these costs onto customers.
  • In the latest earnings calls, it was noted that their input costs are increasing at a rapid pace.
  • Their ability to generate adequate profits is therefore tied into their ability to implement the right pricing strategies, which depends a lot on their products’ moat.
*  Moreover, acquisitions require lots of integrations, which could result in problems, such as issues during integration that may lead to increased debt, or failure to meet synergies, which will then negatively effect the valuation of the acquired asset.

Moat Rating: 2 / 5

I would give Post Holdings a moat of 2 out of 5. It has clear business advantages, but faces some serious challenges due to its high debt and fierce competition. Justification While the company owns multiple well-known brands in various segments, these brands don’t have a strong moat, except for maybe in a couple of industries, like the breakfast industry. These brands are very susceptible to fast-moving trends, which makes their revenue and profits inconsistent and unpredictable. They are also easy to replicate, since most of their products have little or no unique intellectual property protection. The only advantage the company has is their large scale and ability to utilize their distribution network, which is more of a cost advantage as opposed to a brand value. It is not clear how the company will continue to keep its profitability with so much volatility and without any specific barriers to entry for its competitors. Moreover, the company faces a threat from store-branded products, and their private labels products that are becoming more popular, which makes the products of POST commoditized, making competition even more intense.

Business Resilience

Despite facing several challenges, Post has some strengths that may provide it with business resilience.

  • The company has a diversified portfolio, which is spread across many different sectors.
  • They have a vast distribution network in the U.S.
  • They are also trying to improve efficiencies and introduce cost-cutting measures.

It should be seen if, how their new operating systems and strategies will impact the company for better in the future.

There is a good chance that management can take advantage of the scale and implement the right measures to keep a hold of their markets, but there is also a risk that the intense market dynamics will make the moat obsolete over time, rendering the business less profitable.

Understandability: 3 / 5

I would give Post Holdings a 3 out of 5 in terms of understandability, since it is not a straightforward business. Justification While the company deals in the consumer packaged goods segment, which is relatively simple, it has so many different divisions, operations and strategies that the average investor may find it confusing. The company also uses acquisitions to grow, but there is very little information about their valuation, strategies and synergies that might help drive the stock.

Balance Sheet Health: 3 / 5

I would give Post Holdings a balance sheet health rating of 3 out of 5. Justification While the company has adequate current assets and can easily cover short-term liabilities, the high debt is a major concern. The company is aggressively using credit facilities and borrowing and this debt can negatively affect the future performance and cash flows of the company. The company is trying to reduce the debt but the debt levels are still high. The large intangible portion, specifically goodwill, on its asset side also makes it risky since a lot of that value is dependent upon unconfirmed assumptions of future growth prospects, and may end up in write-downs, if the underlying companies fail to deliver expected synergies.

Overall, Post Holdings is a very complex business. It has some clear strong points, as a major player in the consumer packaged goods segment, but faces major headwinds as well due to high competition, high debt and inability to grow substantially through acquisitions. I would rather look for other investments that have a more clear business model and better returns.