Morningstar | Active Nutrition IPO Plans, 4Q Results Do Not Alter Our Long-Term View of Post
Our $88 per share valuation for no-moat Post Holdings should not see a large change after it reported fourth-quarter earnings. Performance met our targets, leaving intact our long-term thesis (low-single-digit organic growth, high-teens-adjusted EBITDA margins on average over the next decade). We suggest investors wait for a more attractive entry point.For the year, Post saw both 19.7% sales growth and adjusted EBITDA margin (matching our forecast). Management expects $1.19 billion-$1.24 billion in adjusted EBITDA for fiscal 2019, consistent with our $1.2 billion target.
Post announced plans to pursue an IPO for 20% of its active nutrition unit (13% of fiscal 2018 sales). Segment competition is fierce, from rival protein bars and shakes and other foods rich in the nutrient that also cater to casual customers looking for healthier snacks. We support the transaction, and believe it is well-timed, after strong fiscal 2018 segment results (16% sales growth, roughly 230 basis points of adjusted EBITDA margin expansion, to 19.3%). The unit had struggled, particularly Dymatize (which incurred $85 million worth of goodwill impairments, nearly 25% of the acquisition price, since it was purchased in 2013), and we believe the IPO should test its current value. While Post could retain its 80% stake for portfolio diversification and access to a higher growth sector, a subsequent sale of the remainder would not surprise. We expect this deal and the partial private brands divestiture to fuel new acquisitions.
Post’s other units performed near our targets, including refrigerated foods (37% of fiscal 2018 sales), which saw 240 basis points of adjusted EBITDA margin expansion, to nearly 19%, as it integrated Bob Evans. The cereal units (36% of fiscal 2018 sales) saw modest growth, but we believe the roughly 240 and 340 basis points of adjusted EBITDA margin contraction at Post Consumer Brands and Weetabix, respectively, reflect persistent competition in a troubled category.
Post Holdings is a consumer packaged goods holding company. The company's segments are: Post Consumer Brands, which manufactures, markets and sells branded and private label ready-to-eat (RTE) cereal and hot cereal products; Weetabix, which markets and distributes branded and private label RTE cereal products; Foodservice, which produces and distributes egg and potato products; Refrigerated Retail, which produces and distributes side dishes, eggs and egg, cheese, sausage and other refrigerated products; and BellRing Brands, which markets and distributes ready-to-drink protein shakes, other RTD beverages, powders, nutrition bars and supplements in the nutrition category.
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