Morningstar | Post’s Solid Start to Fiscal 2019 Leaves Our Long-Term Thesis Intact; Shares Fairly Valued
Despite the mid-single-digit uptick in shares, we do not plan to materially alter our $93 fair value estimate for no-moat Post after first-quarter earnings that leave it poised to meet our full-year expectations. While the firm is juggling many strategic initiatives, our long-term thesis remains in place: low-single-digit organic growth and high-teens adjusted EBITDA margins on average over the next decade.Post’s sales dropped 1.5% (3.1% pro forma uptick) on a 20.7% adjusted EBITDA margin. Management raised its adjusted EBITDA guidance to $1.20 billion-$1.24 billion from $1.19 billion-$1.24 billion for fiscal 2019, in line with our $1.22 billion target.
Post reorganized its reported segments, separating the legacy refrigerated food unit into foodservice and refrigerated retail (29% and 19% of first-quarter sales, respectively). Combining the new segments, sales grew 31% on an adjusted EBITDA margin of 19% for the quarter; we expect growth to be front-loaded as the firm closed the Bob Evans deal in the second quarter of fiscal 2018 (our forecast calls for 12% growth on a 20% margin for the full fiscal year). While we have a favorable view of the Bob Evans lineup, many of the other offerings in the segments are difficult to differentiate, such as eggs and refrigerated potato products, leaving little room to build meaningful brand equity and associated pricing power.
Active nutrition (13% of sales) struggled to build on recent top-line momentum, as shake sales decelerated because of short-term capacity constraints; however, profits were strong (flat sales, adjusted EBITDA margin of 22.4%, versus our forecast of 8% growth on 19% margin). We expect top-line gains even as the firm continues to explore an IPO for part of the unit, though we still believe the segment’s margins will wane long term as there are many competitors that offer protein-rich products that appeal to exercisers and casual customers looking for healthier snacks that contain more of the nutrient.
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.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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