Post Holdings, Inc. (POST) Earnings Call Transcript & Summary

Welcome to the Post Holdings Third Quarter 2026 Earnings Conference Call and Webcast. I would now like to turn the call over to Matthew Mainer, CFO of Post.

Thank you, and good morning. Thank you all for joining us today for Post's Third quarter fiscal 2026 earnings question-and-answer session. I'm joined this morning by Nicolas Catoggio, our COO, Rob is unable to join us today as he is feeling under the weather and Daniel is actually with his wife who is going into labor. Before I turn the call to Nicolas, though, I want to remind you that this call is being recorded, and an audio replay will be available on our website at postholdings.com. During today's call, we make forward-looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call, and management undertakes no obligation to update those statements. The press release and written management remarks that support today's call are hosted on our website in the Investors section. This call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Nicolas.

Thank you, Matt. Good morning, and thanks, everyone, for joining us today. Our third quarter results were slightly ahead of expectations, driven by stronger-than-anticipated performance in foodservice and we are maintaining the midpoint of our fiscal 2026 adjusted EBITDA guidance while narrowing the range. From a capital allocation standpoint, we repurchased 4% of our outstanding shares bringing our total fiscal year-to-date reduction to approximately 17%, while maintaining leverage within our target was. Looking ahead, we believe it's important to provide them -- after adjusting our fiscal 2026 outlook for approximately $80 million of items affecting comparability, we entered fiscal 2027 with a comparable adjusted EBITDA base of approximately $1.48 billion. While our fiscal 2027 budget remains under development, our preliminary outlook is for adjusted EBITDA that is relatively consistent with this level. Despite normalizing foodservice earnings, the absence of divested businesses, anticipated inflation and ongoing volume pressure -- we currently expect targeted pricing actions, cost savings and food service run rate growth to support fiscal 2020 underlying EBITDA generally flat related to the comparable adjusted EBITDA base of approximately $1.48 billion that I mentioned before. With that, operator, please open the line for Q&A.

[Operator Instructions] Our first question is coming from Andrew Lazar with Barclays. .

You highlight a shift from what's been a very aggressive share repurchase activity to really more of a deleveraging posture. I was hoping you could delve into this decision a bit more. Is the concern about the direction of EBITDA in the near term and some of the volume pressure? Given your '27 outlook or something else? And to just change your ability or desire to go after cash accretive deals that may make sense. .

Sure. I can take that one, Andrew. And really, it's consistent with how we've always thought about capital allocation when it comes to M&A versus debt reduction, and that's less a function of a leverage number and really more a function of what we're seeing in interest rates and refinancing impacts. So while we don't have a bond maturity for 4 years we factor in the cash flow impact of refinancing that debt now at higher rates than what would that do to free cash flow. And as we see rates continue to rise from a refinancing standpoint, that just weighs more heavily to say, "Hey, we've got are allocating more capital to debt reduction to make sure we're bringing down debt. So as we get to refinancing, we're not seeing a deterioration of our free cash flow. -- again, we'll still maintain the ability to buy back shares opportunistically. It's just in the current interest rate environment is certainly going to be at a slower pace than the last couple of years. I think on the calendar, if we see rates somehow return, and we're back in a 5% refinancing rate, then our view would change, but that's certainly the big driver and the primary lens, how we look at it. Relative to the M&A point, I think another angle we view is where is a comfortable leverage level, we could take leverage to and where is a comfortable starting point. And that gets us to a similar spot. Hey, mid-4s is somewhere we're comfortable for, but we wouldn't want to see that number rise because that would deteriorate some of the flexibility for cash M&A. So I think that's where the preliminary outlook for next year is more of a consideration. But again, I'd say, consistent with how we've always viewed it .

Got it. And then post has been obviously very proactive in optimizing its capacity and its assets in categories like ready-to-eat cereal, to sort of stay ahead so to speak, of sort of the structural decline in category and maintain solid margins and cash flow. Having already closed, I guess, 3 plants in cereal. given trends in the company's dog food business and maybe some of the potential elasticity impacts of some of the pricing actions that you're talking about here. I guess, are there some similar actions that you can or may need to take in sort of the pet food space around asset optimization sort of like you've done in cereal in the past year or 2.

Thanks, Andrew, and it's a good question. So let me start at -- so we are constantly assessing those opportunities across every business and in particular in PC. So before I get to pet, and I will answer that one. We also just made the decision to shut down 2 peanut butter plants. And that's, again, to your point, it's exactly the same playbook that we used in cereal. That's as we integrated the AW business, and we streamlined that business and exited some business that we were literally losing money. We saw the opportunity to shut down to plants. So that's in the works, that's going to impact and order of magnitude similar to what you saw in cereal in the past. So that's been about bad. It's a good question. So let me tell you that beyond footprint, we haven't even scratched the surface in cost in pet, not the way we did it in cereal. And that's because we wanted to wait until we had the confidence that we had a stable pet business. And we feel that we're getting to that point. We are now at a 30% market share and what we are confident if we can stay in that level, and we think we can because some of the initiatives that we pursue to kind of unrated are starting to actually show encouraging results. If we can state that, call it, 32% market share range, then now we can actually go after cost aggressively. And it's more than just footprint. We -- there are opportunities to simplify the portfolio harmonized formula. And a lot of the things that we did in cereal -- when you do that, then we'll -- that will allow us to actually optimize the footprint. So to your question, yes, we are assessing those. We are very confident that we have a lot of opportunities in Pet, and we actually started to now work on the pipeline of those opportunities.

Matt Smith with Stifel.

The narrowed guidance range for this year implies fourth quarter more or less in line with the performance here in the third quarter, continuing to move towards the normalized run rate, suggesting it steps lower on a sequential basis. So -- can you talk about where the offset to that foodservice moving lower where you see a stronger EBITDA outlook as you look into the fourth quarter here? .

Yes, offset to foodservice pulling back in the quarter?

Yes, as we think about kind of the shape of the P&L in the fourth quarter and look ahead into '27

Yes. So it's more of a -- we saw a refrigerated retail pull back a bit more than anticipated out of the Easter benefit in Q2 in terms of results in Q3. We see some improvement in that business in Q4 and really for the rest of the portfolio, pretty flat. So we're not talking about significant changes overall.

Matt, the CapEx range moved a little higher at the low end for this year. Can you talk about that incremental investment? And as you look ahead to '27, do you have a view of if CapEx remains relatively stable or moves perhaps even higher as you look at some of the supply chain work you're undertaking? .

Sure. I think just really a refinement of this year and the pacing we're seeing on the CapEx range just leads a little bit higher in the range from where we started. But that's definitely a bit of a moving target. And again, a lot of these capital projects we're trying to work through as fast as we can because they're in the plan for a reason. When you think about next year, a bit too soon to say. I think just to add on Nico's comments, as you think about potential network optimization, -- that's an area where if we see clear opportunities, there could be some additional capital spend to clear the way for those outside of that would expect just continued investment in foodservice and pursuing growth as we get our plan together for next year and the following year thoughts and then really more of a maintenance level across the balance of the business.

Our next question is coming from David Palmer with Evercore ISI. .

Great. First of all, best to Rob, and congratulations to Daniel. Big day. I wanted to ask you about I wanted to ask you about the EBITDA guidance, just what's behind the $1.48 billion for PCB EBITDA down mid-single digits, assuming should we assume that PCB organic sales down at 3%, maybe mid-single digits down for PCB with that guidance. Is that reasonable? .

I think it's -- again, I think we've got kind of a first look and ranges around our businesses, David. And just given the nonrecurring things we were saying we wanted to get some indication out there I think we don't -- we're a little cautious to get into details around each business segment until we have a more formalized plan. But certainly, we continue to -- we've commented in our release that we see growth in foodservice next year, offsetting some of these pressures we're seeing in terms of inflation and volume pressures. So I think fair, there's probably a bit of pullback in overall retail offset by food service. but don't really want to get into the by segment comments yet. .

Yes. And what I would add, would add actually to match point get into the specific segments, but it's a comment that applies to all of our retail leases. We expect, as much said, inflation, and it's going to be a year where we will probably change inflation typically to be able to price, we need to wait to see the inflation. That's how you have because with the retailers. So that's what that kind of initial outlook actually reflects. Sort of behind that is looking at long term here in volume trends for your all-in cereal business, including private label, and volume has been down mid-single digits basically the last 2 years now. And I wonder if that's just kind of how you're thinking about that business going forward as an underlying assumption going forward, i.e., it's not going to get better anytime soon or maybe the other? Do you see some real tangible reasons why it could get better over the next fiscal year? And I'll pass it on.

Again, we still don't know. We don't have all the details of the plans. And what I can tell you is that I would expect the CDL volume to move closer to the category next year. The reason why we've been in the car in the last year, it's a lot of decisions that we made. So 1 is we talked about it in the last 2 quarters. We adjusted the assortment to have better performance, efficiency in our promotions. That is worth 1 percentage point of the gap versus the carry so it's significant. It's 50% of the GAAP versus the carry. And the rest, as we mentioned, is we lost some distribution in our multi-mill brand, and it's kind of details, the lower velocity cases. But we have the exclusion going forward, the rest of the portfolio is performing really well. Our premium portfolio, we are gaining market share in our premium portfolio, that is great news. So I would anticipate moving closer to the car. Where the carry -- the good news is actually slowly improving after quarter is getting closer to what we see as the long-term sustainable trend carry of, call it, minus 1%, minus 2%. We're not there yet, but we're getting closer. .

Our next question is coming from Tom Palmer with JPMorgan.

Maybe just follow up on something you touched on earlier in the call related to Andrew's question. the pet business, you made mention that you like the progress that you're starting to see. Can you maybe just get more of an update there on kind of the different brands and where we stand in terms of instituting changes and seeing those on self changes? .

Yes, absolutely. So let me if you take the year-over-year decline for that business, 60% of that is our value brands, and most of that is 9 lives. And we mentioned last quarter -- we relaunched 1/3 of that brand that we were not making money on. We saw elasticities higher than what we anticipated. But at the same time, we like the margins, right? Or we like the margins more than what we used to like that. I would say. So we had to do it. We are actually working as we speak, and we are seeing good progress on kind of resetting the value proposition for that. At the same time, the cat segment because it's where the growth is in the carry has been very, very active in terms of promotion. So 9Lives that stands essentially for value in the carry has seen a lot of promotions competitive promotions and with 2 of our main competitor brands actually hitting price points below our brand. We are not going to follow them. We are very disciplined when we think promotion. So we don't see that as something that will kind of remain like that over time. But in the short term, that's a lot of the pressure that 9Lives is under. Nutrish the -- so let me tell you the good news. And so the good news is where the brand is fully relaunched, and we work actively work our assortment to what we call our core assortment beef chicken and salmon. The brand is performing well. So our largest retailer is a good example of that. We very aggressively manage our assortment. We have what we call our mass hubs, they are on shelf. And there, the brand went from losing market share year-over-year to now over the last 13 weeks, we are gaining market share. So in dry dock, that's what we measure as -- so we feel good. And we are seeing in some other retailers where we are actually transitioning, we see a clear inflection point in the performance of the brand. Now the transition has taken a bit longer than anticipated. It's a little bit more messy and the other thing is there's a clear difference in performance between again, what we call our COP assortment and the [indiscernible]. So what we are working on is for the next reset is doing 1 of the larger retailers that is working the assortment to actually focus on that core set of SKUs that performed really well. Again, the good news is where will we launch those, where they are fully transitioned. We are actually seeing a clear inflection point. and those SKUs actually turn in the top 1/3 of the care. And that's very encouraging.

Thank you for all that detail. I did have 1 other question on PCP. Just looking back over the past 4 quarters, a pretty meaningful pullback in marketing agency activity -- as you look forward, since you're going to start lapping that pullback, is there more to do? Or given some of these on-shelf changes, especially in pet does it make sense to maybe invest back a bit? Just kind of curious your views there.

Yes. Yes. So I would actually say there are 2 things behind that. One is we constantly work to improve the return on spend and the effectiveness of spend. So almost 100% of our spend now is digital and no linear TV. So we improve our returns. So that's on the -- across the portfolio, but mostly in the city of side. So we haven't pulled support out of the cereal brands. We just got more effective spend. In pet some of the NC VAC is essentially -- it's not necessarily ANC that were pollinates. We are actually deploying dollars differently. So there's more spend on in-store activation of select robots and support -- retailer support that is again do that move from ANC to call it, reset somebody equations that we talk about. Do we anticipate some support back in some brands, it's brand by brand. We feel really good about the returns in our cereal, really, really good -- and we're going to be selective in our support in our pet runs.

We'll move on now to Scott Marks with Jefferies.