Post Holdings Reports Results for the Third Quarter of Fiscal Year 2016

ST. LOUIS, Aug. 04, 2016 (GLOBE NEWSWIRE) -- Post Holdings, Inc. (NYSE:POST), a consumer packaged goods holding company, reported results today for the fiscal quarter ended June 30, 2016.

Highlights:

  • Net sales of $1.2 billion
  • Operating profit of $142.0 million and net earnings of $3.3 million
  • Adjusted EBITDA of $231.0 million
  • Reaffirmed Adjusted EBITDA (non-GAAP) guidance range for fiscal year 2016 of $915-$925 million

Third Quarter Consolidated Operating Results

Third quarter net sales were $1,246.1 million, an increase of $34.3 million, or 2.8%, compared to the prior year. The sales increase was driven by the fiscal 2015 acquisition of MOM Brands and the fiscal 2016 acquisition of Willamette Egg Farms. On a comparable basis, net sales declined 4.1% when compared to the same period in fiscal 2015 primarily resulting from an anticipated decline in sales within the Michael Foods Group segment.

Gross profit for the third quarter was $398.2 million or 32.0% of net sales, an increase of $81.7 million compared to the prior year gross profit of $316.5 million or 26.1% of net sales. Selling, general and administrative (SG&A) expenses for the third quarter were $216.0 million or 17.3% of net sales, an increase of $22.7 million compared to the prior year SG&A of $193.3 million or 16.0% of net sales.

Operating profit was $142.0 million for the third quarter, an increase of $60.7 million, or 74.7%, compared to the prior year. Net earnings were $3.3 million for the third quarter, a decline of $20.7 million, or 86.3%, compared to the prior year. Net earnings available to common shareholders were $0.0 million for the third quarter. Adjusted net earnings available to common shareholders were $49.7 million, or $0.62 per diluted common share.

Adjusted EBITDA was $231.0 million for the third quarter, an increase of $43.5 million, or 23.2%, compared to the prior year.

Nine Month Consolidated Operating Results

Net sales for the nine months ended June 30, 2016 were $3,766.0 million, an increase of $427.6 million, or 12.8%, compared to the prior year. Gross profit for the nine month period was $1,170.0 million or 31.1% of net sales, an increase of $328.9 million compared to the prior year gross profit of $841.1 million or 25.2% of net sales. SG&A expenses for the nine month period were $608.6 million or 16.2% of net sales, an increase of $71.7 million compared to the prior year SG&A of $536.9 million or 16.1% of net sales.

Operating profit was $437.4 million for the nine month period, an increase of $265.5 million, or 154.5%, compared to the prior year. Net earnings were $33.7 million for the nine month period, an increase of $76.5 million, or 178.7%, compared to the prior year. For the nine months ended June 30, 2016, net earnings available to common shareholders were $12.0 million, or $0.17 per diluted common share. Adjusted net earnings available to common shareholders were $156.6 million, or $1.98 per diluted common share.

Adjusted EBITDA was $714.4 million for the nine month period, an increase of $250.1 million, or 53.9%, compared to the prior year period.

Post Consumer Brands

Post Consumer Brands includes the ready-to-eat (“RTE”) cereal businesses.

Net sales were $434.5 million for the third quarter, an increase of 21.7%, or $77.6 million, over the reported prior year third quarter. On a comparable basis, net sales increased 1.3%, or $5.7 million, over the same period in fiscal 2015 with volumes up 2.2%. Net sales benefitted from growth in net sales and volume for Malt-O-Meal branded bags and Pebbles, which was partially offset by anticipated reduced distribution for MOM branded boxes and declines in net sales and volume for licensed brands.

Segment profit was $75.2 million and $51.6 million for third quarter 2016 and 2015, respectively. Third quarter 2016 and 2015 segment profit was negatively impacted by integration expenses of $3.3 million and $3.0 million, respectively. Third quarter 2015 segment profit was negatively impacted by an inventory adjustment of $17.0 million resulting from purchase accounting. Segment Adjusted EBITDA was $104.7 million and $90.1 million for third quarter 2016 and 2015, respectively.

For the nine months ended June 30, 2016, net sales were $1,286.2 million, an increase of $467.9 million over the reported prior year period. Segment profit was $212.8 million, compared to $140.0 million in the prior year period. Segment profit for the nine months ended June 30, 2016 and June 30, 2015 was negatively impacted by integration expenses of $17.0 million and $3.0 million, respectively. Segment profit for the nine months ended June 30, 2015 was negatively impacted by an inventory adjustment of $17.0 million resulting from purchase accounting. Segment Adjusted EBITDA was $308.2 million, compared to $202.7 million in the prior year period.

Michael Foods Group

Michael Foods Group includes the egg, potato, cheese and pasta businesses.

Net sales were $518.0 million for the third quarter, a decline of 8.3%, or $46.7 million, over the reported prior year third quarter. Net sales included $18.2 million from the acquisition of Willamette Egg Farms. On a comparable basis, net sales declined 11.4%, or $66.4 million, over the same period in fiscal 2015. Egg sales, on a comparable basis, declined 15.5% as a result of reduced market-based pricing in the ingredient and retail shell egg channels. Egg volume declines continue to abate with a decline in the current quarter of 12.6% compared to a decline of 15.9% in the second quarter of fiscal 2016, on a comparable basis. The balance of the Michael Foods Group portfolio sales declined 2.5%, with volume up 5.6%.

Segment profit was $65.6 million and $48.4 million for third quarter 2016 and 2015, respectively, with egg, potato, cheese and pasta products all achieving growth. Segment profit for the third quarter of 2016 included $0.5 million from the acquisition of Willamette Egg Farms. Segment Adjusted EBITDA was $109.2 million and $81.2 million for third quarter 2016 and 2015, respectively.

For the nine months ended June 30, 2016, net sales were $1,662.1 million, a decline of 3.0%, or $52.2 million, over the reported prior year period. Net sales included $70.2 million from the acquisition of Willamette Egg Farms. Segment profit was $236.0 million, compared to $130.3 million in the prior year period. Segment profit for the nine months ended June 30, 2016 included $13.1 million from the acquisition of Willamette Egg Farms. Segment Adjusted EBITDA was $349.1 million, compared to $231.3 million in the prior year period.

Active Nutrition

Active Nutrition includes the protein shakes, bars and powders and nutritional supplement products of the PowerBar, Premier Protein and Dymatize brands.

Net sales were $156.1 million for the third quarter, an increase of 1.5%, or $2.3 million, over the reported prior year third quarter. On a comparable basis, net sales increased 4.7%, or $7.0 million, over the same period in fiscal 2015, with strong growth for Premier Protein branded products partially offset by anticipated declines at Dymatize. Segment profit was $17.7 million and $7.9 million for third quarter 2016 and 2015, respectively. Segment Adjusted EBITDA was $24.1 million and $15.5 million for third quarter 2016 and 2015, respectively.

For the nine months ended June 30, 2016, net sales were $415.7 million, a decline of 0.7%, or $3.1 million, over the reported prior year period. Segment profit (loss) was $42.0 million, compared to ($2.9) million in the prior year period. Segment Adjusted EBITDA was $60.8 million, compared to $24.3 million in the prior year period.

Private Brands

Private Brands primarily includes peanut and other nut butters, dried fruit and nuts, and granola.

Net sales were $137.9 million for the third quarter, an increase of 0.9%, or $1.2 million, over the reported prior year third quarter. Peanut and other nut butters and dried fruit and nut sales declined 0.9%, with volume up 5.1%. Granola and cereal sales increased 8.1%, with volume up 8.0%. Segment profit was $9.0 million and $10.5 million for third quarter 2016 and 2015, respectively. Segment Adjusted EBITDA was $15.2 million and $17.5 million for third quarter 2016 and 2015, respectively.

For the nine months ended June 30, 2016, net sales were $403.2 million, an increase of 3.5%, or $13.8 million, over the reported prior year period. Segment profit was $29.6 million, compared to $27.8 million in the prior year period. Segment Adjusted EBITDA was $48.2 million, compared to $48.7 million in the prior year period.

Interest, Other Expense and Income Tax

Interest expense, net was $77.3 million for the third quarter compared to $65.0 million for the prior year quarter. For the nine months ended June 30, 2016, interest expense, net was $232.3 million, compared to $184.9 million for the nine months ended June 30, 2015. The increase for both the quarter and the nine month period was driven by a rise in Post’s debt principal balance outstanding primarily resulting from the May 2015 term loan issuance in connection with financing the MOM Brands acquisition.

Other expense (income) relates to non-cash mark-to-market adjustments on interest rate swaps and was $62.6 million for the third quarter of fiscal 2016, compared to income of ($41.9) million for the third quarter of fiscal 2015, and was $169.4 million for the nine month period in fiscal 2016, compared to $41.5 million for the nine month period in fiscal 2015.

Income tax (benefit) provision was ($1.2) million, or an effective income tax rate of negative (57.1%), in the third quarter of fiscal 2016, compared to an expense of $34.2 million and an effective income tax rate of 58.8% in the third quarter of fiscal 2015. For the nine months ended June 30, 2016, income tax expense was $2.0 million, or an effective income tax rate of 5.6%, compared to a benefit of ($11.7) million and an effective income tax rate of 21.5% for the nine months ended June 30, 2015. The effective income tax rate for the nine months ended June 30, 2016 was favorably impacted by discrete items that occurred in the second quarter of fiscal 2016 which primarily related to Post’s decision to divest certain assets of its Michael Foods Group Canadian egg business.

Update on Financing

On August 3, 2016, Post issued $1,750.0 million aggregate principal amount of 5.00% senior notes due 2026 at par. Post will use the proceeds to fund its cash tender offer for approximately $1,242.0 million of its 7.375% senior notes due 2022 and to repay the $374.4 million outstanding principal balance on its term loan.

Outlook

Post management reaffirmed its fiscal 2016 Adjusted EBITDA guidance range of $915-$925 million. Of the previously announced incremental $25 million investment in brand building and productivity, approximately $9 million remains to be incurred in the fourth quarter of fiscal year 2016.

The Company provides guidance only on a non-GAAP basis and does not provide a reconciliation of its forward-looking Adjusted EBITDA non-GAAP guidance measure to the mostly directly comparable GAAP measure due to the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, including adjustments that could be made for non-cash mark-to-market adjustments and settlements on interest rate swaps, transaction and integration costs, restructuring and plant closure costs, losses on assets held for sale and other charges reflected in the Company’s reconciliation of historic numbers, the amounts of which, based on historical experience, could be significant. For additional information regarding Post’s non-GAAP measures, see the related explanations presented under “Use of Non-GAAP Measures” later in this release.

Post management has updated its fiscal 2016 capital expenditures expectations to range between $135-$145 million, including approximately $15 million related to growth activities and approximately $15 million related to integration activities. Maintenance capital expenditures for fiscal 2016 are expected to range between $105-$115 million.

Use of Non-GAAP Measures

The Company uses certain non-GAAP measures in this release to supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP). These non-GAAP measures include total segment profit, Adjusted net earnings (loss) available to common shareholders, Adjusted diluted net earnings (loss) per common share, Adjusted EBITDA and segment Adjusted EBITDA. The reconciliation of these non-GAAP measures to the most directly comparable GAAP measure are provided at the end of this release under “Explanation and Reconciliation of Non-GAAP Measures”.

Management uses certain of these non-GAAP measures, including Adjusted EBITDA and segment Adjusted EBITDA, as key metrics in the evaluation of underlying Company and segment performance, in making financial, operating and planning decisions, and, in part, in the determination of cash bonuses for its executive officers and employees. Management believes the use of these non-GAAP measures provides increased transparency and assists investors in understanding the underlying operating performance of the Company and its segments and in the analysis of ongoing operating trends. Non-GAAP measures are not prepared in accordance with GAAP, as they exclude certain items as described later in this release. These non-GAAP measures may not be comparable to similarly-titled measures of other companies. For additional information regarding the Company’s non-GAAP measures, see the related explanations provided under “Explanation and Reconciliation of Non-GAAP Measures” later in this release.

Conference Call to Discuss Earnings Results and Outlook

The Company will host a conference call on Friday, August 5, 2016 at 9:00 a.m. Eastern Time to discuss financial results for the third quarter of fiscal year 2016 and fiscal year 2016 outlook and to respond to questions. Robert V. Vitale, President and Chief Executive Officer, and Jeff A. Zadoks, Senior Vice President and Chief Financial Officer, will participate in the call.

Interested parties may join the conference call by dialing (877) 540-0891 in the United States and (678) 408-4007 from outside of the United States. The conference identification number is 46697305. Interested parties are invited to listen to the webcast of the conference call, which can be accessed by visiting the Investor Relations section of the Company’s website at www.postholdings.com.

A replay of the conference call will be available through Friday, August 12, 2016 by dialing (800) 585-8367 in the United States and (404) 537-3406 from outside of the United States and using the conference identification number 46697305. A webcast replay will also be available for a limited period on the Company’s website in the Investor Relations section.

Forward-Looking Statements

Certain matters discussed in this release and on the conference call are forward-looking statements, including our Adjusted EBITDA outlook for fiscal 2016, expectations regarding brand building and productivity expenditures, and our capital expenditures expectations, including expectations for growth and integration activities and maintenance. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include our ability to realize the synergies contemplated by the acquisition of MOM Brands; our ability to promptly and effectively integrate the MOM Brands and Post Foods businesses; our high leverage and substantial debt, including covenants that restrict the operation of our business; our ability to service our outstanding debt or obtain additional financing, including both secured and unsecured debt; our ability to continue to compete in our product markets and our ability to retain our market position; our ability to identify and complete acquisitions, manage our growth and integrate acquisitions; changes in our cost structure, management, financing and business operations; significant volatility in the costs of certain raw materials, commodities, packaging or energy used to manufacture our products; our ability to maintain competitive pricing, introduce new products or successfully manage our costs; our ability to successfully implement business strategies to reduce costs; impairment in the carrying value of goodwill or other intangibles; the loss or bankruptcy of a significant customer; allegations that our products cause injury or illness, product recalls and product liability claims and other litigation; our ability to anticipate and respond to changes in consumer preferences and trends; changes in economic conditions and consumer demand for our products; disruptions in the U.S. and global capital and credit markets; labor strikes, work stoppages or unionization efforts; legal and regulatory factors, including advertising and labeling laws, changes in food safety and laws and regulations governing animal feeding operations; our ability to comply with increased regulatory scrutiny related to certain of our products and/or international sales; the ultimate impact litigation may have on us, including the lawsuit (to which Michael Foods is a party) alleging violations of federal and state antitrust laws in the egg industry; our reliance on third party manufacturers for certain of our products; disruptions or inefficiencies in supply chain; our ability to recognize the expected benefits of the closing of our Farmers Branch, Texas manufacturing facility as well as our Parsippany, New Jersey office; our ability to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, including with respect to acquired businesses; business disruptions caused by information technology failures and/or technology hacking; fluctuations in foreign currency exchange rates; consolidations in the retail grocery and foodservice industries; changes in estimates in critical accounting judgments and changes to or new laws and regulations affecting our business; losses or increased funding and expenses related to our qualified pension and other post-retirement plans; loss of key employees; our ability to protect our intellectual property; changes in weather conditions, natural disasters, disease outbreaks and other events beyond our control; our ability to successfully operate our international operations in compliance with applicable laws and regulations; and other risks and uncertainties described in the Company’s filings with the Securities and Exchange Commission. These forward-looking statements represent the Company’s judgment as of the date of this release. The Company disclaims, however, any intent or obligation to update these forward-looking statements.

About Post Holdings, Inc.

Post Holdings, Inc., headquartered in St. Louis, Missouri, is a consumer packaged goods holding company operating in the center-of-the-store, foodservice, food ingredient, private label, refrigerated and active nutrition food categories. Through its Post Consumer Brands business, Post is a leader in the ready-to-eat cereal category and offers a broad portfolio that includes recognized brands such as Honey Bunches of Oats®, Pebbles™, Great Grains®, Grape-Nuts®, Honeycomb®, Frosted Mini Spooners®, Golden Puffs®, Cinnamon Toasters®, Fruity Dyno-Bites®, Cocoa Dyno-Bites®, Berry Colossal Crunch® and Malt-O-Meal® hot wheat cereal. Post’s Michael Foods Group supplies value-added egg products, refrigerated potato products, cheese and other dairy case products and dry pasta products to the foodservice, food ingredient and private label retail channels and markets retail brands including All Whites®, Better’n Eggs®, Simply Potatoes® and Crystal Farms®. Post’s active nutrition platform aids consumers in adopting healthier lifestyles through brands such as PowerBar®, Premier Protein® and Dymatize®. Post’s Private Brands Group manufactures private label peanut butter and other nut butters, dried fruits, baking and snacking nuts, cereal and granola. For more information, visit www.postholdings.com.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(in millions, except per share data)
Three Months Ended
June 30,
Nine Months Ended
June 30,
2016 2015 2016 2015
Net Sales $1,246.1 $1,211.8 $3,766.0 $3,338.4
Cost of goods sold 847.9 895.3 2,596.0 2,497.3
Gross Profit 398.2 316.5 1,170.0 841.1
Selling, general and administrative expenses 216.0 193.3 608.6 536.9
Amortization of intangible assets 38.2 36.7 114.4 103.9
Other operating expenses, net 2.0 5.2 9.6 28.4
Operating Profit 142.0 81.3 437.4 171.9
Interest expense, net 77.3 65.0 232.3 184.9
Other expense (income) 62.6 (41.9) 169.4 41.5
Earnings (Loss) before Income Taxes 2.1 58.2 35.7 (54.5)
Income tax (benefit) provision (1.2) 34.2 2.0 (11.7)
Net Earnings (Loss) 3.3 24.0 33.7 (42.8)
Preferred stock dividends (3.3) (4.2) (21.7) (12.7)
Net Earnings (Loss) Available to Common Shareholders $ $19.8 $12.0 $(55.5)
Net Earnings (Loss) per Common Share:
Basic $ $0.34 $0.17 $(1.02)
Diluted $ $0.33 $0.17 $(1.02)
Weighted-Average Common Shares Outstanding:
Basic 69.2 58.9 68.6 54.4
Diluted 69.2 60.8 70.1 54.4


CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(in millions)
June 30, 2016 September 30, 2015
ASSETS
Current Assets
Cash and cash equivalents $1,033.2 $841.4
Restricted cash 2.7 18.8
Receivables, net 367.0 366.2
Inventories 508.6 465.3
Deferred income taxes 47.7
Prepaid expenses and other current assets 51.6 42.3
Total Current Assets 1,963.1 1,781.7
Property, net 1,339.9 1,333.2
Goodwill 3,081.5 3,072.8
Other intangible assets, net 2,873.1 2,969.3
Other assets 58.1 63.4
Total Assets $9,315.7 $9,220.4
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Current portion of long-term debt $15.9 $16.0
Accounts payable 227.8 265.2
Other current liabilities 370.2 329.8
Total Current Liabilities 613.9 611.0
Long-term debt 4,493.0 4,511.4
Deferred income taxes 737.4 831.8
Other liabilities 431.2 290.2
Total Liabilities 6,275.5 6,244.4
Shareholders’ Equity
Preferred stock 0.1
Common stock 0.7 0.6
Additional paid-in capital 3,537.7 3,538.8
Accumulated deficit (387.3) (421.0)
Accumulated other comprehensive loss (57.5) (89.1)
Treasury stock, at cost (53.4) (53.4)
Total Shareholders’ Equity 3,040.2 2,976.0
Total Liabilities and Shareholders’ Equity $9,315.7 $9,220.4


SELECTED CONDENSED CONSOLIDATED CASH FLOW INFORMATION (Unaudited)
(in millions)
Nine Months Ended
June 30,
2016 2015
Cash provided by (used in):
Operating activities $367.5 $261.7
Investing activities, including capital expenditures of $81.1 and $74.3 (150.9) (1,238.7)
Financing activities (25.6) 984.2
Effect of exchange rate changes on cash and cash equivalents 0.8 (1.3)
Net increase in cash and cash equivalents $191.8 $5.9


SEGMENT INFORMATION (Unaudited)
(in millions)
Three Months Ended
June 30,
Nine Months Ended
June 30,
2016 2015 2016 2015
Net Sales
Post Consumer Brands$434.5 $356.9 $1,286.2 $818.3
Michael Foods Group518.0 564.7 1,662.1 1,714.3
Active Nutrition156.1 153.8 415.7 418.8
Private Brands137.9 136.7 403.2 389.4
Eliminations(0.4) (0.3) (1.2) (2.4)
Total $1,246.1 $1,211.8 $3,766.0 $3,338.4
Segment Profit (Loss)
Post Consumer Brands$75.2 $51.6 $212.8 $140.0
Michael Foods Group65.6 48.4 236.0 130.3
Active Nutrition17.7 7.9 42.0 (2.9)
Private Brands9.0 10.5 29.6 27.8
Total segment profit 167.5 118.4 520.4 295.2
General corporate expenses and other25.5 37.1 83.0 123.3
Interest expense, net77.3 65.0 232.3 184.9
Other expense (income)62.6 (41.9) 169.4 41.5
Earnings (Loss) before Income Taxes 2.1 58.2 35.7 (54.5)

SUPPLEMENTAL SEGMENT INFORMATION

Results include one acquisition completed in fiscal 2016 and three acquisitions completed in fiscal 2015. Each acquired business is included in results as of its respective closing date as listed below. Results also include one divestiture completed in fiscal 2016 and one divestiture completed in fiscal 2015. Each divested business is no longer included in results as of its respective sale date as listed below.

Comparable basis, as referred to within the text of this release, is defined as a comparison of the three-month period ended June 30, 2016 to the same three-month period in fiscal 2015, including results for the periods of time Post owned each of the acquired businesses and the respective periods of time Post did not own the businesses and excluding results for divestitures for both periods.

Business Type Segment Effective Date
PowerBar and related assets Acquisition Active Nutrition October 1, 2014
American Blanching Company Acquisition Private Brands November 1, 2014
MOM Brands Company Acquisition Post Consumer Brands May 4, 2015
Australian business and Musashi trademark Divestiture Active Nutrition July 1, 2015
Willamette Egg Farms Acquisition Michael Foods Group October 3, 2015
Certain assets of MFI Food Canada Ltd. Divestiture Michael Foods Group March 1, 2016

SUPPLEMENTAL MICHAEL FOODS GROUP SEGMENT INFORMATION

The below table presents supplemental net sales and volume percentage changes for the current quarter compared to the prior year quarter for other products within the Michael Foods Group segment.

Product Net Sales Percentage Change Volume Percentage Change
Potato (1.1%) (2.8%)
Cheese (2.1%) (1.1%)
Pasta (3.9%) 11.9%

EXPLANATION AND RECONCILIATION OF NON-GAAP MEASURES

The Company uses certain non-GAAP measures in this release to supplement the financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP). These non-GAAP measures include total segment profit, Adjusted net earnings (loss) available to common shareholders, Adjusted diluted net earnings (loss) per common share, Adjusted EBITDA and segment Adjusted EBITDA. The reconciliation of these non-GAAP measures to the most directly comparable GAAP measure are provided in the tables following this section.

Non-GAAP measures are not prepared in accordance with GAAP, as they exclude certain items as described below. These non-GAAP measures may not be comparable to similarly-titled measures of other companies.

Total segment profit
Total segment profit represents the aggregation of the segment profit for each of the Company’s reportable segments. The Company believes total segment profit is useful to investors in evaluating the Company’s operating performance because it facilitates period-to-period comparison of results of segment operations.

Adjusted net earnings (loss) available to common shareholders and Adjusted diluted net earnings (loss) per common share
The Company believes Adjusted net earnings (loss) available to common shareholders and Adjusted diluted net earnings (loss) per common share are useful to investors in evaluating the Company’s operating performance because they exclude items that affect the comparability of the Company’s financial results and could potentially distort an understanding of the trends in business performance.

Adjusted net earnings (loss) available to common shareholders and Adjusted diluted net earnings (loss) per common share are adjusted for the following items:

a. Non-cash mark-to-market adjustments on interest rate swaps: The Company has excluded the impact of non-cash mark-to-market adjustments on interest rate swaps due to the inherent uncertainty and volatility associated with such amounts based on changes in assumptions with respect to estimates of fair value and economic conditions and the amount and frequency of such adjustments are not consistent.

b. Transaction costs and integration costs: The Company has excluded transaction costs related to professional service fees and other related costs associated with signed and closed business combinations and divestitures and integration costs incurred to integrate acquired or to-be-acquired businesses as the Company believes that these exclusions allow for more meaningful evaluation of the Company’s current operating performance and comparisons of the Company’s operating performance to other periods. The Company believes such costs are generally not relevant to assessing or estimating the long-term performance of acquired assets as part of the Company or the performance of the divested assets, and are not factored into management’s evaluation of potential acquisitions or its performance after completion of acquisition or the evaluation to divest an asset. In addition, the frequency and amount of such charges varies significantly based on the size and timing of the acquisitions and divestitures and the maturities of the businesses being acquired or divested. Also, the size, complexity and/or volume of past acquisitions and divestitures, which often drive the magnitude of such expenses, may not be indicative of the size, complexity and/or volume of future acquisitions or divestitures. By excluding these expenses, management is better able to evaluate the Company’s ability to utilize its existing assets and estimate the long-term value that acquired assets will generate for the Company. Furthermore, the Company believes that the adjustments of these items more closely correlate with the sustainability of the Company’s operating performance.

c. Restructuring and plant closure costs, including accelerated depreciation: The Company has excluded certain costs associated with facility closures as the amount and frequency of such adjustments are not consistent. Additionally, the Company believes that these costs do not reflect expected ongoing future operating expenses and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.

d. Loss on assets held for sale: The Company has excluded losses recorded to adjust the carrying value of facilities and other assets classified as held for sale as such adjustments represent non-cash items and the amount and frequency of such adjustments are not consistent. Additionally, the Company believes that these costs do not reflect expected ongoing future operating expenses and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.

e. Provision for legal settlement: The Company has excluded gains and losses recorded to recognize a receivable or liability associated with an anticipated resolution of certain ongoing litigation as the Company believes such gains and losses do not reflect expected ongoing future operating expenses and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.

f. Inventory valuation adjustments on acquired businesses: The Company has excluded the impact of fair value step-up adjustments to inventory in connection with business combinations as such adjustments represent non-cash items, are not consistent in amount and frequency and are significantly impacted by the timing and size of the Company’s acquisitions.

g. Mark-to-market adjustments on commodity hedges: The Company has excluded the impact of mark-to-market adjustments on commodity hedges due to the inherent uncertainty and volatility associated with such amounts based on changes in assumptions with respect to fair value estimates. Additionally, these adjustments are primarily non-cash items and the amount and frequency of such adjustments are not consistent.

h. Gain on sale of business and gain on sale of plant: The Company has excluded gains recorded on divestitures as such adjustments represent non-cash items and the amount and frequency of such adjustments are not consistent. Additionally, the Company believes that these costs do not reflect expected future ongoing operating expenses and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.

i. Foreign currency gains and losses on intercompany loans: The Company has excluded the impact of foreign currency fluctuations related to intercompany loans denominated in currencies other than the functional currency of the respective legal entity in evaluating company performance to allow for more meaningful comparisons of performance to other periods.

j. Gain from insurance and indemnification proceeds: The Company has excluded gains related to insurance and indemnification proceeds received in excess of the carrying value of damaged assets as the Company believes such gains do not reflect expected future ongoing operating expenses and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.

k. Gain on change in fair value of acquisition earn-out: The Company has excluded non-cash gains recorded to adjust the carrying value of contingent earn-out payments related to acquisitions due to the inherent uncertainty and volatility associated with such amounts based on changes in assumptions and the amount and frequency of such adjustments are not consistent.

l. Purchase price adjustment on acquisition: The Company has excluded adjustments to the purchase price of an acquisition in excess of one year beyond the acquisition date as such amounts are inconsistent in amount and frequency. The Company believes such costs are generally not relevant to assessing or estimating the long-term performance of acquired assets as part of the Company, and are not factored into the performance of acquisitions after completion of acquisitions.

m. Spin-Off costs/post Spin-Off costs: The Company has excluded certain expenses incurred to effect its separation from its former parent and to support its transition into a separate stand-alone entity as the amount and frequency of such adjustments are not consistent. Additionally, the Company believes that these costs do not reflect expected future ongoing operating expenses and do not contribute to a meaningful evaluation of the Company’s current operating performance or comparisons of the Company’s operating performance to other periods.

n. Tax: The Company has included the tax impact of the non-GAAP adjustments using either the effective income tax rate or the statutory rate, as noted in the footnote of the reconciliation table. In certain instances, the Company’s GAAP effective income tax rate as reported in the relevant period is not representative of the tax expense impact of the adjustments. In those circumstances, the Company utilizes the statutory rate to determine the tax effect of the adjustments in its calculation of Adjusted net earnings available to common shareholders and Adjusted diluted net earnings per common share.

o. Preferred stock: The Company has included dividend and share adjustments related to its convertible preferred stock using the “if-converted” method when the convertible preferred stock is not anti-dilutive.

Adjusted EBITDA and segment Adjusted EBITDA
The Company believes that Adjusted EBITDA is useful to investors in evaluating the Company’s operating performance and liquidity because (i) we believe it is widely used to measure a company’s operating performance without regard to items such as depreciation and amortization, which can vary depending upon accounting methods and the book value of assets, (ii) it presents a measure of corporate performance exclusive of the Company’s capital structure and the method by which the assets were acquired, and (iii) it is a financial indicator of a company’s ability to service its debt, as the Company is required to comply with certain covenants and limitations that are based on variations of EBITDA in the Company’s financing documents. Variations of EBITDA may include, but are not limited to, further adjustments to the Company’s reported Adjusted EBITDA to give effect to the Company’s completed acquisitions as if all completed acquisitions were owned for the entire calculation period. The Company believes that segment Adjusted EBITDA is useful to investors in evaluating the Company’s operating performance because it allows for assessment of the operating performance of each reportable segment. Management uses Adjusted EBITDA to provide forward-looking guidance and uses Adjusted EBITDA and segment Adjusted EBITDA to forecast future results.

Adjusted EBITDA and segment Adjusted EBITDA reflect adjustments for interest expense, net, income tax provision (benefit), depreciation and amortization, as well as the adjustments discussed above reflected in Adjusted net earnings (loss) available to common shareholders and Adjusted diluted earnings (loss) per common share, but do not adjust for tax and preferred stock (as discussed above), and adjust for the following item:

p. Non-cash stock-based compensation: The Company’s compensation strategy includes the use of stock-based compensation to attract and retain executives and employees by aligning their long-term compensation interests with shareholders’ investment interests. The Company has excluded non-cash stock-based compensation as non-cash stock-based compensation can vary significantly based on reasons such as the timing, size and nature of the awards granted and subjective assumptions which are unrelated to operational decisions and performance in any particular period and do not contribute to meaningful comparisons of the Company’s operating performance to other periods.

RECONCILIATION OF NET EARNINGS (LOSS) AVAILABLE TO COMMON SHAREHOLDERS
TO ADJUSTED NET EARNINGS AVAILABLE TO COMMON SHAREHOLDERS (Unaudited)
(in millions, except per share data)
Three Months Ended
June 30,
Nine Months Ended
June 30,
2016 2015 2016 2015
Net Earnings (Loss) Available to Common Shareholders$ $19.8 $12.0 $(55.5)
Adjustments:
Non-cash mark-to-market adjustments on interest rate swaps62.6 (41.9) 169.4 41.5
Transaction costs 5.4 1.1 12.1
Integration costs3.3 4.4 17.0 9.3
Restructuring and plant closure costs, including accelerated depreciation0.7 11.7 6.4 16.3
Loss on assets held for sale1.1 4.9 9.5 27.4
Provision for legal settlement10.0 10.0
Inventory valuation adjustments on acquired businesses 17.0 1.1 20.2
Mark-to-market adjustments on commodity hedges(6.4) (9.7) (5.4) (11.1)
Gain on sale of business (2.0)
Foreign currency loss (gain) on intercompany loans0.1 (0.5) (0.1) 3.6
Gain from insurance and indemnification proceeds (1.0)
Gain on change in fair value of acquisition earn-out (0.7)
Purchase price adjustment on acquisition (0.2)
Spin-Off costs/post Spin-Off costs 0.1 0.6
Total Net Adjustments71.4 (8.6) 207.0 118.0
Income tax effect on adjustments (1)(25.0) 5.1 (72.5) (25.4)
Preferred stock dividends adjustment (2)3.3 10.1
Adjusted Net Earnings Available to Common Shareholders$49.7 $16.3 $156.6 $37.1
Weighted-Average Shares Outstanding - Diluted (2)80.0 60.8 79.2 56.1
Adjusted Diluted Net Earnings per Common Share$0.62 $0.27 $1.98 $0.66
(1) Income tax effect on adjustments is calculated using the statutory tax rate of 35% for the three months ended June 30, 2016 and 35% for the nine months ended June 30, 2016 and the effective income tax rate of 58.8% for the three months ended June 30, 2015 and 21.5% for the nine months ended June 30, 2015.
(2) Adjusted Diluted Net Earnings per Common Share for the three months ended June 30, 2016 and the nine months ended June 30, 2016 both include 9.1 million incremental shares on the assumed conversion of remaining outstanding preferred stock and exclude $3.3 million and $10.1 million, respectively, of preferred stock dividends.


RECONCILIATION OF NET EARNINGS (LOSS) TO ADJUSTED EBITDA (Unaudited)
(in millions)
Three Months Ended
June 30,
Nine Months Ended
June 30,
2016 2015 2016 2015
Net Earnings (Loss) 3.3 24.0 33.7 (42.8)
Income tax (benefit) provision (1.2) 34.2 2.0 (11.7)
Interest expense, net 77.3 65.0 232.3 184.9
Non-cash mark-to-market adjustments on interest rate swaps 62.6 (41.9) 169.4 41.5
Depreciation and amortization, including accelerated depreciation 75.7 70.4 226.9 196.7
Non-cash stock-based compensation 4.5 3.5 12.9 20.2
Transaction costs 5.4 1.1 12.1
Integration costs 3.3 4.4 17.0 9.3
Restructuring and plant closure costs 0.7 10.7 6.0 15.3
Loss on assets held for sale 1.1 4.9 9.5 27.4
Provision for legal settlement 10.0 10.0
Inventory valuation adjustments on acquired businesses 17.0 1.1 20.2
Mark-to-market adjustments on commodity hedges (6.4) (9.7) (5.4) (11.1)
Gain on sale of business (2.0)
Foreign currency loss (gain) on intercompany loans 0.1 (0.5) (0.1) 3.6
Gain from insurance and indemnification proceeds (1.0)
Gain on change in fair value of acquisition earn-out (0.7)
Purchase price adjustment on acquisition (0.2)
Spin-Off costs/post Spin-Off costs 0.1 0.6
Adjusted EBITDA $231.0 $187.5 $714.4 $464.3
Adjusted EBITDA as a percentage of Net Sales 18.5% 15.5% 19.0% 13.9%


RECONCILIATION OF SEGMENT PROFIT TO ADJUSTED EBITDA (Unaudited)
QUARTER ENDED JUNE 30, 2016
(in millions)
Post
Consumer
Brands
Michael
Foods
Group
Active
Nutrition
Private
Brands
Corporate/
Other
Total
Segment Profit $75.2 $65.6 $17.7 $9.0 $ $167.5
General corporate expenses and other (25.5) (25.5)
Operating Profit (Loss) 75.2 65.6 17.7 9.0 (25.5) 142.0
Depreciation and amortization, including accelerated depreciation 26.1 35.5 6.4 6.2 1.5 75.7
Non-cash stock-based compensation 4.5 4.5
Integration costs 3.3 3.3
Restructuring and plant closure costs 0.7 0.7
Loss on assets held for sale 1.1 1.1
Provision for legal settlement 10.0 10.0
Mark-to-market adjustments on commodity hedges 0.1 (2.0) (4.5) (6.4)
Foreign currency loss on intercompany loans 0.1 0.1
Adjusted EBITDA $104.7 $109.2 $24.1 $15.2 $(22.2) $231.0
Adjusted EBITDA as a percentage of Net Sales 24.1% 21.1% 15.4% 11.0% 18.5%


RECONCILIATION OF SEGMENT PROFIT TO ADJUSTED EBITDA (Unaudited)
QUARTER ENDED JUNE 30, 2015
(in millions)
Post
Consumer
Brands
Michael
Foods
Group
Active
Nutrition
Private
Brands
Corporate/
Other
Total
Segment Profit $51.6 $48.4 $7.9 $10.5 $ $118.4
General corporate expenses and other (37.1) (37.1)
Operating Profit (Loss) 51.6 48.4 7.9 10.5 (37.1) 81.3
Depreciation and amortization, including accelerated depreciation 19.4 35.7 6.8 6.3 2.2 70.4
Non-cash stock-based compensation 3.5 3.5
Transaction costs 0.1 5.3 5.4
Integration costs 3.0 0.7 0.7 4.4
Restructuring and plant closure costs 10.7 10.7
Loss on assets held for sale 4.9 4.9
Inventory valuation adjustments on acquired businesses 17.0 17.0
Mark-to-market adjustments on commodity hedges (1.0) (2.4) (6.3) (9.7)
Foreign currency (gain) loss on intercompany loans (0.5) 0.1 (0.1) (0.5)
Spin-Off costs/post Spin-Off costs 0.1 0.1
Adjusted EBITDA $90.1 $81.2 $15.5 $17.5 $(16.8) $187.5
Adjusted EBITDA as a percentage of Net Sales 25.2% 14.4% 10.1% 12.8% 15.5%


RECONCILIATION OF SEGMENT PROFIT TO ADJUSTED EBITDA (Unaudited)
NINE MONTHS ENDED JUNE 30, 2016
(in millions)
Post
Consumer
Brands
Michael
Foods
Group
Active
Nutrition
Private
Brands
Corporate/
Other
Total
Segment Profit $212.8 $236.0 $42.0 $29.6 $ $520.4
General corporate expenses and other (83.0) (83.0)
Operating Profit (Loss) 212.8 236.0 42.0 29.6 (83.0) 437.4
Depreciation and amortization, including accelerated depreciation 78.6 106.0 18.8 18.6 4.9 226.9
Non-cash stock-based compensation 12.9 12.9
Transaction costs 1.1 1.1
Integration costs 17.0 17.0
Restructuring and plant closure costs 6.0 6.0
Loss on assets held for sale 9.5 9.5
Provision for legal settlement 10.0 10.0
Inventory valuation adjustments on acquired businesses 1.1 1.1
Mark-to-market adjustments on commodity hedges (0.2) (1.6) (3.6) (5.4)
Gain on sale of business (2.0) (2.0)
Foreign currency (gain) loss on intercompany loans (0.4) 0.3 (0.1)
Adjusted EBITDA $308.2 $349.1 $60.8 $48.2 $(51.9) $714.4
Adjusted EBITDA as a percentage of Net Sales 24.0% 21.0% 14.6% 12.0% 19.0%


RECONCILIATION OF SEGMENT PROFIT (LOSS) TO ADJUSTED EBITDA (Unaudited)
NINE MONTHS ENDED JUNE 30, 2015
(in millions)
Post
Consumer
Brands
Michael
Foods
Group
Active
Nutrition
Private
Brands
Corporate/
Other
Total
Segment Profit (Loss)$140.0 $130.3 $(2.9) $27.8 $ $295.2
General corporate expenses and other (123.3) (123.3)
Operating Profit (Loss)140.0 130.3 (2.9) 27.8 (123.3) 171.9
Depreciation and amortization, including accelerated depreciation43.6 108.8 20.6 18.8 4.9 196.7
Non-cash stock-based compensation 20.2 20.2
Transaction costs0.1 12.0 12.1
Integration costs3.0 4.2 0.7 1.4 9.3
Restructuring and plant closure costs 15.3 15.3
Loss on assets held for sale 27.4 27.4
Inventory valuation adjustments on acquired businesses17.0 1.9 1.3 20.2
Mark-to-market adjustments on commodity hedges(1.0) (8.5) (1.6) (11.1)
Foreign currency loss on intercompany loans 1.7 0.5 0.1 1.3 3.6
Gain from insurance and indemnification proceeds (1.0) (1.0)
Gain on change in fair value of acquisition earn-out (0.7) (0.7)
Purchase price adjustment on acquisition (0.2) (0.2)
Spin-Off costs/post Spin-Off costs 0.6 0.6
Adjusted EBITDA$202.7 $231.3 $24.3 $48.7 $(42.7) $464.3
Adjusted EBITDA as a percentage of Net Sales24.8% 13.5% 5.8% 12.5% 13.9%

Contact: Investor Relations Brad Harper brad.harper@postholdings.com (314) 644-7626

Source:Post Holdings, Inc.