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Post Holdings’ Talks Halted with ConAgra’s Lamb Weston Unit

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Price movement

Post Holdings (POST) has a market cap of $5.0 billion. It rose by 3.6% and closed at $77.14 per share on June 21, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were 3.9%, 4.8%, and 25.0%, respectively, on the same day. This means that Post Holdings is trading 2.2% above its 20-day moving average, 4.9% above its 50-day moving average, and 15.8% above its 200-day moving average.

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Related ETF and peers

The iShares Morningstar Small Core ETF (JKJ) invests 0.89% of its holdings in Post Holdings. JKJ tracks a market-cap-weighted index of US small-cap core stocks. The index selects stocks from 90%–97% of the market cap that fit into Morningstar’s core style categorization. JKJ’s YTD price movement was 5.5% on June 21, 2016.

The market caps of Post Holdings’ competitors are as follows:

  • Kellogg Company (K) – $27.2 billion
  • TreeHouse Foods (THS) – $5.5 billion
  • B&G Foods (BGS) – $2.9 billion

Post Holdings’ discussion with ConAgra

As reported by Reuters, “Post Holdings Inc. held talks to merge with ConAgra Foods Inc.’s Lamb Weston frozen potato products unit. The talks have stalled but could be revived.”

It also stated that “A potential deal between ConAgra and Post Holdings could value Lamb Weston at around $6 billion.”

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Performance in fiscal 2Q16

Post Holdings reported fiscal 2Q16 net sales of $1.3 billion—an increase of 20.7% compared to net sales of $1.1 billion in fiscal 2Q15. The company’s cost of goods sold as a percentage of net sales fell by 8.1% in fiscal 2Q16—compared to the same period last year. It reported operating profit of $1.6 billion in fiscal 2Q16—compared to $49.7 million in fiscal 2Q15.

The company’s net income and EPS (earnings per share) fell to $1.5 million and $0.02, respectively, in fiscal 2Q16—compared to $26.3 million and $0.45, respectively, in fiscal 2Q15. It reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $247.8 million in fiscal 2Q16—an increase of 66.1% compared to fiscal 2Q15.

Post Holdings’ cash and cash equivalents and inventories rose by 3.2% and 5.6%, respectively, in fiscal 2Q16—compared to fiscal 4Q15. Its current ratio rose to 3.3x and its DE (debt-to-equity) ratio fell to 2.06x in fiscal 2Q16—compared to a current ratio and DE ratio of 2.9x and 2.1x, respectively, in fiscal 4Q15.

Projections

Post Holdings made the following projections:

  • adjusted EBITDA of $8.9 billion–$9.1 billion for fiscal 2016
  • adjusted EBITDA of $410 million–$430 million for 2H16
  • capital expenditures of $145 million–$155 million for fiscal 2016, including ~$20 million related to growth activities and ~$20 million related to integration activities
  • maintenance capital expenditures of $105 million—$115 million for fiscal 2016

In the next part, we’ll take a look at Koninklijke Philips.

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