Following the official closure of the acquisition of MOM Brands on May 4, Post now expects to achieve $50 million in cost reductions from the deal within two years, rather than the previously predicted three years, CEO Rob Vitale told investment analysts May 8 during the firm’s second quarter earnings call.
“We also continue to believe there is meaningful upside to our $50 million estimate,” he added.
He explained that when Post acquired MOM Brands it originally articulated a three-year horizon to give it sufficient time to address information technology logistics and any unexpected surprises it might discover once it had full access to the acquisition.
“We’ve now been in MOM for about 90 days, obviously not operating but learning and getting deeper into cost reduction opportunities,” and “we’ve had no negative surprises,” Vitale said.
In addition, he noted, “we found ways to accelerate the timing [of integration] that are less reliant upon system convergence so that we got comfortable in eliminating those hedges and bringing the time forward.”
This $50 million contribution from MOM Brands has helped offset an expected negative impact of about $20 million related to an egg supplier that is dealing with an avian flu outbreak, and allowed Post to raise its annual guidance for 2015, CFO Jeff Zadoks added on the call.
“Prior to the acquisition of MOM Brands, we had estimated fiscal 2015 adjusted EBITDA between $540 million and $580 million. We have revised this to include the better than expected year-to-date performance, the completion of MOM Brands acquisition and the impact of AI … [to be] between $585 million and $610 million” for fiscal 2015, he said.
MOM more than a cost saving opportunity
The MOM Brands combination with Post is not just about creating cost reductions – rather it also is about better positioning Post as a value leader in ready-to-eat cereals, Vitale said.
MOM Brands is well known for its lower-priced, larger packaged cereals that are similar to bigger, better known and more expensive brands. By acquiring MOM Brands, Post can tap into growing consumer demand for value, which helped push dollar sales of extra-large boxes of cereal up 14.3% and sales of bags up 6.3% in the second quarter, Vitale said.
MOM’s performance in the quarter was particularly strong – climbing 3.8% in dollars and pounds. This is compared to a decline at the RTE cereal category level of 2.6% in dollars and 2.2% in pounds during Post’s second quarter, Vitale said, adding this is the third consecutive quarter in which the rate of decline slowed.
This comparative growth in bagged cereal – even verses the value sized boxes – “will be a plus” because the combination of Post and MOM creates the right size and market structure to take advantage of that component of the revenue business, Vitale said.
Improved promotions
Post plans to further improve sales of RTE cereal by making promotions more effective, Vitale said.
Nielsen data shows a 6% decline in Post sales, excluding MOM over the latest four-week period ending April 18, but Vitale said the drop reflects a heavy promotional spend during the same time last year that was not repeated this year.
He said the promotions can be more effective and while the company will spend the same amount around promotions, it will “repurpose them to be fewer and deeper so that they’re more effective.”
PowerBar acquisition on track
Post also continues to integrate the acquisition of PowerBar, which has a longer time frame for returns.
The firm will invest in PowerBar in 2015, but does not expect a contribution from the brand until 2016, Vitale reiterated. He added that the previously announced closure of the PowerBar manufacturing facility in Idaho should be finished by July 2015 and generate pre-tax annual cost savings of about $4 million beginning in fiscal 2016.
The closure also will allow Post to partner with more flexible co-packers that can more quickly adapt to changing tastes, Vitale said. He explained the old manufacturing cite was limited to outdated bar forms and the category’s forms and flavors change quickly.