“We have growing concern that the ensuing months will bring new challenges with respect to managing our supply chains without some degree of interruption, as COVID impacts our workforce,” Vitale told investment analysts during the company’s fourth quarter earnings call Nov. 20.
He explained that his concern is “generalized rather than a reaction to anything specific,” but noted continuing outbreaks in the communities where its factories are located.
Vitale said his fear comes even though he said the company’s “work environments are well protected” thanks to substantial investments in plant redesign, protective equipment and additional training.
If supply challenges arise, the company may handle them the same way it has those during the early phases of the pandemic by redistributing capacity to different product lines that are highest in demand and best position the company’s revenues.
“We kind of joked that anything that was still on the shelf on about April 30 needs to be immediately rationalized, because if we didn’t sell then, it will never sell,” Vitale said.
Despite early SKU rationalization “to its ultimate extreme,” he added that the company is eager to rebuild SKU assortment with “greater insights around what the profit impact of a better assortment and better velocity” might be.
The double edged sword of SKU rationalization
As part of rationalization, the company prioritized higher margin branded products over lower margin private label – a decision that generated mixed results.
On the positive side, it helped its Bob Evans branded sides grow “impressively” with net sales up 24% in the company’s most recent quarter, Vital said. This helped lift sales of refrigerated retail 2% to $223.4m in the fourth quarter from the same time last year, despite a 5.5% drop in egg and cheese product volume, so that the segment profit reached $27.1m – up 21.5% from last year.
On the negative side, the consumer brands segment saw sales decline 3.2% year over year to $471.9m in quarter due in large part to at 6.3% drop in private label volume and government bid business.
This decline was offset partially by a 5% increased demand for legacy Post branded cereal, such as Honey Bunches of Oats, Pebbles and Great Grains, Vitale added.
Investing in automation
Post also has managed supply chain constraints to date by investing in automation, which Vitale said should place the company in a stronger position across the supply chain going forward.
“We’ve had hundreds of unfilled positions that we’ve been navigating around at the same time that we are navigating COVID. So, we want to invest in projects that result in automation. We want to improve projects that result in better latent capacity release. We think that there’s an array of projects that we can invest in that will improve the overall outcome of the business,” Vitale said, adding he is “very bullish longer term.”
Increased automation also should address Post’s longer-term struggles with employee retention and recruitment, which have plagued the company long before COVID-19, Vitale added.
No second demand surge expected
Even as Post plans for the next wave of COVID-19 cases, Vitale does not expect to see a repeat in the surge of demand that occurred in April and May, although he does expect slightly elevated sales to continue compared to pre-pandemic rates.
He added if Post’s assumptions about the pandemic’s trajectory are accurate, the second half of the new fiscal year will accelerate over the first, and if the company can keep supply in check it will be able to benefit longer term.
