Zacks Investment Research downgraded
Post Holdings Inc
) to a Zacks Rank #5 (Strong Sell) on Sep 18. Disappointing
fiscal third quarter 2013 results and increasing debt burden led
to the downgrade.
Why the Downgrade?
On Aug 7, Post Holdings reported dismal third quarter of
fiscal 2013 (ending Jun 30, 2013) results. Excluding the
acquisition of Premier Nutrition Corp, sales increased only 1.9%
in the quarter. Lower average selling prices led to soft results.
Earnings of 29 cents per share declined 43% year over year due to
decline in margins and increased selling, general and
administration (SG&A) costs. Earnings also missed the Zacks
Consensus Estimate by 14.7%.
Adjusted gross profit declined 3.2% to $106.5 million, while
gross margin plummeted 220 basis points to 43.2% in the reported
quarter. The decline was due to a shift to lower margin products
and higher trade spending.
Excluding the acquired businesses, SG&A expense ratio
increased 190 basis points to 28.8%. The increase in SG&A
costs was the result of incremental holding company costs and
increased advertising costs compared to the year-ago period.
Though the acquisition of nutrition company Premier
Nutrition Corp has added to the company's food and beverage
products under the Premier Protein and Joint Juice brands, it has
also raised the company's debt-burden. The company's interest
expense increased 19.3% in the third quarter.
Most recently, on Sep 16, Post Holdings agreed to acquire
Dakota Growers Pasta Company, Inc., a leading North American
pasta maker for $370 million. The acquisition will be funded by a
combination of cash on hand and up to $200 million in committed
Post Holdings ended the third quarter of fiscal 2013 with
$243.6 million in cash and equivalents. The company operates with
$1.04 billion in total debt, for a net debt position of around
$800 million. While the company is on an acquisition spree and
expanding its portfolio in the food industry, we believe it is
also adding to its debt. Moreover, the company doesn't pay
dividends to its shareholders, which restricts investment in the
This food company witnessed sharp downward estimate revisions
after announcing its third quarter fiscal 2013 results. All the
estimates for fiscal 2013 and fiscal 2014 declined over the past
60 days. The Zacks Consensus Estimate for fiscal 2013 decreased
11.1% and that for fiscal 2014 went down 9.2% over the last 60
Other Stocks to Consider
Not all stocks are performing as poorly as Post Holdings. Food
companies that are worth considering include
Green Mountain Coffee Roasters Inc
Pinnacle Foods Inc
Dole Food Co. Inc
). While Green Mountain and Pinnacle Foods hold a Zacks Rank #1
(Strong Buy), Dole Food has a Zacks Rank #2 (Buy).
DOLE FOOD CO (DOLE): Free Stock Analysis
GREEN MTN COFFE (GMCR): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
POST HOLDINGS (POST): Free Stock Analysis
To read this article on Zacks.com click here.