Pia Koster Terence E. Block - President, Chief Operating Officer and Director Robert V. Vitale - Chief Financial Officer

Welcome to Post Holdings' Second Quarter 2013 Earnings Conference Call and Webcast. Hosting the call today from Post is Terry Block, President and Chief Operating Officer; and Rob Vitale, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 8:00 p.m. Eastern. The dial-in number for the replay is (800) 585-8367 and enter pin number 50087042. [Operator Instructions] It is now my pleasure to turn the floor over to Pia Koster, Host, Director of Investor Relations for introductions. You may begin.

Thank you, and good afternoon, everyone. Welcome to Post Holdings' conference call to discuss results for the second fiscal quarter ended March 31, 2013. With me today are Terry Block, our President and COO; and Rob Vitale, our CFO. During this call, we will review our financial results and initiatives for first quarter -- second quarter, discuss fiscal 2013 guidance and the Hearthside acquisition. We will not be taking questions after the prepared remarks. The press release that supports our remarks today is posted on our website at www.postfoods.com. Before we continue, I would like to remind you that this conference call will contain forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. For more information regarding these risks and uncertainties, please visit SEC filings in the Investor Relations section of our website. These statements speak only as of the date of this call, and management undertakes no obligations to update or revise the statements. All forward-looking statements are expressly qualified in their entirety by this cautionary statement. Evaluating Post's business and securities, investors should give careful consideration to these risks and uncertainties. As a reminder, this call is being recorded for audio replay. Finally, this call will discuss certain non-GAAP measures. For a reconciliation of non-GAAP measures to the nearest GAAP measure, see our press release posted on our website. With that, I'll now turn the call over to Terry to review our business.

Thank you, Pia. Good afternoon and thank you for joining us today on our earnings call. We'll review the status of our business, both for the second quarter ended March 31, 2013, and for the first 6 months of our fiscal year 2013. As stated, we put in place strategies to affect the turnaround and post-multiyear negative share and revenue performance. In so doing, we are laying the foundation for reliability and operating cash flow and growth, both of which are essential to forward thinking optionality for our company. The outcomes of several of these strategies are beginning to materialize. Second quarter net sales were $248.2 million, down 0.9% versus the same period last year. The shipment performance was against a challenged ready-to-eat cereal category, as measured by Nielsen, that was down, in dollars, 2.4% for the same period. For the first 6 months, net sales grew 3.3%, reaching $485.1 million during the October through March period. This was against the category backdrop that declined 1.6% during the same 6 month period. It's important to view our sales narrative over the first 6 months as strong new item shipments at the end of the first quarter led to higher retailer inventories, which slowed shipments early in the second quarter. This inventory was partially sold through to consumption during the second quarter as new item marketing and merchandising tactics unfolded in the back half of quarter 2 following the achievement of retail distribution goals. Post's dollars market share, as measured by Nielsen, was 10.5% for the 13 weeks ended March 31, 2013, down 0.1% versus the same period a year ago. Compared with the first quarter, Post dollar share grew 1/10 of a point, driven by new items and increased in-store promotional activity. Encouragingly, Post's share improved throughout quarter 2 as…

Thanks, Terry. As Terry mentioned, Post net sales decreased slightly for the quarter, dipping 0.9% from the prior year. This decline resulted from a 4% decrease in average net selling prices, partially offset by a 3% higher volumes. Drivers of the net pricing decline were higher trade spending, which contributed about 60% of the decline, and product mix representing the balance. Trade spending for the quarter included higher slotting fees for the new product introductions. For the 6 months ended March 31, 2013, net sales increased $15.3 million or 3% -- 3.3% over the prior year, driven by a 5% higher volumes and a slight decrease in average net selling prices. Fiscal 2013 volume improvements have been driven by our growth in Great Grains, Grape Nuts, Good Morenings brands and growth in revenue from co-manufacturing agreements. Honey Bunches of Oats had a second quarterly decline of 9% compared from the prior year, largely resulting from the timing of shipments that were pulled forward into Q1. On a year-to-date basis, Honey Bunches of Oats volumes were down 3%. Q2 gross margin of 41.3% is down approximately 300 basis points from the prior year. Virtually the entire decline in margin is the result of the lower all -- lower overall net pricing. As expected, raw material commodity cost for grains and fruits were up year-over-year, however, those cost increases were mostly offset by lower sugar costs and favorable fixed cost absorption. On a year-to-date basis, gross margin declined 160 basis points to 42.9% compared to the prior year. In order of magnitude, the lower margins are a function of mix-driven declines in net selling prices, higher trade spending and higher cost of goods sold. Consistent with the quarter commentary, the higher commodity costs were in line with our expectations, and favorable cost…

Thank you. Again, today's call was recorded and will be available for replay beginning at 8:00 p.m. Eastern Time. The dial-in number for the replay is (800) 585-8367 and enter pin number 50087042. This concludes today's call. You may now disconnect.