Post Holdings, Inc. (POST) Q4 2018 Earnings Report, Transcript and Summary

Welcome to Post Holdings Fourth Quarter and Fiscal Year 2018 Earnings Conference Call and Webcast. Hosting the call today from Post are Rob Vitale, President and Chief Executive Officer; and Jeff Zadoks, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 12:00 p.m. Eastern Time. The dial-in number is 800-585-8367, and the passcode is 5686449. [Operator Instructions]. It is now my pleasure to turn the floor over to Jennifer Meyer, Investor Relations of Post Holdings, for introductions. You may begin.

Good morning, and thank you for joining us today for Post's Fourth Quarter 2018 Earnings Call. With me today are Rob Vitale, our President and CEO; and Jeff Zadoks, our CFO. Rob and Jeff will begin with prepared remarks, and afterwards, we'll have a brief question-and-answer session. The press release that supports these remarks is posted on our website in both the Investor Relations and the SEC Filings sections at postholdings.com. In addition, the release is available on the SEC's website. Before we continue, I would like to remind you that this call will contain forward-looking statements, particularly statements regarding the IPO of our Active Nutrition business. These forward-looking statements are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call, and management undertakes no obligation to update these statements. As a reminder, this call is being recorded, and an audio replay will be available on our website. And finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Rob.

Thanks, Jennifer, and thank you all for joining us. This morning, I'll briefly comment on the quarter and on fiscal 2018. I will spend more time on our outlook for 2019 and the plan we announced last evening with respect to an IPO of our Active Nutrition business. The quarter came in as expected across the business. Each unit performed reasonably well, and we saw the first step towards gross margin rebuild of Post Consumer Brands. Recall last quarter, we told you gross margin had declined because of systemic inflation that had not been priced and unusual costs that would moderate over the next several [indiscernible]. This is developing as anticipated with a sequential increase of 60 basis points. The increase was indeed driven by lower manufacturing costs, but was dampened by incremental freight cost. I will speak more on the impact of pricing and inflation when I comment on 2019 outlook. In terms of the full year, we are pleased with our consolidated results. Despite a challenging cost environment, we finished the year near the high-end of our initial targets, and we took strategic actions with the acquisition of Bob Evans Farms and the recapitalization of 8th Avenue Food & Provisions. Along the way, we generated nearly $500 million in free cash flow, repurchased 2.8 million shares of common stock and, including the proceeds from 8th Avenue, significantly reduced leverage. Our outlook for fiscal 2019 calls for adjusted EBITDA of $1.19 billion to $1.24 billion, excluding 8th Avenue. On a pro forma basis, the midpoint of our guidance reflects a healthy 6% growth rate in adjusted EBITDA. Our approach to guidance has been and remains to hedge the start of the year for unknowns that can materialize over any 12-month period. For the first time in several years, our plan includes meaningful inflation and pricing actions. The variability in our range of estimates in large part depends on how these assumptions, including as they may be impacted by Brexit, developed during the year. Our plan for 2019 is back-end loaded relative to 2018. The timing change results from 3 factors. First, the inflation-pricing relationship I just mentioned favors the second half of 2019. Second, the first half of 2018 benefited from approximately $25 million in excess profit, resulting from an imbalance in Michael Foods egg pricing model. That imbalance is now eliminated, and we are finally back to net neutral with respect to the impact of market egg prices on our foodservice business. Finally, the timing of changes in our manufacturing capacity changes forces the second -- favors the second half P&L. Let me explain in more detail, starting with our ready-to-drink shake capacity. Despite adding capacity in fiscal 2018, the contract manufacturers that support our shake business are operating at full capacity. In fact, shake sales in the back half of the fiscal 2018 outstripped our capacity. This depleted our inventory and created challenges in maintaining our high service levels. We ended fiscal '19 with insufficient inventory. Although we are bringing on additional capacity in the first half of fiscal 2019, we've had to make choices to navigate the short-term supply constraints. To minimize line downtown and maximize output, we've elected to temporarily limit production to our 2 most popular flavors, chocolate and vanilla, and rebuild our 7-flavor portfolio during the second quarter. While we expect meaningful year-over-year sales growth in 2019, this constraint will cause the first quarter to be relatively flat. We anticipate shake growth to significantly accelerate the balance of the year as this bottleneck lessens. In contrast, we are shrinking cereal capacity by closing two factories acquired with Weetabix, 1 in the U.S. and 1 in the U.K. We do not expect to reflect any of the cost reduction from the plant closures until the fourth quarter. And these 2 ways changes in our manufacturing capacity favor profitability in the second half of the year. Our current estimate of the impact of all these factors suggest a cadence in which the first quarter will most heavily under-index the year, with an expectation of increases in each sequential quarter. Before turning to our announcement about Active Nutrition, I want to comment on how we expect to discuss 8th Avenue with you. This is our first guidance estimate following the 8th Avenue transaction. Recall we retained 60.5% of the common equity of 8th Avenue, but our Post guidance does not include any contribution. As I mentioned, we expect 8th Avenue to generate adjusted EBITDA of $110 million to $120 million in fiscal 2019. The business was capitalized on October 1 with $648 million in senior debt and $250 million in preferred equity. Anticipate that we will continue to report adjusted EBITDA and capital structure data to enable you to incorporate 8th Avenue value into your models. Turning to our announcement last evening regarding Active Nutrition, I want to share with you our rationale and current plans. Our business is dominated by ready-to-drink shakes sold under the Premier Protein brand. The segment includes the Premier Protein, Dymatize, PowerBar, Supreme Protein and Joint Juice brands. The business has consistently demonstrated near best-in-class growth rates and cash flow conversion dynamics. Since 2014, the segment has grown adjusted EBITDA by 68% compound annual growth rate. We believe we are in the early stages of category and brand development. We intend to offer the business directly to the public market by an IPO, representing approximately 20% of the ownership of the new company. We expect to capitalize it in a manner that enables it to service an acquisition vehicle. Our Active Nutrition President, Darcy Horn Davenport, will lead the newly formed business as CEO, and I will serve as Executive Chairman. We anticipate that there will be incremental stand-alone costs, but that, to the extent possible, we will leverage Post infrastructure to mitigate the increase. We expect to locate the corporate functions in St. Louis with the operating center in the Bay Area. We expect this transition to occur during fiscal 2019 depending on market conditions. We will provide you with additional information in upcoming quarters with respect to capital structure, management, Board of Directors and the ultimate structure of the IPO sale itself. We expect this transaction to be approximately leverage-neutral to the remaining Post business. We're quite excited about the prospects for this transaction and for creating additional value through organic growth and M&A. With the Active Nutrition team has accomplished, it is quite extraordinary, and we look forward to sharing the story with you. With that, let me again thank you for your support, and I will turn the call over to Jeff.

Thanks, Rob, and good morning, everyone. As Rob mentioned, on a consolidated basis, our performance this quarter met our expectations. Adjusted EBITDA for the fourth quarter and fiscal year were $320.6 million and $1.23 billion, respectively. Notably, fourth quarter pro forma net sales grew 4.4% year-over-year, with each of our North America businesses growing. Post Consumer Brands net sales grew 1.6%, while volumes grew 2.2%. Pebbles and other licensed products and Honey Bunches of Oats drove grow, while Malt-O-Meal bags and private label experience declined. Average net pricing declined slightly resulting from increased trade spending and slotting only partially offset by favorable mix. Post Consumer Brands' adjusted EBITDA declined 7% compared to prior year. As in prior quarters, systemic inflation in freight, commodities and wages drove much of the year-over-year decline and was only partially offset by volume gains and reduced SG&A. We continue to see progress in our Weetabix segment promotional reset. Average net selling prices improved 4%. And as anticipated, we saw reduction in volume. However, margins improved and adjusted EBITDA was approximately $37 million, flat compared to prior year. Net sales in our Refrigerated Food segment increased 4.5% on a pro forma basis. Foodservice pro forma net sales increased 7%, with egg volumes increasing 5% and potato volumes increasing 1.5%. On the retail side, pro forma net sales and volumes were flat as volume growth in our retail side dishes of 6.6% was offset by declines in egg and sausage retail products. More specifically, we saw continued strength in our growing Bob Evans side dish business, but our Simply Potatoes brand was flat. Adjusted EBITDA for this segment was $113 million. Bob Evans performed in line with our expectations, while the legacy Michael Foods business had good year-over-year growth, benefiting from higher volumes, which were somewhat offset by mild freight rate inflation. Net sales in our Active Nutrition business grew 14%, and adjusted EBITDA grew 56%. Strong net sales growth in shakes of 25% was driven by organic growth and distribution gains. Volume growth and lower raw material input costs and marketing expenses more than offset inflation in freight rates. Our Private Brands segment, now the 8th Avenue Food & Provisions business, grew net sales 7.5%. Volumes increased 1% behind increases in fruit and nut and organic peanut butter. Private Brands adjusted EBITDA was $30.5 million, a 3% increase compared to prior year, driven primarily by volume growth. Effective October 1, results of 8th Avenue will be deconsolidated in our GAAP financial statements and excluded from our calculation of adjusted EBITDA. We will account for our retained interest in 8th Avenue's common stock, using equity method accounting. Before we open up the call for Q&A, I would like to make a few comments on freight, leverage and cash flow. Fourth quarter freight costs increased approximately $12 million, which was higher than our expectation. For the full year, the increase was approximately $37 million. Our adjusted EBITDA guidance for 2019 assumes a headwind of between $30 million and $35 million when compared to the full year 2018, with the largest impact in the first quarter declining sequentially thereafter. Turning to leverage, following the closing of the 8th Avenue transaction on October 1, we paid down our term loan by $863 million. As a result, our pro forma net leverage as measured by our credit facility is approximately 5.4x. For 2018, we had strong cash flow performance generating $719 million of cash flow from operations. When compared to prior year, we benefited from incremental cash generation from the Bob Evans and Weetabix acquisitions as well as strong organic growth at Michael Foods and Active Nutrition. Regarding capital expenditures, our fiscal 2018 spend was $225 million. In fiscal 2019, we plan to invest between $300 million to $310 million. While this is a step-up from historical spending levels, the increase primarily relates to growth in our egg business and capital for network consolidation and optimization in our North American and U.K. cereal businesses. Finally, we estimate cash taxes for fiscal 2019 will be approximately $115 million based on the midpoint of our guidance range, and we expect cash interest expense to be approximately $335 million. With that, I'd like to turn the call over to the operator for questions. Operator?

[Operator Instructions]. Our first question comes from the line of Andrew Lazar of Barclays.

Couple of things. I'll start off with the Private Brands business. I guess, Post sort of dual-tracked the process between an IPO, private placement or a sale. I guess, that's more of a triple track, actually. But with Active Nutrition, obviously, you just mentioned the IPO. So I'm curious if there are other ways you're considering potentially monetizing the asset that are under consideration. And I guess, if not, why would that be?

Well, I think if you compare Private Brands to our Active Nutrition business, it's a more obvious public company -- that Active Nutrition is a more obvious public company than Private Brands would be. Private Brands, given the growth rate, comparability to Active Nutrition, favored, looking at a number of different alternatives, whereas with respect to Active Nutrition, it was more self-evident that there was a role for you in the public market. We, obviously, have obligation to explore all different types of opportunities, but we have first gone to the one that we thought made more sense and then, to the extent other ideas come up, would be responsive rather than proactive.

Got it. Regarding what will be the ongoing business sort of one that's not obviously IPO'd. As you become somewhat more focused over time and delever, is the aim to still gain more scale within consumer and refrigerated, the latter of which where Post has quite a bit of scale and competitive moats? Or will Post also consider new verticals, so to speak?

I think the best answer is yes and yes. But as you know, we've used this line quite a bit on the spectrum of strategic to opportunistic, we tend to be more opportunistic. So we look first in the short term to making sure that we are positioned well from a business process perspective to act on M&A within our verticals and, secondarily, respond to where we see market opportunities to add to our verticals. So we want to do M&A in additional verticals when it makes sense, and we want to be positioned to do by nature more accretive in portfolio M&A by being very good at process and enabling us to very quickly synergize.

Got it. And last one would be, certainly, many in the industry are taking pricing at this stage. It's been a while as you mentioned to us [indiscernible] Post as to how to take any meaningful pricing. I guess, where across the business is most of this pricing coming through? Or is it in one specific segment more than the others or pretty broad-based? And then I guess, what's Post's experience with this sort of pricing in the past in terms of the muscle to be able to execute it and, obviously, elasticity around volume and such?

Yes. So I'm going to be somewhat circumspect on pricing conversations, but I would share with you that it's broad given the breadth of inflation across the portfolio and across the geographies that we feel confident in the case that we have made for pricing and feel like the guidance appropriately reflects the risk of pricing, the opportunities of pricing and the elasticities and better dynamics.

Our next question comes from the line of John Baumgartner of Wells Fargo.

Rob, I wanted to touch on what you're seeing at Weetabix. Of the 8% volume drop, how much of that was related to just not having lapped the change in promo programming relative to incrementally weaker underlying volume?

The vast majority was lapping the decision to make a fairly significant change in our promotional strategy. So in contrast to some of the feedback we saw, we looked at that as largely expected and in line with where we plan to be. We feel fairly comfortable in the rebasing of our promotional strategy and the amount of volume decline that has come out of it.

Okay. And then the outlook for the business, just in terms of the write-down, I guess, this is never really positioned as a growth asset, but it sounds as though you're not even looking for it to be a stable asset as much. I mean, are volume declines kind of the norm going forward? And how are you thinking about normalized growth for sales and EBITDA at this point?

No. We do not view this as a asset in decline. I think that if you're being completely transparent about valuation, if you looked at it on a mark-to-market basis, you would have to say that we overpay it by about $100 million, but that we have a lot of confidence in the long term, and we are playing a long game with respect to all of our assets, but Weetabix, specifically. And we view it as not just a consistent generator of cash flow with some short-term choppiness, but we look at it as an opportunity to do other things. What those other things may be is yet to be determined, but we look at the option value embedded within Weetabix is quite significant.

Okay, great. And then just on nutrition briefly, really nice margin expansion in the quarter. Is it possible to break down how much of that was driven by reduced promo relative to beneficial commodities or any other factors?

I don't have the data at our fingertips, but there was benefit from pulling back the promotional spending for obvious reasons. The commodity impact was fairly modest. We would have to circle back with you on some of the actual promotional spending pullback. But margins were strong irrespective of those 2, but they were certainly modestly benefited from both of them.

So if we think about situations where a promo is reduced, I look for much weaker growth than 14% off a 20% comp, including capacity constraints. So I mean, as those constraints are alleviated, is this still a 20% growth business? And I guess, how do you think about framing the growth algorithm for that business as a stand-alone in terms of revenue and EBITDA going forward?

Yes. So I have to be careful in answering questions around the forward-looking commentary with respect to being on the cusp of filing an S-1. So I'm going to refer you more to looking at some of the external comps and some of the category data, which, I think, if you look at category data comps and history, you can get a fairly comfortable perspective on growth rates here.

Our next question comes from the line of Cornell Burnette of Citi Research.

Just wanted to know, when you look at the Active Nutrition business in terms of growth potential and perhaps its cash generation capabilities, do you believe that it can support a leverage ratio maybe similar to that what you see at 8th Avenue of, I believe, something in the 5.5x range?

Can and should, I think, are different in this scenario. I think when you look at a business that has the growth potential of one like this, it warrants a greater percentage of equity and overall capital structure. So I would tell you that given the relatively high cash flow conversion dynamics, it's a leverage-capable business, but given the growth characteristics, I'm not sure it's as ultimately warranted. So we will look at that and come back to you with more specific capital structure data as it becomes available.

Okay. And then when you move -- when you -- I guess, when you remove Active Nutrition from the equation, how do you see the growth algorithm, let's say, for consolidated Post for the rest of the business?

Well, if you look at the remaining business as 2 significant engines, one is our Refrigerated Food business that, as we've shared with you in the past, grows in the mid-single digits and the balance being ready-to-eat cereal, that is essentially a flat business with high cash flow, that algorithm relationship maintains.

Okay. And then I guess, in the third quarter, if I can recall correctly, there were about $14 million of unusual costs in cereal. I think you had some production inefficiencies and some co-packing issues. And then of course, there was about $3.5 million of transitory costs in eggs. Just wondering, did any of that slip into 4Q? And is there a possibility that there is a drag again maybe in the early part of next year related to that?

Yes. It's largely consistent with what we said in Q3, and the number was $14 million, and we bucketed them approximately equally in these 4 categories, and now you're stretching my memory to go back and do what we said last quarter. But they were -- we had some physical issues at Battle Creek related to a gas leak that, obviously, did not reoccur. We had some startup learning curve issues related to a fairly high degree of new product launches. Those did not reoccur. But the other 2 that we commented on are more persistent. They are the outsourcing of our peanut butter-based products to a co-manufacturer and increased level of Post production assembly costs related to promoting some of our new introductions. Those continue to persist into the fourth quarter and will linger into '19. We repatriate the peanut butter manufacturing in '19. Memory serves that second quarter of '19, it's coming back on into our Battle Creek facility, and the Post production assembly cost will start to mitigate as we enter fiscal '19.

Okay. And then the last one for me is, I think you gave a number on kind of some of the freight pressures that you're expecting next year. But can you kind of quantify just in total what the input cost basket is going to be up by kind of as a whole next year? And then beyond pricing, can you talk about maybe some of the offsets that you have at your disposal. Obviously, there is going to be some cost savings associated with synergies from Weetabix and Bob Evans? So can you kind of try to marry those up so we kind of get an idea of how things look for next year?

Let me take them segment-by-segment, Cornell. The 2 cereal businesses are going to see the most inflation because the commodity basket for those businesses are really -- I would say, there is no major increases, but virtually every input cost is going up a little bit for them low single digits. Our egg business, as you know, mitigates the commodity costs with its pricing model. So we wouldn't expect any major commodity issues there. And then in the Active Nutrition business, [indiscernible] commodities are more benign, so we're not expecting any significant headwinds for that business. And then freight is, as we said in our prepared remarks, which crosses all the businesses.

Now to your question, Cornell, I think embedded in our guidance is, as always, at this point of the year, is a number of levers to manage in order to mitigate changes in that commentary and how it could develop throughout the year. And those levers are exactly what you would expect, incremental investment into brands, incentive plans, all normal levers that we have early in the year.

Our next question comes from the line of Chris Growe of Stifel.

Just if I could ask you one more follow-up on Active Nutrition. Just in terms of the timing of the announcement of this IPO, is there any other motto behind any other acquisition opportunities you see that maybe just could help your balance sheet? I know you mentioned this being mostly balance sheet neutral. Just wanted to understand other -- the timing, I guess, [indiscernible] IPO of this business.

No. It was more driven by the fact that this kind of activity, the filing of an S-1 and the process of undertaking the IPO is -- draws from a number of resources across the organization is a relatively long lead time activity. So we needed to be proactive in getting it out there now so that we could be in a position to execute it at the appropriate time in '19 rather than rush it into '19. We think it's the right next strategic step, but meanwhile we continue to develop a fairly strong M&A pipeline getting ready for what could come next beyond that. But it's more about resource allocation and being able to do it in the public market or having the public market aware of it. So we're able to discuss it internally without fear of it becoming public outside of our normal process.

Okay. And when would you expect to file an S-1? Will that become relatively quickly?

The first step is to do the stand-alone audits. That's probably a couple 3-month process and then it's another couple 3-month process after that to get an S-1 on a file, so broadly speaking, let's say, 3 to 6 months.

Okay. And then just a question for you, going back to Cornell question around pricing and inflation. So the -- we've seen some pricing coming through in the cereal category, most of the large food companies are talking about pricing right now. Have you announced any price increases? And I'd just also like to understand like how you're using sort of revenue management if you use that term, but mix and lower promotional spending on top of the actual list price increases coming through to aid us -- come this inflation?

Yes. Again, I'm going to be a bit circumspect on where we are with customers on pricing, but I think it's fair to say that because we called it out in our prepared comments that it's something that we feel confident in our ability to effectuate. I just don't want to speak in terms of timing and specifics.

Okay. And then just within -- would you use different metrics -- I'm sorry, different tools, if you will, to achieve that pricing, list prices as well as promotional reductions and weed outs, that kind of thing?

Yes, we would view all of those as levers that are able to be pulled, both list and trade.

Our next question comes from the line of Bill Chappell of SunTrust.

Two questions. First, on Active Nutrition. Just remind us why you couldn't do this on your own? I mean, in terms of -- what's the benefit from a stand-alone in terms of M&A and stuff like that, where it wouldn't have your balance sheet and your know-how and corporate resources to kind of build it even bigger? Or is the thought that at $150 million in EBITDA that it's big enough to push it out of the nest?

Well, there is an element of that, but it's by no means our biggest line of business. I think when you look at the character of cash flow across our portfolio, and I'm going to specifically try to avoid talking about multiples, but that when we have a M&A strategy that is in a segment that has a multiple characteristic that is different from the balance of the business, it can be challenging to pursue M&A in that category. And that, I think, by isolating the business into a distinct separately traded entity, it allows us to pursue M&A of like-minded or -- not like-minded, but similarly structured businesses in a manner that would be challenging to pursue in a blended multiple.

With respect to the resources that are available, I would -- and I mean, the human resources, we expect those to continue to be available.

Okay. And then I guess, switching a little bit back to Weetabix, how does the announcement of the plant closures tie into your original kind of synergy number of $50 million? It seems like that would take you above and beyond that original estimate?

No. It's embedded in it. It was part of a 3-year plan, and that's part of the overall cost reduction that we had anticipated.

Okay. And again, you're not expecting really to see those until that's really more of a fiscal '20 event?

Correct.

Okay. And then last one for me. Any update on the Bob Evans side? It seems like some of the retail sales for the kind of refrigerated items have slowed a little bit in terms of Nielsen? So any kind of update as you look to next year?

We feel very confident that the rate of growth will follow historical trends on the Bob Evans brand. The Simply brand has struggled a bit. Some of that struggling is self-induced because we've had more interactions between Bob Evans and Simply. So if you look at our aggregate numbers of what we are now reporting as retail side dishes might look like it's slowed, but that's because we are comparing very fast Bob Evans, which is continuing to Simply, which is closer to flat and is bringing the average down.

Our next question comes from the line of Ken Zaslow of Bank of Montreal.

Can you talk about your capital spending projects? And what is the timing? And what is the returns which you expect to get them?

We currently have two significant expansion projects, both of which are in our Refrigerated Food's platform, one is a expansion of our capacity in precooked eggs, which is our highest value-added product within the Michael portfolio and has a very attractive return profile. I prefer not to give specifics, but we tend to think of these things as north of 20% of our projects. The other major expansion -- or, excuse me, capital expenditure project is ongoing development of our cage-free facilities in our owned [indiscernible] hand operations. These two are attractive, not as attractive as our higher value-added products, but attractive in two sense: one, they have a good return, but they also increase the barriers to entry to the category because it extends our leadership in the cage-free segment of overall value-added eggs. Beyond that, it's mostly maintenance and some plant closure-related capital requirements.

And what is the time into which you'll get the returns on these? Like, how do you think about it?

The value-added egg plant does not come online until early 2020 and would start to commence then. The cage-free expansion is in modular stages already operating, but becomes fully operational by the end of '19.

And then my second question is, as you see the industry, there is a lot of large cap package food companies that are looking to divest assets, a wide range of them. This seems to be a core competency of yours. As you see the environment developing, have you started to see a greater pipeline and you kind of chopping it a bit a little bit more, particularly as you deleverage the balance sheet. Can you talk about that and the opportunities that are coming through the pipeline?

I think the answer is, yes, the pipeline is becoming richer as more divestiture candidates become available, become even specifically announced, but that we, by design, do not, I'm going to your word, chop it a bit because we try to be more -- we try to take a more detached perspective on looking at these assets and try to take a much more cool approach to valuation. So I think that there are assets that make sense, and there are assets that would be attractive to add to our portfolio, but each and every one of them is price-sensitive.

Would you -- I know, over time, your valuation metric to buying assets. Would you hold yourself to the same discipline? Would you expand it? How do you think about that? And I leave it there, if you don't mind.

I think the answer is bespoke to the assets. So we have been value buyers, and we have been more growth buyers. I think in one of our previous calls, I characterized this as more of a GARP buyer, which -- I think it was probably the Bob Evans call because we paid the highest multiple that we have paid in support of the growth profile that, that company was demonstrating. So we would -- we are not opposed to paying for growth, and we are not opposed to looking at value. So we -- hopefully, we get that mix right.

Ladies and gentlemen, we have time for one more question. Our final question comes from the line of Tim Ramey of Pivotal Research.

Jeff, I wanted to circle back on one of the comments that you made that you, I think, said that RTEs would see the most inflation because eggs are mitigated by the contracts, but we'll see more inflation in eggs than RTEs. I assume it's more grain dance?

Yes. I was just trying to comment on the impact on margin dollars, not necessarily the point you're making.

Okay. And is there -- there's no CapEx on your side for the Tetra Pak expansion, as it pretty much follows on your third-party co-packs..

To date, that's correct. It's 100% outsourced business.

Okay. And the -- you made a comment that leverage ratios would not be a disturbed much by the IPO of Active Nutrition, but you also made the comment that you expect it to be less leveraged than Post. Is that just because sort of the relatively small size of the IPO relative to the corporation that it isn't going to move the needle very much?

Tim, that's exactly right.

And finally, on innovation in eggs, I guess, I've been hoping we'd see more capacity available for pre-cook innovation in 2019, but I think I just heard you say 2020 is really when that comes. Am I right on that?

You are. The Norwalk plant doesn't come online until just after year-end fiscal '19.

And ladies and gentlemen, that was our final question. I'd like to turn the floor back over to Mr. Vitale for any additional or closing remarks.

Thank you all for joining us for your continued support. We're really excited about this announcement this morning, and we really -- when we're able to look forward to sharing what is a quite remarkable story with you. So thank you, and we will talk again in February -- January. Take care.

Thank you. Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.