Welcome to the Post Holdings' Third Quarter 2019 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 5439278. At this time, all participants have been placed in listen-only mode. 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 third quarter 2019 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 filing section 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, which 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.

Good morning. Thank you, Jennifer, and thank you all for joining us to review our quarter. We had a solid quarter, and I will hit the key themes shortly. I want to begin with our outlook, which we now estimate to range between $1.205 billion and $1.215 billion. Using the midpoints of our guidance, we entered Q3 with a second half expectation of $629 million, with the cadence skewed to the fourth quarter. Our revised best estimate for the second half is a midpoint of $619 million, but the cadence flipped in favor of the third quarter. With respect to the cadence change, the vast majority resulted from a pull forward of large orders in our Active Nutrition segment. This pull forward about $5 million in adjusted EBITDA. The $10 million decline in the second half midpoint estimate is driven by a number of modest contributors. First, two of our smaller businesses are incurring commodity headwinds totaling $4 million to $5 million. We expect this to be transitory but is persisted longer in 2019 than expected. Second, the weakening of the pound to dollar exchange rate has added $2 million to $3 million of pressure on excellent Weetabix results. And finally, across the segments, minor revenue misses and cost offset by some opportunity realization that is another $5 million of EBITDA reduction. These costs are not systemic, but require tighter execution, particularly around our refrigerated supply chain. Post Consumer Brands had a solid quarter. Consumption performance faced challenging comps as we lapped strong merchandising support and chose not to repeat certain low ROI promotions. Nonetheless, consumption dollars relatively flat in track channels and our branded market share reached 20.8%. Although, moderating, shipments continue to higher consumption. We had gross profit growth of nearly $8 million, but we chose to invest…

Thanks, Rob, and good morning everyone. Our adjusted EBITDA for the third quarter was $315 million, with consolidated net sales up nearly 3% year-over-year on a pro forma basis. Starting with Post Consumer Brands, net sales and volumes increased 1.7% and 0.4% respectively. Average net pricing improved 1.3%, unfavorable mix primarily resulting from private label volume gains. Branded volumes were pressured as we lapsed significant promotional support in new product introductions last year. Segment adjusted EBITDA was flat compared to prior year, manufacturing performance improved as we lapped elevated cost in the prior year. However, this was offset by higher investment in advertising and consumer spending and incremental consulting expenses. Pricing fully offset year-over-year systemic inflation in commodities, freight and wages this quarter. Gross profit margins improved compared to prior year and were flat compared to second quarter with conversion cost improving sequentially. We expect conversion cost to continue to improve, albeit at a level higher than peak performance levels achieved last year, due to wage inflation and mix changes across the manufacturing network. Weetabix net sales increased 1% over the prior year, despite an approximate 600 basis point headwind from currency, driven by the weaker British pound. Average net pricing increased to 11% year-over-year as we continue to lap our promotional strategy reset. Although segment volumes declined 3.4%, core Weetabix branded volumes grew year-over-year for the first time since the second quarter of fiscal 2018. This growth, as well as growth in private label biscuit volumes, was offset by declines in exports in non-biscuit products. Adjusted EBITDA grew in line with sales as the favorable price volume impact was partially negated by greater investments in brand building. Net sales in the Foodservice segment increased 3% with volumes up 2.7%, driven by robust growth in both egg and potato products.…

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

Two questions from me if I could. First would be, thanks for the additional color on some of the full-year guidance changes and things. And as I think about it, it's not unusual for Post to sort of clarify and tighten the range on its fiscal 3Q call. I guess, it's a little different about this one, is it kind of comes on the heels of having done something similar about a month ago. So I guess I want to make sure I understand what might have changed since you tightened the range a couple of weeks back and were those things that you couldn't see at that time or what changed in the interim and what does that say or not about sort of the visibility that you've got into the business at this point? And then I just got a follow-up.

Sure. The biggest single contributor would be the reduction in the pound sterling, that's between $2 million and $3 million. We had a delay in a cheese opportunity from Q4 in the fiscal '21. We have a bit more persistent weakness in shell egg prices for the very small shell egg business we have, but it - in the course of the quarter contributes couple of $3 million. And then we've had the lingering underperformance in the Refrigerated supply chain that we frankly made some decisions to move more fundamentally but slower to fix, i.e., making more comprehensive IT transition to bring this up to overall Post standards. So those four items really contributed to it. The other thing I would just say is that, roughly 40% of the period and timing question between when we gave guidance to year-end has now passed. And if you look at the probabilistic assessment of a range, and we simply felt like given the amount of time that has passed and looking at some of the changes in commodities and upside, downside realizations that the high end of that range was no more - was not currently likely. So we wanted to bring a bit more conservative perspective on the outlook of the year.

And then, I guess, more important, I realize it's certainly to really to go into any specific guidance for fiscal 2020, but I guess, I'm just trying to get a sense of some of the things that you mentioned just earlier. Are any of those or some expected to be issues as we think about fiscal '20, and I asked, because obviously consensus is looking for another solid year in terms of EBITDA growth next year, and there is incremental Bob Evans synergies, you will have a new value-added egg facility up and running, the likelihood, they're ready to eat - ready to eat - the ready to eat cereal deal with TreeHouse and so. There are number of things that, certainly, I - we could see that sort of in theory break your way. I want to make sure, I've got those right, but then are there any other things worth calling out even just directionally as we think ahead either more positive or on the other side that we need to keep in mind at this stage? Thank you.

No I would say it's largely steady as she goes and I will call out two things largely, well entirely beyond our control. The Brexit uncertainty, as it relates to EBITDA translation and I want to stress this is accounting over economics, we translate the current earnings on a spot basis, but as we actually repatriate them, we repatriate them under a cross-currency swap at a much higher level than current spot rates, but we aren't going to even begin to try to guess what's going to happen in terms of the patent market, our long-term thesis, of course, is that once we get past the noise, it will, I mean, revert, but what it's going to happen early in fiscal '20 is anybody's guess. The second of course is the timing of the resolution around the FTC review. We are actively engaged in responding to it, but we wouldn't want to try to guess exactly when that will be resolved.

Our next question comes from the line of Jason English of Goldman Sachs.

I guess, I would assume into your Active Nutrition business if I could. Could we start with just an update on where you stand with the IPO plans, what the timeline looks like, what should we - what we should expect in the next couple of months?

From a process and regulatory perspective, we're quite limited in what we can say around that. But what we can say and have said publicly is that, we have now gone through, I believe, two amendments of the S1, we're either on our second or third, that process has gone quite well. We expect to come to market, as we said previously, early in the fall that's either right before or right after our fiscal year, I think as the calendar shaping up, it's more likely to be right after the fiscal year and that of course is market dependent.

And then the performance of that business, can you - you quantified the EBITDA pull forward, can you quantify the sales pull forward from the fourth quarter, the third quarter? And then in the press release, you highlight some challenges on the bar side of that business and we certainly see that in the consumption data. Can you remind us what the portfolio mix is there and how we should think about net growth all-in with those drags going forward. Is this sort of year-to-date mid single-digit run rate which looks, sort of, fairly consistent with what we see in the measured data? What we should expect or is there a glide path back to more robust growth?

So in terms of your first question, we don't have the exact number of top of mind on revenue, but generally speaking, there is about a 25% flow through, so call it $20 million broadly. In terms of your second question, the business is largely - there is three businesses embedded within our Active Nutrition segment. Dymatize, which is on an annualized basis, roughly $120 million of revenue, flattish to modestly growing largely powders and bars, not so much in track channels, so probably not what you're picking up. The vast majority of the business is ready-to-drink shakes. I'm going to throw out a roughly 80% number in terms of the revenue, that's where all of the growth is. We frankly are de-emphasizing our bar business outside of Dymatize, because we have not got a competitive position where pricing mostly in the value segment of the borrowers. We really think the future of the business is in beverages and we continue to expect that sales growth will be double-digit sales growth and once we go through a period of re-engaging for marketing spend, margins will follow in line with sales growth.

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

Rob, I wanted to touch on the Foodservice side. In the last two quarters you've seen some nice margin expansion there and maybe stronger than we would have thought given that pricing doesn't appear to be all that meaningful and there has been some cost headwinds as well. Can you dig into that a bit more in terms of the supportive factors, is it mix, is it predominantly costs synergies from Bob, what's driving the strength there?

Yes and yes. I would say that, Michael as a business really firing on all cylinders right now. The management team is doing an extraordinary job. Our cost is good, our mix is good. We've done an exceptional job of executing against the Bob Evans synergies. So I frankly don't have a whole lot to add to the way you answered - you post the question, because I think you highlighted those issues.

And just thinking through Weetabix, pricing there is also pretty strong. Is that still geared largely towards that re-programming effort with the consumer? Is it more, kind of, trying to recoup some of the FX impact there? I guess, what's kind of driving that and maybe how elasticities holding up going forward do you think?

So the first part of your question, it's the former. It's the final lapping of the work we did on resetting the promotional strategy. The planning was begun in January of '18, execution began that spring, we are just now lapping over it, so that's gone exceptionally well. We are certainly not trying to price to FX. This is all local currency pricing that we're communicating, so then we're translating it back and filtering out the impact of FX. And elasticities have been responded extremely well. I would say, I think it's the flip side of the problem that originally was created is that when promotional pricing are too aggressive, there wasn't a volume expansion, and when it pulled back, there wasn't a significant volume retraction.

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

If I just go back to just a point on Active, if there was a $20 million sales pull forward. It would suggest that sales were largely flat in the quarter. I know you were rebuilding distribution and there obviously even with the declines in bars has been good, at least, measured channel growth overall. Just want to get a little more color from you on the sales performance of Active therefore excluding that factor?

No, I think you're quite right, and with the capacity constraint, the focus in the immediate term has been making sure that we were able to fill the stable demand going into the quarter. We did see some declines outside of the shake business and now we would expect to - well - and the flip side of that is that we had a better margin structure because we weren't doing much to drive demand. Now the flip side of that will be true and we expect to reaccelerate sales growth with some pressure on margins.

So the other businesses within that, that's maybe dragging down what looks to be some pretty good shape growth is that where consumption growth is?

Correct. The consumption in shakes has remained very strong at 16%.

And then just a question for you on, I guess, Refrigerated Retail and some of the items you noted about the IT system and the processes and all that. Are we talking about incremental cost there or is this weaker sales performance or how does that manifest in the P&L, if you will, whether that's in the fourth quarter or in 2020?

So it's not weaker sales performance, the - and let's take it piece-by-piece. The side dish business has grown exceptionally well, double-digits across the portfolio. The liquid egg business is relatively flat and then where we have had some volume weakness is predominantly in our cheese business. And as I commented, we've had some price weakness in our retail egg business. That retail egg business being very, very small, and I'm sorry, I should be more specific, retail shell egg. We have a strategic liquid egg business in our non-strategic portion of that portfolio.

The challenge essentially, and we've talked about this in some of our meetings that we were going to make a determination as to how far to lean into integrating the supply chains between Michael and Bob Evans, because they share a base product mix. The Bob Evans planning architecture was more of a made-to-order structure, so they didn't have a sophisticated demand forecast than then implicated a production plan and built inventory. So it's much more complicated customized orientation. We've made the decision to invest in - mostly in IT, so that we can move the Bob Evans process to more of a made-to-forecast model. And in terms of your question about the P&L, it's mostly capital. Following through IT, there were certainly be some consulting and there will be some execution cost, but that will then ultimately expand the, if you want to call a synergy or cost reduction, I think that's largely semantics, opportunity on the Refrigerated Retail side as we get a better margin structure, better mix and better customer service.

Is the EBITDA weakness this quarter than the capital, is that or is that -

Throughput costs, the factory - particularly the potato factories are doing a fine job keeping up with volume requirements, but the cost is high than it should be.

Our next question comes from the line of Bill Chappell of SunTrust. [Technical Difficulty], I'm sorry. Our next question comes from the line of Tim Ramey of Pivotal Research Group.

Thanks. Did the call just go offline for a few minutes or was that me?

Hello.

Hi, it's Tim. Can you hear me?

Hello.

Yes, I can hear you sir. Go ahead.

Let's see. Couple of questions, one I'm holding in my hand a bottle Premier Protein Clear and wondering about how widely the VAT is rolled out and how successful that's been? And second, I certainly knew that shell eggs were not - they were commodity, but I wasn't sure that they were non-core. Are you saying that they're non-core at this point?

And I do apologize. This is the operator. Please hold we're having technical difficulties. [Technical Difficulty]

Hello, operator? Is anyone still on the line?

I'm, it's Tim.

Tim. I don't know if it does Tim, but why don't you go ahead and ask your question and maybe - definitely there are more people, and we apologize, we have no idea what happened, but it took quite a while, I think so, far away.

Sounds good. I'll assume this is still a conference call, not a private conversation. So and - couple of things, one, I'm holding in my hand an empty bottle of Premier Protein Clear that was quite tasty and wondering, number one, how widely that's been rolled out, if that might have been part of the $20 million pull forward? Anything specifically to say on that one and then I have a follow-up too.

It has been rolled out to club. It is not part of the pull forward. The pull forward is entirely on the ready-to-drink shake business and we think the Clear product is a great product, but it needs some work around packaging and price point to get the same degree of success we've seen in other parts of the portfolio.

And then, Rob, I was - I think, I heard you say that shell eggs are non-core. I certainly knew that they were commodity items, but I didn't really understand them to be non-core to the business. Did I understand that correctly and why wouldn't it make sense to have a continuing presence in shell eggs? How do we now explain the Willamette acquisition, that type of thing?

So the core thesis of Michael Foods has been and remains value added type products. So Egg products. So in that definition retail shell eggs is - by definition of strategy. The Willamette Egg acquisition was fundamentally about providing a hedge against price volatility in the Midwest, in the event of another AI event. I think the need for that hedge has mitigated with time. It's been a very good acquisition. There have been times where we've been significantly generating cash in that business relative to what we paid for it. But in no scenario, how are we looking to invest behind retail shell eggs as a reason to be it is entirely at times a hedge. So when I say it's non-core, it more relegated to hedging status versus building status.

But not necessarily to be divested status?

Not necessarily.

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

Thanks, good morning again.

Sorry about that. Bill, I'm not sure if it's something we said or you said.

Well, I'm sure you had an incredibly astute and concise answer to my big green pricing question, but could you give it to me again, because I certainly didn't hear and I'm not sure if anybody else did?

Can you repeat the question?

Sure, So with where green prices are going in your green-based contracts, just trying to understand what pricing looks like for that business and kind of how it drive sales over the next two, three quarters with what you see kind of post harvest?

Yes. So it was a long and drawn out answer apparently. The methodology within the grain based contracts is essentially a 90-day lag from the market. So there is some time to catch up on pricing with wherever commodities are going. So we would expect that we will experience that lag but that will eventually catch up to wherever the markets land. As you follow them, you saw that it spiked up and manage to come back down, a lot of speculation as to what the next government velocity report will say about the corn and wheat and soybean progression. But the model is designed to essentially follow the market on a 90-day lag.

So in fact more - and as we go to 2020. The other question is just on the, I guess, non-core business, talking about 8th Avenue, can you just give us a little more update of what's going on there. I understand it's still emerging multiple businesses together and the kind of growing our integration pains of that, but obviously this is - I think that maybe the second cut on EBITDA for this year as I was just trying to understand the outlook especially as we go into next year?

Yes, the - if you recall 8th Avenue, three businesses that we're putting together as one delivery system, granola, nut butters and pasta. Granola and nut butters have essentially performed to plan throughout the year. We made an IT migration on pasta to the system that was driving the other businesses. We also lost some people. So between some disruption around IT visibility and people visibility, we lost some bidding efficacy. And in some cases, a bit too high, some cases bit too low, and as you probably know, it's entirely a bid business. So it cost us some volume issues, and at the same time, we had some weakness and plant operations in our Minnesota factory. So the problems with 8th Avenue in fiscal '19, I would characterize as - 100% self-inflicted and around execution. We have worked closely with THL and frankly THL has taken a laboring oar and working on process improvement. And I think the partnership is working very well to work with the management team and get these problems corrected as we enter into '20 and I think we have very bright prospects, both with respect to recovery ongoing cost reduction and reasonably near-term M&A that gives us a lot of optimism for the long-term prospects for the business.

Our next question comes from the line of Michael Lavery of Piper Jaffray.

You mentioned some of the declines, the cereal business had some declines on the licensed cereals, can you just give us some more visibility on some of the puts and takes in that business and how much were those in announced or some of just what we should expect looking ahead in terms of what might be a little bit of a headwind or tailwind as more new items might be coming?

Well, I think, if you go back and look at a little bit of the history of the category, we all know that pre-Sweden has been the sub-segment of the category that has performed best over the last decade or so. And about two years ago, there was a heavy move into licensed brands and we were very early in it and took a leadership position with our Oreo licensed product. We then extended that into other products, most of which have done reasonably well, Oreo has done exceptionally well. And at the same time, some of our competitors took a similar approach to license product, and frankly I think the - this sub-category has become too crowded in Europe, what you're seeing now is churn amongst some of these new license, more fun flavor. So I think what we're going to see is a winnowing of the winners, losers and that. We have a number of SKUs that we think will be very successful in the segment, but there will be some across the category that need to move out, otherwise, we're just churning. And it will be - it will be a headwind with respect to growth in volume, but it's a new segment that we expect to have strong sustainability going forward.

And just back to Weetabix, you mentioned the, I think, it was $1.46 hedges you had. Can you just give a sense of how far out this go and is it the easy math that if it stays at around $1.20, $1.22 or $1.23 or something that you would have that translational hit rolling in at some point?

The first part of your question is they go out three years. The second part and I just want to be real clear because this does get complicated. The way we translate actual EBITDA does reflect the current spot rate. So if it stays at $1.20, it will be essentially where we are today and it will have given takes from whatever it is today, $1.22 in change. The economic reality is driven by the duration of that hedge. So as we repatriate cash, it comes in at a higher level. But the uptick EBITDA number is that a spot basis. Is that clear?

That's actually really helpful, but - so just to make sure to confirm this, the actual cash is protected by the hedge, but what you report for earnings would be at any current spot rates?

Correct.

And the three years, do you have rolling ones in terms of it - the $1.46 all through three years or they're sort of layers of that that it would bury?

So I'm going from recollection and would have to get into a little bit of our treasury, but as I recall, there's two different swaps with different tenures. But we would - I would need to get more detail to answer that.

And we have reached the allotted time for questions. We do have time for one more. Our final --

Yes, could we do the one more question?

Our final question will come from the line of Ken Zaslow of BMO Capital.

Good morning everybody. Thanks for squeezing me in.

I thought we were going to lose you Ken. Sorry about that.

No, I appreciate it. I'll keep it short. Did you say the R&D effort that it has to go into the - liquid egg, can you talk a little bit about that. And also I think you also said that you're overhauling the planning process in your opening comments? Just wanted to know what those two meant implications.

Sure. I actually, I think I made two comments about planning. In my prepared remarks, I made a comment about our planning process in cereal. If you go back to having brought Post Foods and MOM Brands together. We first focused on cost reduction and bringing the teams together, now we're trying to take that next level of sophistication to really improve our demand forecasting, because that then has implications around production planning and the closer that is to the demand forecast, obviously the better cost we get to. The same phenomenon is true in Bob Evans, but for a bit of a different reason, that reason being, coming out of our restaurant orientation and having built the business out of a sausage shop, it was more of a job shop made to order business. And what we're trying to do is get both of those platforms up to state-of-the-art demand forecast through production planning. So neither of those are new. The new information is that we are going further towards an integrated supply chain within our overall Refrigerated Retail and Foodservice platform, so that there will be one delivery system with best execution. The R&D comment I made was - we have terrific - really unparalleled knowledge of converting commodities into interesting value-added products. And what we wanted to do is catalyze that to retail. So we've taking - taken people who have been predominantly oriented towards developing Foodservice products and expanded that domain so that there is a retail component to it.

And thank you. At this time, I'd like to turn the call back over to Rob Vitale for any additional or closing remarks.

Well, thank you for hanging with us this morning. We're going to have a post-mortem to decide whether this is going to be something we just do once or develop it as part of our conference strategies for tough questions, but again thank you and we'll talk to you next quarter.

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