Welcome to Post Holdings Fourth Quarter and Fiscal Year 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 PM Eastern Time. The dial-in number is (800) 585-8367 and the passcode is 9777955. At this time all participants have been placed in a 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 fourth 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 Web site in both the Investor Relations and the SEC filing sections at postholdings.com. In addition the release is available on the SECs Web site. 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 Web site. 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 Web site. With that, I will turn the call over to Rob.

Hey, good morning. Thanks Jennifer and thank you all for joining us. This morning, I'm going to very briefly go over our 2019 results. Most of my comments address our strategic activities and our 2020 expectations. Our fourth quarter came in as expected. Each business performed reasonably well. For the full year consolidated adjusted EBITDA of 1.21 billion landed at the midpoint of our guidance range. This represents a growth rate of 5.4% on a pro forma basis, which exceeds our long-term algorithm of 3%. Jeff will discuss the breakdown of our segment performance. The key strategic initiative for 2019 was the IPO of our Active Nutrition business now known as BellRing Brands Inc. It began trading on the NYSC on October 17, under the ticker BRBR. I want to thank and congratulate our teams for the exceptional effort that made the IPO possible. The legal and tax structure is complicated, but in essence Post sold to the public approximately 29% of its equity interest in the Active Nutrition business and retained ownership of 71%. A document illustrating the structure is posted on our Web site and on the SECs Web site. BellRing is well-positioned as a leader in convenient nutrition and we look forward to continuing to support its growth. You can hear directly from the BellRing leadership team on our conference call later this morning. We continue to believe that we should receive government clearance for our acquisition of the TreeHouse Ready-to-Eat Cereal business. We believe that there is intense competition in the cereal business and that this deal is unambiguously pro-consumer and the efficiencies achieved will allow us to compete more aggressively. We are surprised that this combination has received the degree of scrutiny that it has, but we are actively engaging with the FTC and we…

Thanks, Rob, and good morning everyone. Our consolidated results this quarter met our expectations. Adjusted EBITDA for the quarter and fiscal year were $303.6 million and $1.21 billion respectively. Pro forma net sales for the quarter grew 2.4%. Post consumer brands grew net sales and volumes by 3.5% and 1.6% respectively. Average net pricing improved 1.9% despite unfavorable mix primarily resulting from private labeled volume gains. We saw a good improvement in segment adjusted EBITDA this quarter, which grew 6% compared to the prior year, primarily benefiting from the growth in net sales. Consistent with the third quarter pricing fully offset year-over-year systemic inflation in commodities, freight and wages this quarter. Weetabix net sales decreased 2.6% over the prior year quarter driven by the weak British pound, which created the headwind to net sales growth of approximately 550 basis points. Average net pricing increased 12.5% year-over-year as we continue to lap our promotional strategy reset. Strong volume growth in private label biscuit volumes was offset by declines in non-biscuit products resulting from capacity constraints on extruded products. Core Weetabix branded biscuit volumes continued to stabilize. Weetabix's adjusted EBITDA declined 8% more than half of which resulted from the unfavorable currency exchange rate. The balance of the decline was caused by greater investments in brand-building restoration of incentive compensation at a premium level and increased raw material costs. It is important to note that for the full year the Weetabix segment grew adjusted EBITDA approximately 2% in spite of a currency headwind in excess of 500 basis points and the increased investments in brands and building and incentive compensation. Net sales in food service increased 4.5% with volumes up 3.7% driven by strong growth in both ag and potato products. Volume growth and favorable product mix supported by gains in higher…

Thank you. [Operator Instructions] Our first question comes from the line of Chris Growe of Stifel.

Hi. Good morning.

Hi, Chris.

Hi. I just wanted to ask if I could first, Rob, in relation to the guidance you gave for the year for Post. I guess first of all, you talked about 3% long-term rate, is that a reasonable rate for the company going forward? And then, just understand kind of the factors that could push it to the upper end or the lower end. Are there some areas that whether be costs or maybe some of the capacity constraints that may limit your EBITDA growth in 2020?

Yes. We've long talked about the 3% being the long-term algorithm when you break the portfolio into roughly half cash generation, half growth and those aren't pure definitions because both sides of the business do both aspects of growing and generating cash flow. In terms of what would make the guidance higher or lower, it's a $50 million range on at the midpoint, just shy of 1.25. So relatively small changes could impact that range, cereal category being zero instead of down 1 is a meaningful contribution to that, slight changes in the demand equation on any of our -- where rapidly growing businesses could change that. And then, certainly there are cost implications throughout the portfolio. It's a six business unit portfolio. So, there are lot of moving pieces that could impact that guidance range.

Okay. And just one follow-on question that -- and you have six different businesses as you noted, but just from like an input cost inflation and maybe in relation to, whether it be pricing or opportunity that offset that inflation, how would you look at that balance? We're not going through each business but in general for fiscal '20?

So I think it's important to note that I precisely mentioned inflation in the context of the retail business because of the Foodservice business while it has inflation, has a different pricing mechanism that we've talked about. So we tend to think about inflation different in that sector. So, it really impacts our more traditionally priced retail businesses. And I think that when you look at the commodity infrastructure around sugar, grains, corn, oats. We're seeing what I would characterize as modest but persistent inflation across the categories and that through mix pricing, promotional activities and cost reduction, we expect to be able to offset enough of it to maintain the 3% growth that we have predicted.

And just, sorry, one quick follow-on, are there any businesses where you've announced price increase already for this year for any of your divisions?

Carryover but not new.

Okay. Thanks so much.

Thank you.

Our next question comes from the line of Andrew Lazar of Barclays.

Good morning, everybody.

Good morning, Andrew.

So first off, I think there seems to be some building concern over the fact that Post has been a pretty consistent market share gainer in the RTE business for some time. And that category competitive dynamics are going to somehow catch up to the company, so to speak this coming fiscal year. I guess given, one wouldn't expect either of the two largest players to accept being, I guess share donors sort of consistently. So I guess maybe can you perhaps discuss this in the context of your expectations for RTE in the coming year? Maybe expectations for category growth, sort of share performance and the type of maybe flexibility or so if you are building in to account for some of that potentially?

Well, certainly, I think we would be naive to assume that competitors has resource tenants talented as ours would consistently be shared donors. So, we certainly expect them to be aggressive and vibrant competitors not this year in each year. We have had good fortune in the last handful of years and I think a large part of that good fortune is that we were early in moving into some of the growth year areas around licensed sweetened products and that [indiscernible] has been perhaps overly addressed. And that as we now look forward, we've talked about all this I think in some detail that we need to -- as a category and as a company, we look at innovation a bit bolder and broader manner and many of the changes that we have made over the last 18 months starting with changing leadership, all the way to looking at planning processes to free up cost for reinvestment are aimed at driving that category growth, so that it's real category growth rather than kicking up dust within a handful of licensed sweet products. But we look at that as an ongoing both challenge and opportunity and fully expect each if not all of our key competitors to be highly engaged and to compete for share. I would tell you that not all share is created equal, so that we look at trying to make sure that we are focused our competitive activities on fighting for the right share rather than each share.

Okay. And then, I know it gets a little harder to sort of track deal sort of synergies and cost saves a little bit as integration sort of progresses. But could you remind us again what you have, that is sort of expected to be incremental cost saves from some of the recent deals that still flow into fiscal '20. Just trying to get a sense of how much of an EBITDA growth essentially can kind of come from discrete areas like deal cost saves that you would -- usually have better clarity here.

Sure. So I'm going to beg some latitude, because I'm going out for memory on deals that are a couple of years old and have blended between deal results and just additional continuous improvement. So, forgive me of relatively high margin for error but we are --

That's how I live my life, Rob.

We closed the Clinton facility that we acquired with the Weetabix transaction at the end of the year. So that will roll over a $5 million to $7 million cost reduction into 2020. We have an ongoing cost reduction effort at Weetabix aimed at closing half of their facility that will occur in 2020 and then we have an ongoing integration in the supply chain at Bob Evans, it is actually in excess of the amounts we announced at acquisition, but longer in duration and more expensive because it involves more aggressive IT conversions than we announced when we undertook it. All told in the portfolio, there is between $10 million and $20 million of cost reduction flowing through '20, but given that number in the magnitude of the EBITDA, it's difficult to directly track it from that number to where it flows through on the P&L.

Okay. Thank you.

Sure.

Our next question comes from the line of David Palmer of Evercore ISI.

Hi, good morning. Kevin Lehmann on for David. Question on CapEx this year, you had a step up of about $85 million, most of that I think it was to boost capacity in value-added eggs. So, two questions on that. Will some of that spend bleed into 2020? Then also how will you plan on measuring and ultimately judging the ROI on that spending? And then, what is the growth rate in value-added eggs that you're assuming to get there? Thanks.

In reverse order, the growth rate on value-added eggs is mid-single digits. Skipping to the first part of your question, there will be some spillover from 2019 to 2020 as we finalize the factory, which has now been commissioned and is producing products. So, yes, there is some carryover. And with respect to this project, we will look toward the utilization of the factory a year out, the utilization of our capacity related to value added eggs and measure the lift and that should be the resulting return on the capital invested. We are being more aggressive in capital investments as labor costs are higher, and capital costs are lower. So we are being a bit more active in terms of identifying internal capital opportunities.

Got it. Thank you.

Thanks, Kevin.

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

Thanks, good morning. Rob, I want to ask, what does the M&A pipeline look like? But I would want to know kind of the thought process behind the aggressive share repurchase in the quarter versus holding some of that cash back for potential M&A?

Well, I think as you know, we tend to look at relative value on a constant basis and make capital allocation decisions accordingly. We don't necessarily look at just the cash on our balance sheet as the source of capital available for M&A. So we look at it as a dynamic equation and look more for the opportunity side and then source it. Let me rephrase that. We opportunistically look at both the investment side and the sourcing side and act independently of each other.

So is that a way to say that you felt like your stock was cheaper than some of the deals that you're looking at?

I think I'm just going to repeat what I said. So that I --

Well, then moving to private brands, which we don't talk about as much on 8th Avenue. Can you help us understand, I mean are things improving there? I think the original thought was the business would have had close to $100 million of EBITDA a year ago or in this year we just completed. So and that's kind of the goal for next year where are we in that path and what size do we see for improvement?

I think you precisely laid it out, we're about a year behind. We intended for 2019 to be the year in which we took these three discrete businesses and melded them into one go-to market and one integrated model and that went poorly. So the execution of that has set us back 12 months. It is going better. We have over resourced it now, I think we under resourced it. So, when you look at the categories and you look at the strategic outlook, I expect to have some skepticism on this comment, but I remain fairly optimistic on the business. But we executed poorly and we need to fix that.

Got it. Thanks so much.

Thank you.

[Operator Instructions] Our next question comes from the line of Ken Zaslow of Bank of Montreal.

Hey, good morning everyone.

Hi, Ken.

Can you just talk about the capacity constraints and how you get over the two of them? You said in the cereals in Weetabix, and then you obviously said the one in the U.S. Can you talk about how that came about and what's the way to overcome it and timing?

Let me start with the one in the US. It's really a dual sided issue. We've had terrific growth in demand of our refrigerated potato products both in foodservice and in retail. So that's driving very high category utilization. So intermediate term, we have plans to address trap capacity, longer term we likely need to add capacity to the category. Unfortunately, at the same time in our Mars Hill facility which is a relatively smaller facility in Maine. We have three lines, one of them had a failure related to an equipment breakdown that we have consciously chosen to defer to repair that until after our busy season. So this is not to add disruption that takes high-single digits of capacity out that we have to manage through retail inventory and trying to drive output elsewhere. So I said a dual-sided equation of a very positive problem that we need to fix for in a short-term unfortunate that will be fixed in January. In the U.K., we have had some capacity that we are trying to take out. So in taking out the capacity, we probably overshot a bit and are having a little bit of customer service execution issues that we will rebuild in the next handful of months, no more than two quarters to get customer service levels back where they need to be.

Okay. And then my second question is, what is the progress on your licensed cereals? And I'll leave it there.

I'm sorry. Can you ask that question again? What is the progress, what?

On your licensed cereals, how they do, which ones you are going to keep? How do you think about it, now that you've kind of tested them out, what the prognosis is?

Yes. So I'm not going to comment on specific brand level products. What I will share with you is that I think it's an important part of our overall portfolio. It's an important part of the category, but it can't be the only tool in the innovation toolbox. So, we need to broaden it, but it remains and will remain an important part of our overall product mix.

Okay. I'll leave it there. Thank you.

Thanks, Ken.

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

Good morning, thanks for the question.

Hey, John.

Rob, I wondered if you could just dig a bit more into the foodservice business, just given the lack of visibility with the exposure to non-measured channels. Can you just walk through expectations for FY '20 in terms of how we should think about the timing of the ramp in precooked capacity? Are there any new business wins you anticipate in potatoes? Just any highlights that will be helpful in terms of how you're thinking about business development from here?

I would assume that the outlook for Michael looks a lot like the recent past for Michael, that it's consistent steady growth. This is not a business that should see major step-ups. It's a business that given our considerable position in the categories we are in, grows steadily as we drive demand within the categories. As it relates to the ramp up tied to Norwalk, just logistically what we will do is first fill Norwalk where we have better cost because it's our newer facility that will deleverage some of our older facilities as we backfill them. So, there will be a margin pickup. But it won't be as full as it will be once the entire system remains or is returned to an optimal capacity, just a step function of a new factory. Kind of thinking what was the third part of the question, or was that it?

That was it. But actually I have a follow-up. In terms of cereals, just getting back to Andrew's question thinking about somebody asked me the game theory, the competitive environment. I'm curious one of the things that I've noticed if you look at your General Mills, getting great growth and lucky charms, Cheerios is down, Kellogg's is back to growth in some other taste cereals to health and wellness cereals are lower. When you think about the cereal category in totality, do you think that it's reasonable to think that both the taste and the health and wellness cereals can both grow at the same time? Or is it really kind of a trade-off one or the other based on what's kind of more or less on trend for that period? And based on that, how does it really inform how you're thinking about the level of reinvestment or more promotion aggressive pricing in some parts of the category?

Well, I don't want to sound pollyannaish because a lot of people have tried to solve that equation of great taste and great health. But like those other people who have tried, we believe that can be solved but it hasn't been solved effectively. And the first step in driving that solution is to create the resources to do it, which is what we've been attempting to do in the last 18 months with some of the changes we're making. So I don't want to be the latest person to say, we're going to have a great tasting product that cures whatever ills you have, but we continue to strive toward being able to grow the entirety of our portfolio and not just one sub-segment of it.

Okay. Thanks for your time.

Thanks, John.

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

Thank you. Good morning.

Hey, Mike.

Just two more quick ones on cereals. One is, historically you had outperformance in unmeasured channels. Is there any reason to think that might not continue and I guess just as we look at the scanner data and trying to model out from current momentum and looking ahead, is that something that has any shift in the dynamic or that will keep going on? And then second, just as you talked about some of the opportunity to look at more maybe premiumization or wide spaces, how do you see the portfolio evolving there? Is there some ways you can give a little peek ahead of how you might be able to look at some new innovation?

Taking those in reverse order, I wouldn't want to talk in this kind of forum about our innovation. What I would tell you is that the questions you're asking are the right questions. But this isn't the right forum to respond to that. With respect to non-measured channels, I would tell you over the course of multiple quarters or a year, there shouldn't be material changes. But what I would caution you as that quarter-to-quarter, there can be material changes because club is such a big portion of non-measured channel that as they have promotional events, they can swing short-term results fairly meaningfully.

Okay. That's helpful. Thanks a lot.

Thank you.

And ladies and gentlemen, we have reached the allotted time for Q&A today. This will conclude today's conference call. We wish you a great day and you may now disconnect.

Thank you.