00:04 Welcome to Post Holdings Fourth Quarter twenty twenty one 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 twelve p.m. Eastern Standard Time. The dial-in number is eight zero zero nine three eight two four nine zero. No pass code is required. At this time, all participants have been placed in a listen-only mode. 00:38 It is now my pleasure to turn the floor over to Jennifer Meyer, Investor Relations of Post Holdings for introductions. You may begin.

00:47 Good morning. And thank you for joining us today for Post's fourth quarter fiscal twenty twenty one 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. 01:18 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. Additional information regarding these risks and uncertainties is discussed under the forward-looking statements section and the press release we issued yesterday and posted on our website. 01:42 We also urge you to read both registration statements, the proxy statement, and prospectus and other documents related to the proposed distribution of our interest in BellRing Brands that will be filed with the SEC when they become available, because they will contain important information. These forward-looking statements are current as of the date of this call and management undertakes no obligation to update these statements. 02:07 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. 02:22 With that, I will turn the call over to Rob.

02:24 Thanks Jennifer. Good morning and thank you for joining us. Our fiscal year ended in quite a disappointing manner as cost inflation ran ahead of pricing and supply chain inefficiencies caused us to meet our estimates. We ended fiscal twenty twenty one with adjusted EBITDA of one point one two billion, down one point five percent to last year as COVID affected rebounds in food service and declines in retail channel segments roughly offset each other. 02:52 This morning, I will share with you the sources of the miss and frame our expectations for the upcoming year. I want to start with the detail on our shortfall from guidance. Sales were largely in line with our expectations. The miss was entirely the result of cost escalation. The two biggest drivers versus expectations were unfavorable manufacturing costs of nearly eighteen million dollars resulting from plant inefficiencies and poor fixed cost absorption and transportation costs, which were twelve million dollars above forecast. 03:24 In addition, capacity constraints, largely resulting from labor and material shortages and contract manufacturing under shipments, inhibited our ability to service demand. The capacity limitation resulted in customer allocations across food service, refrigerated retail, and BellRing. Stepping back from supply chain, there is plenty of cause for optimism. 03:48 Our demand remains quite strong in Post and Weetabix branded cereal, Bob Evans branded products, most of our foodservice service categories, and especially in Premier Protein shakes. We have pockets of softer demand in our value cereal segments, notably MOM Brands and private label. Our Post branded cereals performed well this year gaining half a share point on the strength of the PEBBLES franchise. This was offset by weakness in our value portfolio. 04:15 We expect consumers to return to value price points as consumer liquidity normalizes. Weetabix had…

09:50 Thanks, Rob, and good morning, everyone. Fourth quarter consolidated net sales were one point seven billion dollars and adjusted EBITDA was two hundred and seventy two point five million dollars. Net sales increased twenty percent and benefited from approximately one hundred million dollars from recent acquisitions, as well as volume demand recovery in the foodservice segment, strong growth at BellRing and pricing actions. 10:15 As Rob discussed, higher manufacturing and freight costs were significant burdens on results this quarter and internal and external labor shortages disrupted our supply chains. As a result, throughput declined and per unit product costs increased. Additionally, our customer order fulfillment rates suffered. 10:35 Moving to our segments and starting with Post consumer brands. Net sales and volumes increased eleven percent and seven percent respectively. Excluding the benefit from the private label cereal and Peter Pan acquisitions, net sales and volumes declined three percent and five percent respectively, primarily from continuing softness across value in private label cereal products and our exits of certain low margin business. 11:01 Our PEBBLES brand continues to show great growth with volumes up seven percent. Cereal average net pricing improved two percent, driven by favorable product mix and pricing actions. Adjusted EBITDA decreased thirteen percent versus prior year. Supply chain disruptions, including planned and unplanned maintenance downtime drove declines in throughput and fixed cost absorption, causing significantly higher manufacturing costs per pound of production. This was exacerbated by input costs and freight inflation. 11:36 Weetabix net sales and adjusted EBITDA increased twelve percent and thirteen percent respectively. This growth was driven primarily by a stronger British pound to U.S. Dollar exchange rate. Total segment volumes were flat. Branded and private label biscuit volumes declined as we lapped COVID-related increased at home consumption in the prior year. Offsetting these declines…

15:36 [Operator Instructions] And we'll go first to Chris Growe with Stifel. Your line is open.

15:58 Hi, good morning. Thanks for the time. Just had a question for if I could first and obviously, Rob a lot of companies are struggling and battling through this environment of pricing to cost inflation, which has skyrocketed and your supply chain issues and obviously those worked against Post this quarter. I guess, I just want to get a sense of, kind of each of those elements I could. It sounds like from a pricing standpoint, well, there's obviously a lag in some areas, food service as an example, you are pushing through pricing that will – it sounds like offset cost inflation, is that a reasonable assumption for fiscal twenty two or do you expect to kind of achieve a rate of pricing through the year that will ultimately offset inflation in fiscal twenty two?

16:40 The latter. I think we will lag in Q1 and then we should achieve parity in the middle of Q2 with the uncertainty, of course being inflation from here.

16:51 Okay, right. I think, on the supply chain, again, like a lot of companies are having these issues as well, but I guess I sensed a bit of a hopeful view of the supply chain, you had your challenges obviously this quarter, but I'm thinking like for example in Refrigerated Retail, that seems be improving a bit. Am I reading that the right way or hearing that the right way, are we starting to see some improvement here in the supply chain that gives you a little more confidence in your outlook for fiscal twenty two?

17:18 You're reading that the right way. I think if you – you have to almost go market by market because the labor market is such a local issue, but we've had at the peak six factories that we had what I would characterize is your severe labor shortages that in the timeframe late August, early September. 17:39 Of those three are now largely cured and three still has some fairly severe shortages that we're working through. And it's not just a lack of hiring the turnover is elevated right now as well. So, if you look at the leading indicators for [indiscernible] indicator is applications and those have moved significantly in the right direction. 18:05 We now need to make sure that we've got the right applicants and then once hired and trained, we do a good job of retaining. I don't think we're any different than anybody else in this particular issue, but it remains challenging as we work through kind of the egg and the snake as we swallow, the impact of this labor shortage through the first quarter. But I would say, labor is the most significant aspect of this. It is improving with freight still a challenge and some ingredients still challenged.

18:39 Okay. And I know we have a chance to speak to Darcy about BellRing, but in terms of their supply chain, this is a disappointing quarter, they have such great retail growth or consumption growth I should say and then weaker shipments, and I know that Post is committing some capital here to try to help BellRing along. Is that like a sequentially improving supply chain issue as well for them? Do they see better and better incremental supply each quarter that will allow them their sales to improve as well their shipments?

19:11 They do. There's an element of co-manufacturer execution that we are pushing. So, if you look back early in twenty twenty one and really up until the latter part of the fourth quarter, our coal manufacturers were attempting to keep pace with all the incremental consumption demand. So, they were performing ahead of their contract minimums. 19:35 Because of their own supply chain issues, several of our contract manufacturers have returned to minimums, which has put some of the pressure specifically on September, a bit into the first quarter, but we expect that to the same issue. 19:50 There was a one bespoke issue in terms of a reasonably significant COVID outbreak in one factory in our network, but in general, it's the same issue facing our network as it is the balance of the labor market in the country.

20:05 Okay. And then just related to that, and then my last question, the capacity that Post would like to build to help BellRing, when can that be ready to go and how much like the total capacity would that represent for BellRing?

20:21 It will take about eighteen months to build and it's still a relatively modest portion about ten percent to twelve percent initially growing. The factory is four lines with the potential to double. So, it will initially be a relatively modest piece of the entire network, with a potential to grow.

20:42 Okay. Thanks for your time this morning.

20:44 Thank you.

20:49 We will go next to Andrew Lazar with Barclays. Your line is open.

20:55 Thank you very much.

20:56 Good morning.

20:57 Good morning. Maybe to start, I wanted to just explore the – I know it's not the biggest aspect of things here in near term, but I want to explore this co-packing arrangement with BellRing, just a little bit more for a moment. I understand maybe the opportunistic nature of this, I guess it seems like it's a bit at odds with Post’s plan to sort of be getting out of BellRing stock early next year. The [indiscernible] arrangement seems like it's sort of getting back into BellRing and more of like a pick and shovel sort of way, but maybe without the brand ownership. So, I guess I’m trying to wrap my head around that a bit and better understand why maybe a current co-packer for BellRing would not be stepping up to take on this opportunity?

21:36 Well, they certainly would and are. So, we are not the only part of the Bell network expansion. I would encourage you to look at a less from the BellRing side and more from the Michael Foods side. So, by that, I mean, Michael Foods is essentially an enormous aseptic processor, that's essentially what we do in processing eggs. 21:57 So, when you look at marginal opportunities to invest capital in our core competencies within the Michael Foods network at a relatively low risk with a decent return in excess of our cost of capital, it was an interesting tactical initiative for Michael Foods to step into that mix of contract providers for BellRing much as we do for some other customers within our food service network. So, we see it from a Michael Foods perspective as an expansion of our ingredient dish ingredient [indiscernible] manufacturing business. 22:36 BellRing just happens to be the customer. We obviously have a considerable amount of confidence in the BellRing demand projections. So, it felt like relatively easy way to allocate capital businesses that we have, very strong capabilities, very strong knowledge of the demand side and take advantage of that relationship.

22:56 Great. Thanks for that. And then in the release, I think you mentioned that in your fiscal second half of this year, of this past year. A lot of, most of Post retail channel product categories trended towards growth rates that were back to in-line with their pre-pandemic levels and I guess just a little bit [indiscernible] with what we still see as obviously very elevated growth trends for many companies in the package through universe. And I guess it's important, right, because it kind of gets to the debate on whether or not the packaged food players can exit the pandemic with even a slightly better growth rate moving forward, given all the incremental trial the past two years from the shift to at home meeting. So, I guess I was hoping to get a little bit more clarity on this comment and what might be making maybe trends that you're seeing, somewhat different than maybe what some others are if they are?

23:44 Yes. Well, I think that's really a cereal comment because both Bob Evans and BellRing are reverting to a bit ahead of already very robust pre-pandemic growth rates. So, I think that I'm referring your comment as more the slower growing getting back to slower growing or shrinking. 24:05 If you look at cereal, where I think that comment is most [apt] [ph] – I think it's a shift in premiumization within the category more than it is a category issue of private label. If you pull out private label, I think the category over nineteen is up three percent to four percent. So, I believe what we're seeing is more of an issue with private label specifically within that category strip it out you see growth rates very consistent with some of the other center store categories. So, I think it's part bleeding that lower income consumer. I don't think it's systematically different than other categories.

24:44 Got it. Thanks. And very, very quickly, just, it might be too early, but any, even anecdotal data points you get that sort of suggest that you're seeing consumers start to trade down a little bit whether it be to some of your value brands or private label or is it still just too early for some of these macro conditions to have, sort of forced that to happen?

25:03 No, I think we are starting to see some anecdotal, well, it's data, but it's very recent. So, if you look at the last four weeks and maybe eight weeks, you've got first some bottoming in the trends. So instead of declining, they're flat and then in the very recent weeks we've seen some uptick in private label. So, it's too early to call it an inflection point, but if these trends continue, it is an inflection point.

25:34 Thanks very much.

25:36 Thank you.

25:42 And we will go next to Jason English with Goldman Sachs. Your line is open.

25:48 Hey, good morning folks. Thanks for putting me in.

25:50 Good morning.

25:54 Goodness. Lots of questions left. Let's start with the easing of cost pressure by the end of 2Q, can you unpack that a little bit more? What specifically do you expect to ease, is this predicated more on like spot holding, it begins to lap the upward move in the cost or are you actually underwriting sequential deflation?

26:13 No, we are certainly not underwriting deflation. So, I think the comment I made was net of price increases. So, we're assuming lapping pricing increases by the end of fiscal – the second fiscal quarter and that the rate of inflation will not dramatically accelerate, so that there's not a further lag effect on taking pricing. But we're certainly not taking in disinflation. 26:44 Yeah. Where we do expect to see some cost improvement is on supply chain execution as we get better health in our labor situation, which is improving. So, the controllable aspects of supply chain are improving. The non-controllable aspects of various forms of input, transportation inflation, we are not assuming will moderate, but that our pricing activities will lap the flag effect.

27:16 Understood. That makes sense. Two questions on foodservice. So, you have more volume flowing through this quarter. Grain prices sequentially eased, and based on your pricing mechanism, pricing should have sequentially moved higher. I would have expected under those conditions, the EBITDA would have sequentially grown, not sequentially shrunk. A, am I write on those three drivers? And if so, B, what's the negative offset?

27:46 Yes, you're right on those drivers and the negative offset is transportation and packaging, which are not hedged and are inflating in the quarter at double digit rates.

27:59 Okay. And I hear you a lot and clear in fiscal twenty twenty three being back to sort of the first normal year, but I have a question on what normal is? I always thought about that business is predominantly an egg business where consumption grows around two underlying eggs, food service, you're premiumizing through more processing, adding another point, and then conversion of shell to process, all in, this can be like a four percent sort of volume metric volume mix grower that can be levered to at least five percent at EBITDA. You put out a presentation in September suggesting if you look at it quickly, that maybe it's actually only a two percent to three percent EBITDA grower full cycle. Is that right? Like should I really be thinking about this only as a two percent to three percent or is there more potential full cycle growth there?

28:50 No. We have no reason to believe once recovery and let's define recovery as profitability levels comparable to fiscal nineteen. That the rate of growth in foodservice has changed. Now what remains a bit uncertain is the baseline because we have yet to see full recovery in some segments, specifically travel, but we have no reason to believe that that rate has changed. 28:50 I think there were some mix of category growth rates in that presentation that may have led to that conclusion, but the expectation is again that we'll see low single digit volume growth, some shift to higher value added product. And between the two, those will add and what I believe we have said historically and continue to say as three percent to five percent EBITDA growth rate.

29:43 Okay, got it. Thank you. Appreciate it.

29:46 Sure.

29:51 We'll go next to David Palmer with Evercore ISI. Your line is open.

29:57 Thanks. Just a follow-up. I can't help it. On the foodservice service side, it feels like your customers, the food attached has been very strong within that breakfast segment, those coffee players are talking about a lot of breakfast sandwiches being sold, it just felt like when you look at an index of your potential customers, it would have been at least a few points higher than where the street was versus below. So, I'm wondering about just the shortfall of just your constraints versus what you thought would have been possible in terms of supply? But my real question was really on refrigerated retail, I love some anatomy of the decline versus – of that EBITDA margin versus twenty nineteen levels when you think about pricing net of costs versus supply chain, what impact do each of those have? And then how do those get better as we think about maybe nineteen being an anchor year getting back towards those mid, towards high teens actually, EBITDA margins, when can you get there? Thanks.

31:08 That was a long question, David. So, I'm going do my best to break that down. So, if I don't get it, please come back to the specifics, but on foodservice, your assumption is quite right. We should have sold more than we did. The specific customers that order our highest value products are doing quite well, and demand is very strong. 31:34 Hundred percent of the answers is labor availability in key markets where those products are made. And I may have used this statistic in our third quarter call, but we pre-pandemic expanded that network from seventeen to twenty two lines. And we are currently only able to operate eighteen lines. We expect that to change throughout the year. 31:58 We expect to be at nineteen by the third quarter and in full utilization lines by the end of the year, but the single source of the gap between what you would expect looking at our customers and what we were able to ship is labor availability could be our capacity. So, let me stop there and see if that answered you question.

32:23 Yeah. And I guess, yeah, and I wonder what happens to that business? I mean these are big customers that want their egg sandwiches? I think so, are you – are other suppliers filling that in or is there a backfill or is there a big quarter coming to you in one or two quarters as you're potentially rebuilding their inventory?

32:45 It should be the latter. We actually believe we have gained share. There's just not a whole lot of capacity in this category. So, the bigger customers are not where we have demand issues, is so we're not providing as effectively at some of the smaller customers. So, we will have an inventory rebuild when we have the inventory.

33:10 Got it. And then with regard to Refrigerated Retail, just the pricing net of commodities versus supply chain and the pace of recovery there? Thanks.

33:19 Yeah. So, the pricing out of commodities is predominantly a SAL issue. And SAL have been extraordinarily volatile in the last year going from a low of twenty six to a high of ninety three or so, they're about seventy now. So, we've been chasing that and as we chase that, we have bracket pricing. So it's an automatic reprice, but it puts margin pressure on the up and margin, benefit on the down. 33:45 So that will be a consistent source of margin variability as long as we have that particular line and price it accordingly. Over time, it really – over time, it is a nice return on its capital, but it does creates margin variability. The core potato business has priced perfectly well. It has no pricing, excuse me, has no cost ahead of pricing, no issues there. 34:12 The issue with our side dish business is that for a while that particular plant was our most acutely challenged plant from a labor perspective. We have demand that would be in the fifteen million pounds a month or more and we had dipped to capacity of less than seven million pounds. We had a glide path to get back to twelve by April and we are now already just shy of twelve. So, well ahead of our expectation. 34:48 As we cure the labor situation that was the root cause of many first and second derivative issues that were driving incremental costs within that particular segment. So, I'm most optimistic from a trajectory perspective, when I look at Refrigerated Retail about the pace, of recovery in the margin restoration because it is largely an issue of having to pay higher [totaling] [ph] charge to go to third party manufacturers and having extremely poor throughput in the factories driving fixed absorption down.

35:24 Great. Thank you.

35:25 Thank you.

35:32 We'll go next to Michael Lavery with Piper Sandler.

35:38 Thank you. Good morning.

35:40 Hey Michael.

35:42 You've called out labor as a headwind and obviously we hear that all over the group, but can you give us a sense in your outlook? What assumptions you're making about a vaccine mandate it surely got a date with the supreme court. So, it doesn't seem like it's completely settled just yet, but are you factoring in what might be potentially reduced even late further labor market or how are you thinking about factoring that in?

36:11 It's a great question, Michael and we are certainly planning it, but no, we have not factored in that the vaccine mandate will further crimp the labor market. I think the impact that it could have is some incremental cost, but I don't think – if that rolls out as drafted, I don't know if I should say it's expected, it would probably be an incremental cost of handful of millions of dollars to us to monitor and test, but we would need to push through that in terms of paying it pretty aggressively in order to make sure that we don't further exacerbate the labor issue.

36:55 Okay, great. That's helpful. And that touched on a little bit with one of Andrew’s questions, but just coming back to the low end consumer, certainly, you are looking at what maybe be an inflection point, can you just maybe quantify a couple of things? Do you have a sense of how much, what percentage of your serial consumers are snap recipients? And obviously, we've already seen the [indiscernible] piece of those benefits roll off, which is significant. That seems to coincide with the timing you’re looking at for bottling and potentially turning a corner. Is that a substantial piece of your consumer base and is that what might be driving, giving some hope that this is really on the rebound?

37:43 A hundred percent, yes. When the changes went into effect, it was precisely when we saw the bottoming and then the start to lift in private label. I don't have the specific percentage, but it's a material portion of the serial category.

38:02 Okay, great. Thanks so much.

38:04 Thank you.

38:07 We'll go next to Ken Zaslow with Bank of Montreal.

38:12 Hey, good morning everyone.

38:14 Hey, Ken.

38:16 As you think about the transaction, is there any sort of ability thought of revisiting it given where everything is? Is it a – is the snowball revolving rolling down the hill? How do you think about that and the value creation from your [asset] [ph]?

38:32 To clarify, you mean the BellRing transaction?

38:36 Yeah. I'm sorry, yes.

38:39 No. I think the notion that the two businesses ought to be separated is price agnostic. What is not is how you do it. And as we have laid out and each step along the way, we will make determinations around how to execute it as we get closer to the execution day and by that, of course, I mean, as I had in my prepared comments, do we simply distribute it to shareholders or do we use the BellRing currency as a means of shrinking Post’s share. So, it's obviously relative value. 39:18 So that is the only piece that I would characterize as uncertain and impacted by the relative changes in the two company’s share prices.

39:31 Okay. The second question I have and I'll keep it to two questions. You did say that you're going to be accelerating the marketing investment, I believe it was the – I don't remember exactly – you’re right, is that – that's an interesting move given the capacity constraint. So, what do you see that gives you the confidence to be able to not parallel with the commentary of saying, hey, look, we're still capacity constraint? Is there a timing, and how do you see that playing out?

40:08 There is a timing. So, what I commented on is that we expect towards the latter half of the year to be more fully engaged in driving demand. In that category and that specifically the reference I was making to the side dish business, which has gone from a really acute labor situation to largely a solved one in a short timeframe. So, it's the business we are seeing the most rapid improvement from a supply chain and output perspective. 40:41 So that gives us confidence that by the time we get into the second half, we would be in a position to drive incremental demand.

40:50 Okay. And if that doesn't, I mean, so again, obviously, I guess your level of confidence is very high, it's just a very seemingly fairly aggressive step without making sure the inventories are rebuilt, but I understand. Thank you very much.

41:04 But largely self-pleasing. So, if we are wrong by a quarter, we will know that in time not to spend the advertising.

41:14 Okay, great. I appreciate that and good luck.

41:18 Thank you.

41:27 And this does conclude today's Q and A session in the post holdings Q4 twenty twenty one earnings call. You may now disconnect.

41:36 Thank you.