Good day and welcome to Post Holdings’ Fourth Quarter 2022 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 800-839-3742. No pass code is required. [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 fiscal 2022 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 will have a brief question-and-answer session. The press release that supports these remarks is posted on our website in both the Investors and the SEC filings 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.

Thanks, Jennifer and thank you all for joining us. Before commenting on our results, I want to congratulate both Jeff and Matt in connection with the announcement earlier this week. Jeff is ideal for this role, and that he has a deep knowledge of each business as well as the trust and the respect of each business leader. And Matt has been a key architect of many of Post sophisticated financial transactions. I look forward to working with them with each of them in their new roles. Post ended the year in strong fashion, anchored by exceptional performance in foodservice, we delivered a quarter with nearly $280 million in adjusted EBITDA, and a year with over $960 million in adjusted EBITDA. This represents a respective growth rate for the quarter and year of 32% and 8%. Moreover, we look forward to delivering EBITDA growth rates above our historical norm through at least 2024. I would characterize 2022 as having been dominated by inflation management and ongoing supply chain challenges. We expect 2023 to be focused on margin restoration. I will comment more on that shortly. As I mentioned, foodservice had an exceptional quarter. I’m quite proud of the performance of this team having now entirely recovered from the depth of COVID, and added to the segment’s profitability. In addition to facing the global pandemic, we have navigated an avian influenza challenge and done so exceptionally well. For those of you who have been around a while, you may recall that this experience tends to make us a more effective competitor in a more profitable company. That is not to see it comes without risk. There is always a risk that we may be impacted. Our Foodservice segment has been quite resilient now through different environments. We believe we are well…

Thanks Rob and good morning everyone. Fourth quarter consolidated net sales were $1.6 billion and adjusted EBITDA was $280 million. Net sales increased 16.5%, and benefited from pricing actions in each segment and continued volume recovery in our foodservice business. Supply chain disruptions eased slightly, but our per unit product costs remained elevated and our customer order fulfillment rates remain below optimal levels. Turning to our segments and starting with Post Consumer Brands. Net sales and volumes increased 13% and 2%, respectively. Cereal average net pricing increased 10.5%, driven by pricing actions, partially offset by unfavorable product mix. Peter Pan, Pebbles, private label cereal and MOM bags drove the volume increase. Declines in Honey Bunches of Oats partially offset these increases as we lap the change in the timing of a club promotion. Adjusted EBITDA increased 10% versus prior year as volume growth and our pricing actions outweighed significant cost inflation. Weetabix net sales decreased 8%. In local currency, however, sales were up approximately 8%, a significantly weaker British pound caused a foreign currency translation headwind of approximately 1,500 basis points. Net sales benefited from significant list price increases and sales from the recently acquired UFIT brand. These benefits were partially offset by unfavorable mix, reflecting growth in private label products. Excluding the benefit from UFIT, volumes declined 9% as growth in private label was not enough to offset declines in other products, which were largely driven by supply chain constraints and related shortfalls in order fulfillment. Segment adjusted EBITDA was 13% lower than prior year, primarily because of the aforementioned foreign currency translation headwind. Unfavorable mix also weighed on profitability this quarter. Our foodservice business saw net sales and volume growth of 37% and 4%, respectively. Revenue growth continued to outpace volume growth as revenue reflects the impact of…

Thank you, sir. [Operator Instructions] We will take our first question from Andrew Lazar with Barclays.

Great, thanks. Good morning, everybody.

Hi, good morning, Andrew.

Maybe to start off, Rob. I think last quarter, you had provided some sort of preliminary guidance for fiscal ‘23 EBITDA. And I think it was basically annualized the second half of ‘22 run rate and then obviously, clip whatever makes sense from a foreign exchange perspective. I guess by our math, this would get post roughly in line with sort of the high end of its sort of now formal guidance range. So just trying to get a sense whether there was something that had changed, or if this is more just conservatism in the event of – kind of unforeseen challenges and such?

A little bit of conservatism, but also the fourth quarter overperformed a bit, so that comment would have been more appropriate given our outlook versus the actuals.

Got it. And then I guess that leads me into the next one around the outperformance. Obviously, profitability as you talked about in foodservice, certainly came in well ahead of expectations and maybe even is like it even far surpassed what Post had been delivering pre-pandemic. So I’m just trying to get a sense if there was something discrete in the quarter that provided sort of the outsized benefit or if this is more of a run-rate, we should think about for this business moving forward? Thanks so much.

No. As you recall from our prior experiences with these exigencies, they can create some disruptions in the pricing mechanism and sometimes they work in our favor. So we had some unusual earnings in the quarter, and we’ve tried to reflect that in our guidance is not being repetitive. I think that what we are seeing is continued strengthening of the core franchise, and we expect the profitability to normalize at higher levels than pre-pandemic and gives us continued confidence in the growth rate in perpetuity, but not – we are not trying to suggest that annualizing this quarter as a current run-rate for the business.

Okay, thank you so much.

Thank you.

Thank you. Our next question comes from Chris Growe of Stifel.

Hi, good morning.

Hi, Chris.

Hi. I just had a question for you around the gross margin and really pricing to cost inflation. The – just to understand kind of as you look forward here, it looks like pricing has caught up with cost inflation. I know that’s a broad statement. But generally, across your business, your gross margin was up a little bit sequentially. Does that continue to improve throughout ‘23 as you think about or talked about like this margin recovery phase you’re entering? Is there an expectation that supply chain disruptions get better, but also that the pricing has come up to the inflation, and we should see that manifest itself in a stronger gross margin throughout the year?

Yes. Obviously, there is some uncertainty around future trajectory of inflation, but as you lap the pricing, we still have some catch-up to do. But equally important is we make sure we’re running more efficiently with fewer unplanned outages and all the things that we’ve been dealing with last 2 years those all flow through gross margins. So we do expect to see gross margin expansion in ‘23, and we expect it to continue on into ‘24.

Okay. That’s great. Thank you. And then just a quick question for you. Weetabix is a unique business, but an area where they have seen a little trade down to private label and obviously capture some of that, which is good. I just wanted to get a sense of any areas of your business where you’re seeing that sort of incremental price competition, any incremental trade down? And maybe just a comment around elasticity, you just naturally build in a higher rate of elasticity going forward and kind of see how it goes. I mean so far, elasticity has been great for your business, if you will, very favorable.

Yes. And starting at the end of that, in general, that condition remains. Elasticities continue to be relatively low. And I think it’s just the reality of inflation being as widespread it is, as it has been. So, relative choices are remaining relatively the same because inflation is so widespread. But as the absolute price grows, we are starting to see some trade down to private label in North American cereal. The UK is a little bit different because the inflation has been more dramatic and specifically tied to home energy. So the trade down there has been a bit more dramatic. We are not seeing it broadly outside of cereal. And I think as I commented in my prepared remarks, we don’t see the slide of sign yet of pullback in away-from-home consumption, which has frankly surprised us a little bit. So right now, it still feels like the consumer is in a pretty solid state.

Okay, thank you for the color.

Thank you.

Thank you. Our next question comes from Michael Lavery of Piper Sandler.

Thank you. Good morning.

Good morning Michael.

You had called out restoring more normal foodservice margins in 4Q and obviously, we saw that, and they were even a little ahead of what we might been modeling. But can you give us a sense of how that looks going through 2023? And is there more upside? Have you sort of hit the run rate? And I guess I will tack on my follow-up now, which is at the broader level, as well, you touched on total company above average EBITDA growth looking ahead, and you touched on margin restoration, how much can you get ahead of prior margins as well? I know that would be a little bit further out, but maybe just at a high level, margins and then foodservice margins, would love some color on both of those.

Yes. So, foodservice margins, as I have suggested in my remarks, tend to normalize at higher levels than prior to an experience like the – whether it’s COVID or AR, whatever the emergency may be because I think that the business is so competitively advantaged, and the biosecurity is so good, and the cost structure is so impressive that it really does allow for a demonstration of the value of the relatively unique proposition that we offer. So, in crisis character is revealed, and I think that’s what happens. We expect [ph] this with our foodservice business. By no means do we expect the margin to remain as elevated as it has been in the last couple of months, but we would expect it to remain or to become institutionalized at a higher level than it had been historically. With the rest of the business, I am not ready to say that we will get past margins that we had entering COVID. I think broadly, margin structures are under pressure as we start to rethink supply chains, and I am talking about not just Post, but very broadly. So, I think our objective is to recover those couple of hundred basis points of margin that came from the things that we can manage. And I am making a distinction between the fact that foodservice grew and that we have acquired some businesses at lower margin structures, very attractive acquisitions, but lower margin structures. So, we are laser focused on getting back to brighten if we see opportunities to expand beyond that. Obviously, we won’t stop there, but that’s not where we are targeting as we speak today.

Okay. Great color. Thanks so much.

Thank you.

Thank you. Our next question comes from David Palmer of Evercore ISI.

Thanks. Good morning. Another one on foodservice, obviously, impressive EBITDA. Could you talk about maybe some of the drivers there, what perhaps is outsized versus what you think would be a typical quarter? And you mentioned that the fourth quarter was something we shouldn’t annualize. I am wondering if there is a typical quarter, and I am looking at the third quarter that $85 million to $90 million range might – if you think like that might be more of a typical quarter that we could think of in terms of annualizing for fiscal ‘23?

Yes. I mean, we specifically give guidance at the enterprise level to allow ourselves some room to be wrong at the individual company level. And one of the things we think that we offer investors is the benefit of a portfolio. And I think that nothing has demonstrated that more than the last couple of years. So, I think I don’t want to get into the game of giving individual segment guidance. So, I am going to dodge that question a little bit. In terms of some of the things that were unusual in the quarter, there were some custom – excuse me, there were some competitors that had some supply issues that we were able to take advantage of. There was some pricing in the marketplace that has been unusual given, again, some of the exigencies, we performed very well. We are able to react to it to keep our customers as well filled as possible, even though we are not filling at really very attractive rates ourselves. So, I don’t want to call this a normal quarter. It was a quarter in which we took advantage of opportunities that we had, and we did it well. But most importantly, what we are trying to do is continue to service our customers as ably as we can, make sure our value proposition is supportive of their business efforts. And I think something to recognize about the long-term prospects for Michael Foods is that Michael Foods and our Foodservice segment, I sometimes use those interchangeably. Our basic selling proposition is that we take labor out of operators. And as labor escalates and as labor becomes more challenging from even an availability perspective, our selling proposition becomes that much more valuable and provides a tailwind to our volumes, which ultimately then drives margin.

And then just a quick one. Consumer Brands and Refrigerated Retail, do you think that we should see shipments or ship sales more or less approximate consumption going forward, or do you think maybe even a little bit more than that if some of the supply chain constraints ease out there and you get some increase in inventory and fill rates? Thanks.

Yes. So, I mean within plus or minus a couple of percentage points, they should track each other. There will be periods of time when retail inventories have inflow a bit, but in general, yes. And I think both companies continue to have supply chains that are not where they need to be and that cost aspect, and that has an inhibition of volume aspect that we need to remedy.

Thank you.

Thank you.

Thank you. Our next question comes from Bill Chappell of Truist Securities.

Hey. Good morning guys. This is Steve Lengel on for – this is Stephen Lengel on for Bill Chappell. Thanks for taking my question.

Sure.

I wanted to kind of touch on labor. We have heard from some of the other players in the food space that they are still kind of experiencing some minor issues at some of the facilities, and you kind of mentioned some challenges last quarter. Is there any color you can kind of provide on how the labor situation is progressing and how things are shaping up for ‘23? Thanks.

Yes. What I would tell you, Steve, is that the quantum of labor has improved a bit. But what we still face is a higher-than-ordinary turnover level. And if you now look at that having compounded for 3 years, we have in general, less experienced workforce than we had in 2019, and that most experienced workforce has knock-on implications in terms of the efficiencies within our factories and within our supply chain. So, labor is generally better, but there are some second order effects that we are all dealing with that we will continue to deal with for some time as we train and retain this less experienced or less tenured portion of our workforce.

Awesome. Thanks very much guys.

Thank you.

Thank you. Our next question comes from Ken Zaslow of Bank of Montreal.

Hey. Good morning guys.

Good morning.

Hey Jeff. As you kind of think about your new role, you walk into this role, and I know you have been there so you kind of know the things you are going to do. But can you talk about what your strategy is as you walk into this new role, what are your priorities? And where do you think you could affect the most change?

Sure. The primary goal that I have is to try and seek out opportunities for the collaboration between the business units. We have made some strides in that regard over the last couple of years, but I think there is still opportunity to push that ball forward. We have breeded the culture of each of our businesses being independent, which is very important to their independent operations. But there are opportunities that we have forgone over these years to better collaborate, perhaps improve our cost structure, perhaps improve opportunities for other activities that we can, hopefully, over the long-term, reach an equilibrium that both benefits from our scale as well as maintain the independence of the operating companies to maintain their focus on what specifically drives their profitability. So, that’s a long-term objective. So, it’s going to take some time to get some of those improvements, but that’s where we are going to try and focus.

And my last part of this question is, what milestones you expect to achieve, or is there a – an order for which that you expect to hit certain divisions, or is it just again bringing everything together, but what are your key milestones? I will leave there. Thank you very much.

To be honest with you, Ken, we haven’t established that, but that’s something we can talk about down the road.

I appreciate it. Thank you.

Thank you. We have reached the allotted time allowed for Q&A. This will conclude Post Holdings’ fourth quarter ‘22 earnings conference call and webcast. We thank you for your participation. You may disconnect at any time.

Thank you.