News & Our Thinking

(St. Louis Business Journal)

“If investors were to paint the perfect picture, I think they’d prefer Post would buy something other than ready-to-eat cereal. Investors are mostly enthused about what Post said about their earnings,” Ken Crawford, a portfolio manager at Argent Capital, said of the dual announcements.

January 30, 2015 (Ben Unglesbee)

Post Holdings Inc. served up good news for investors this week. Topping the announcements was the $1 billion-plus acquisition of the Malt-O-Meal brand of ready-to-eat and hot cereals that will make Post the third biggest player in the cereal market. It also announced early first-quarter numbers, which showed Post’s food businesses were in good health.

With the acquisition of Minnesota-based cereal maker MOM Brands Co., Post continued a years-long purchasing blitz that has included Attune Foods, Premier Nutrition, Dakota Growers Pasta Co., Golden Boy Foods, Dymatize Enterprises and Michael Foods. Analysts say Post shareholders should be pleased with the acquisition, which Post will pay for with about $1 billion in cash and nearly 2.5 million of its shares. The deal is expected to close in the third quarter this year.

John Campbell founded MOM Brands in 1919 with $900 of poker winnings. John Fort, a grandson of Campbell’s and one of the heirs to MOM Brands, lives in St. Louis County with his family. Fort is also co-founder and partner in the Regional Business Council’s Social Ventures Partners, a program that invests in local nonprofits. Fort declined comment on the merger through a spokeswoman.

With net sales of about $760 million in 2014, MOM Brands currently owns nine of the top 50 cereal brands. In a call with Post’s investors, Post CEO Robert Vitale addressed why Post turned its M&A sights to an old-school cereal category rather than the protein-heavy and on-the-go segments in which it has tried to grow recently. “Since our spinoff from Ralcorp three years ago, we have been clear that we saw complementary attractive strategies in using M&A to gain access to more rapidly growing categories and in consolidating ready-to-eat cereal,” Vitale said. “Our aggressiveness in pursuing new platforms never decreased our appetite to consolidate the RTE category.”

Post also released preliminary first quarter earnings, which showed net sales of about $1.1 billion, up from Post’s net sales of $297 million for first quarter of fiscal 2014. Each of Post’s businesses met management expectations, Post Foods and the 2014 acquisition Michael Foods both outperformed expectations. That was good news to investors after recent declines in profit numbers and added costs associated with integration issues from acquisitions, namely Dymatize. By the end of Jan. 26, when the announcements were made, Post’s stock had jumped about 17 percent. Post’s stock closed Jan. 27 at $48.72 a share.

“If investors were to paint the perfect picture, I think they’d prefer Post would buy something other than ready-to-eat cereal. Investors are mostly enthused about what Post said about their earnings,” Ken Crawford, a portfolio manager at Argent Capital, said of the dual announcements.

Market share of ready-to-eat cereal

• 32% Kelloggs Kashi
• 31% General Mills
• 18% Post MOM brands
• 9% Private labe
• 6% Quaker
• 3% Other