News & Our Thinking

(St. Louis Business Journal) 

“You’re seeing a much more competitive environment with discounters like Wal-Mart, and Amazon has become aggressive — its Whole Foods acquisition is an example of that,” said Scott Harrison, an analyst with Argent Capital Management in Clayton. Post is among the 10 top holdings in Argent’s large-cap growth portfolio. “You have very large discount stores competing aggressively for the volume that’s out there, and it’s waining on the ability of food manufacturers to grow top-line sales.”

August 24, 2017 (Steph Kukulijan)

The $1.8 billion acquisition of Weetabix by Post Holdings Inc. (NYSE: POST) has bowled over analysts as they say the purchase opens up international markets for the St. Louis-based company and solidifies its standing as an opportunistic and disciplined buyer.

Post closed on its acquisition of U.K.-based Weetabix on July 3, and the transaction is expected to contribute about $155 million in earnings before interest, tax, depreciation and amortization (EBITDA) before synergies, according to an Aug. 6 report by Stifel Nicolaus analyst Christopher Growe. He and other analysts see immense potential with the deal because of the opportunity for Post to enter new, international markets either through more acquisitions or growth of its existing U.S-based units.

The company posted a 2.1 percent increase in revenue in its fiscal 2017 third quarter to $1.27 billion, compared with the same period last year. It reported the fiscal 2017 adjusted EBITDA range to be $975 million-$990 million, including Weetabix.

The deal, which was announced in April, comes as large manufacturers valued at over $3 billion in the consumer packaged goods industry only saw 1.6 percent compound annualized growth from 2009 to 2012. Medium manufacturers with a valuation of $1 billion-$3 billion fell 3.7 percent, according to PwC’s 2017 report on the industry.

“You’re seeing a much more competitive environment with discounters like Wal-Mart, and Amazon has become aggressive — its Whole Foods acquisition is an example of that,” said Scott Harrison, an analyst with Argent Capital Management in Clayton. Post is among the 10 top holdings in Argent’s large-cap growth portfolio. “You have very large discount stores competing aggressively for the volume that’s out there, and it’s waning on the ability of food manufacturers to grow top-line sales.”

But Argent is fond of Post, which has managed to survive in that environment due largely to the company’s top management, Harrison said.

“We’re big believers in their management team in terms of their ability to allocate capital and drive shareholder value,” he said. The company is led by President and CEO Rob Vitale and Chief Financial Officer Jeff Zadoks. “They’ve been very meticulous with their (growth and acquisition) strategy.”

The company could not be reached for comment, but in a statement announcing the acquisition Vitale lauded the opportunity for growth.

“Combining two category leaders continues our strategy of strengthening our portfolio in stable categories and diversifying into new markets, bringing much-loved brands to significantly more customers globally. We are excited about the growth opportunities that this acquisition brings,” he said.

More importantly, they’ve executed a strong core that’s enabled acquisitions, Harrison added.

Stifel analyst Growe agreed in an Aug. 10 report. “We believe Post management, amidst its discipline in pursuing acquisitions, will continue to assess its investment opportunities and the use of its balance sheet against the highest return opportunities,” Growe wrote.

Weetabix, based in the U.K., marks the company’s first international acquisition, which Harrison and Growe said opens the door for more overseas transactions.

“There is no doubt a continued opportunity here around additional M&A activity with the company citing the desire to continue buying large, slower growth assets (such as Weetabix) and smaller, faster growth assets (such as Premier Protein that was acquired in 2013 for $180 million in cash) that could further enhance the company’s growth,” Growe wrote. “We believe acquisitions will remain the lifeblood of Post’s business and growth going forward as an opportunistic and disciplined buyer.”

 Post Holdings – by the numbers:

Third-quarter fiscal 2017 revenue: $1.27 billion (up 2.1 percent year-over-year)

Cost of Weetabix acquisition: $1.8 billion

EBITDA Weetabix deal will contribute before synergies: $155 million