Post Holdings Inc (POST) Hurt by Falling Prices

It may have been a win for consumers, but cereal maker Post Holdings Inc (NYSE:POST) lost out when its second-quarter earnings got milled by falling prices on top of higher costs.

The owner of brands such as Raisin Bran and Honey Bunches of Oats saw profits tumble almost 60% to $5.1 million as net sales fell 1% on a 4% decline in prices even though volumes rose. The price declines were driven primarily by trade spending, which accounted for 60% of the drop, and the rest was due to product mix. Trade spending is a marketing expense paid to retailers like supermarkets to promote the sale of a product through displays in the store. It’s one of the reasons smaller cereal companies have a tough time breaking through the barrier and selling their products.

For Post Holdings Inc (NYSE:POST), trade spending for the quarter included higher slotting fees for its new product introductions. Margins can rise or fall depending on how much trade spending is done. In 2011 margins were significantly helped because of a dramatic 18% decline in such spending.

It’s an industrywide cost that can account for large portions of net sales, and it continues to consume a large portion of sales. For example, trade promotions by Kellogg Company (NYSE:K) represented 40% of the company’s net sales in 2012. General Mills, Inc. (NYSE:GIS) doesn’t break out the expense, but when it acquired Yoplait last year, it admitted it would be increasing its marketing on top of an already elevated promotional budget due to greater trade spending.

Boston Consulting Group has found that consumer products manufacturers spend upward of $60 billion annually in the U.S., and that trade spending outpaced the growth of revenues by 3% between 2008 and 2010.

Post Holdings Inc (NYSE:POST)’s results were also affected by higher interest expenses as a result of last year’s spinoff from Ralcorp, which ended up getting acquired by ConAgra Foods, Inc. (NYSE:CAG) earlier this year. It carries a load of debt due to breaking away from its former parent, and last October the cereal maker issued $250 million in senior notes, sending interest expense this quarter up to $21.6 million, up 43% from the $15.1 million expense recorded a year ago.

With breakfast cereals a highly competitive niche, grappling for every advantage is a common practice for the industry, but it’s a competitive one. Post Holdings Inc (NYSE:POST)’s stock, which has gained more than 30% so far this year, just posted a near 6% decline yesterday on those earnings numbers. With the stock still trading at nearly 26 times earnings estimates, it may be easier for investors to swallow Kellogg Company (NYSE:K) or General Mills, Inc. (NYSE:GIS), which sit at 16 and 17 times estimates, respectively.

The article Post Holdings Hurt by Falling Prices originally appeared on Fool.com and is written by Rich Duprey.

Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!