Brad Harper - Terence E. Block - President, Chief Operating Officer and Director Robert V. Vitale - Chief Financial Officer.

Welcome to the Post Holdings Third Quarter 2014 Earnings Conference Call and Webcast. Hosting the call today from Post are Terry Block, President and Chief Operating Officer; and Rob Vitale, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 12 p.m. Eastern Daylight Time.

The dial-in number is (800) 585-8367, and the passcode is 69991379. [Operator Instructions] It is now my pleasure to turn the floor over to Brad Harper, Investor Relations of Post Holdings, for introductions. Sir, you may begin..

Thank you, and good morning. Welcome to the Post Holdings conference call where we will discuss results for the third quarter of fiscal 2014. With me today are Terry Block, our President and COO; and Rob Vitale, our CFO. We will not be taking questions after our prepared remarks today.

The press release that supports these remarks is posted on our website at www.postholdings.com. In addition, slides are available on our website and filed with the SEC on a Form 8-K filed today for reference during today's call. Before we continue, I would like to remind you that this call will contain forward-looking statements.

These forward-looking statements are subject to risks and uncertainties, which should be carefully considered by investors, as actual results could differ materially from these forward-looking statements. For more information, please visit the SEC Filings page in the Investor Relations section of our website.

These statements speak only as of the date of this call, and management undertakes no obligation to update or revise these statements. All forward-looking statements are expressly qualified in their entirety by this cautionary statement. As a reminder, this call is being recorded for audio replay.

And finally, this call will discuss certain non-GAAP measures. For a reconciliation of 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 Terry..

Good morning, and thank you for joining us. This morning, we'll review the results of our business for the third quarter and for the 9 months ended June 30, 2014. Despite progress against some key initiatives, this quarter fell short of our expectations, with sales of $633 million and adjusted EBITDA of $87.8 million.

Over the past 15 months, we have closed 6 acquisitions, transforming Post into a diverse consumer packaged goods holding company. We sought to counter the negative category trajectory in our core RTE cereal business, with acquisitions that compete in categories with better growth prospects driven by large secular themes.

We remain very positive about the companies and the prospects our acquisitions afford Post Holdings. The investments in Active Nutrition, Private Brands and value-added egg products provide Post the ability to address themes supporting portability and convenience, changing diet trends and a shift in breakfast away from home.

Additionally, we diversified the retailers and channels that sell Post products. The pace of transformation has been aggressive. It's our belief that the opportunities we pursued outweigh the short-term risks and learning curve uptakes associated with the rate of transformational change.

Rapidly building a diverse portfolio and transforming Post from $1 billion to a projected $4 billion in net sales brings challenges. During Q3, we experienced some acquisition-related challenges, as well as some of a legacy nature.

More specifically, some headwinds during the quarter included escalating commodity input costs within Active Nutrition and Private Brands, previously noted operational issues hampering both costs and sales within Active Nutrition and greater-than-expected volume weakness in RTE cereal category declines. Let me provide additional color.

For the quarter ended June 30, 2014, RTE cereal category, as measured by Nielsen, experienced dollar consumption declines of 6.1% year-over-year. This rate of decline accelerated in the third quarter. While we had expected a decline, we had been expecting the rate of decline to level off.

We estimate that reductions in SNAP funding had a drag in category volumes of approximately 1%. This will cycle over in November.

Beyond SNAP reductions, the challenges facing the category continued to be lower lifts for promotional dollars, as well as shifts in consumer behavior towards more convenient on-the-go foods, including away from home, and higher protein forms of breakfast.

For Post, combating these cereal category headwinds requires a restructuring of promotional dollars, with a heavy emphasis on performance, improving our cereal innovation and renovation efforts, as well as investing to gain participation in the themes mentioned earlier.

Given the environment, Post is actually doing relatively well in this challenged category. Post Foods recorded net sales of $238.2 million for the quarter, a decline of $8.4 million or 3.4%. Post continued to drive share gains in both dollars and pounds. Dollar share grew 0.8 points to 11.4%, and pound share grew 0.8 to 11.7%.

We have now had 5 consecutive quarters of dollar share growth for Post in total. Honey Bunches of Oats, our largest brand, accelerated share gains 0.3 share points in Q3, and has grown share in 8 of the last 9 months.

This success had been driven by a strategic focus on core items, which grew 4.8%, as well as continued gains from realigning the pricing architecture across sizes.

Pebbles also had a strong dollar share growth, growing 0.5 points this quarter, driven by strength behind our integrated marketing programming and strong performance from our Pebbles value bags. The brand has grown dollars almost 14% and pounds over 21% fiscal year-to-date. Great Grains, our third-largest brand, also grew dollar share during Q3.

The brand continues to be a strong performer overall in the healthy segment. We remain committed to demand generation, executing the fundamentals and investing to drive increased consumption of our brands. Our long-range innovation pipeline is stronger than it has been in the past 4 years.

In 2015, we have a robust line of new items launching both in the RTE cereal category and beyond the bowl. Lastly, we have test markets planned against multiple breakthrough innovations focused on addressing consumer desires for fresher, leaner and more convenient foods.

Recall that Post Active Nutrition Group consists of the Premier Protein, Joint Juice, Dymatize and Supreme brands. We will add PowerBar and Musashi to the group after the purchase is completed on October 1.

This business operates at the intersection of healthy, active lifestyles and the delivery of protein and other nutrients in bars, shakes and powders that taste great. That category has attractive growth dynamics as the global active nutrition category is projected to grow at high single digits in the upcoming years.

With respect to the business, we have previously discussed supply-chain issues at Dymatize. Moreover, trade inventory adjustments and high milk protein concentrate cost put pressure on the Premier business this quarter. For the third quarter and the first 9 months, Active Nutrition recorded sales of $86.7 million and $194.5 million, respectively.

Growth rates for the trailing 3 month and 9 months ended June 30, 2014, compared to the same 3- and 9-month periods last year, were minus 7.4% and plus 5.7%, respectively. The Premier Nutrition brands have a 9-month growth rate year-to-date of 19.5%.

While Dymatize consumer demand remained strong, the company underinvested in people, processes and controls with respect to its full supply chain, from demand planning through shipping. Strong demand masked this underinvestment until it reached the tipping point.

This underinvestment has now resulted in missed shipments and lost sales opportunities, especially against a substantial international business.

As a result, we have implemented an overhaul of the supply chain, making improvements to customer service reporting, inventory management, plant floor manufacturing configuration and practices, quality assurance and overall productivity.

I'll stress the issues are all internal to Dymatize, controllable and fixable by the new management team that is now in place. The Dymatize brand remains well positioned. It's encouraging to note that Dymatize U.S. business grew 16% in Q3, and consumer sell-through at 2 top customers exceeded the sell-through average by 2 and 3x at each customer.

Active Nutrition is a key component in the transformation and growth story of Post, with annualized sales expected to exceed $500 million following the closure of the PowerBar transaction.

Post Private Brands Group consists of Dakota Growers Pasta and Golden Boy, a manufacturer of private label conventional and organic nut butters and fruit and nut trail mixes. For the third quarter and first 9 months, the Private Brands Group recorded sales of $134.2 million and $239.9 million, respectively.

The growth rates for the trailing 3 month and 9 months ended June 30, 2014, compared to the same 3-month and 9-month periods last year, were 6.7% and 0.4%, respectively.

Golden Boy was up 26% versus last year same quarter, exhibited solid growth behind organic peanut butter, tree nut butters, and fruit and nut businesses, offsetting the expected declines from Dakota Growers.

This morning, we also announced our agreement to purchase American Blanching Company, or ABC, as an addition to our successful Golden Boy nut butter business. ABC is one of North America's largest private label and contract manufacturing peanut butter producers and 1 of only 2 commercial peanut planters in the U.S.

Its dynamic and experienced leadership team has focused on outstanding quality and superior service and, by doing so, has built a great business with a customer portfolio that is extremely complementary to and has only limited overlap with Golden Boy's current business.

ABC is a low-cost manufacturer of conventional and flavored peanut butter with a state-of-the-art production facility in close proximity to U.S. peanut shellers that will enhance the combined companies' geographic footprint.

The combination will expand our capabilities in all key category segments, including conventional peanut butter, organic peanut butter, tree nut butter and value-added flavored nut butters. We're excited about the enhanced prospects we foresee as a result of this acquisition and the combination of the 2 companies.

Michael Foods, on a comparative 4-week basis, sold 125.2 million pounds of product, a 6.3% increase versus June last year, keeping in mind that June was the first month of Post ownership.

Growth was driven by strong gains in egg and potatoes across the food service distribution channel and offset by some weakness in the retail channel where higher category prices reduced consumer takeaway. Michael Foods' market share across its retail business remained relatively consistent during the period.

Net sales totaled $150.5 million in June, a 6.8% increase over last year on a comparative 4-week basis, with all channels contributing to growth. Attune Foods, for the third quarter, achieved net sales of $23.7 million and continues to perform within our expectations. Thank you. And I'll turn the call over to Rob to discuss the financials..

Post Foods volume would increase by 0.5%. Throughout this fiscal year, Post Foods has been showing positive share gains and our forecast suggested increasing trends during the quarter. With category volumes weaker than expected, our volume declined 0.8%. The volume decline resulted in a reduction to adjusted EBITDA of approximately $1.5 million.

Beyond Post Foods, Dymatize supply-chain issues have cost an incremental $5 million in the third quarter. This has 2 components. First, costs are running higher by approximately $2.5 million. Second, the foregone profit on missed shipments was also approximately $2.5 million.

We continue to be confident that the Dymatize headwinds are temporary in nature. To put this in context, despite significant obstacles to shipping internationally, Dymatize recorded third quarter sales of $47.6 million. Once through the process improvement, this business can yield a low-teens EBITDA margin.

We also expect sales to accelerate well in excess of the run rate implied by annualizing this quarter. Finally, Post Private Brands incurred severance of approximately $1 million related to an internal restructuring. In total, these 5 items resulted in a miss from estimates of $17.8 million.

With respect to forecasting, our increased size and complexity required that we invest in additional systems and people. We are making that investment. While the investment is modest, the payoff will result in meaningful improvement in our ability to forecast short-term changes on a more real-time basis.

In general, we expect the fourth quarter, excluding Michael, to approximate the results in the third quarter, with RTE cereal weak and Dymatize costs running high. As a result, we have updated adjusted EBITDA guidance, excluding Michael Foods, to be between $260 million and $270 million.

For the nearly 4-month period included in our results, we expect Michael Foods adjusted EBITDA to be between $75 million and $80 million. For this quarter only, we are providing separate guidance for Michael Foods solely to enable reconciliation to prior guidance.

With respect to certain additional data, we continue to expect capital expenditures for fiscal 2014, excluding Michael, to be between $90 million and $100 million. We estimate capital expenditures for Michael Foods for the nearly 4 months contribution period to be approximately $25 million.

As we communicated earlier this year, Michael Foods capital expenditures are higher in 2014 due to some expansion activities this year. The Modesto facility closure is on track for completion by September 2014, with the total net free cash annual cash savings of approximately $14 million expected to be fully phased in, in fiscal year 2015.

We expect the acquisition of the PowerBar and Musashi brands and related worldwide assets from Nestlé to close on October 1, 2014. Yesterday, we also announced the acquisition of American Blanching Company, ABC. We agreed to pay $128 million in cash for ABC.

On an annual basis, it is expected to contribute approximately $135 million to sales and approximately $14 million to $16 million to adjusted EBITDA. The transaction is expected to close in the first fiscal quarter of 2015 and will be financed from cash on hand. In closing, during the past 18 months, we have dramatically expanded our business.

It has come with some challenges, but we have achieved much of what we set out to do. We established Post as an independent operating business. We used M&A to diversify the business, and we are positioned to drive additional opportunistic consolidation across our platforms should the opportunity arise.

Our focus is improving execution against expectations. However, M&A, targeted to complement the existing portfolio, remains core to our ambitious plans. Despite the short-term challenges we face, we are committed to our growth plans and confident in them. Our announced acquisition of American Blanching is a prime example.

Thank you for listening to our call today, and we look forward to updating you again next quarter..

Thank you. This concludes today's conference call. You may now disconnect..