Brad Harper - Investor Relations Rob Vitale - President and Chief Executive Officer Jeff Zadoks - Chief Financial Officer.

Chris Growe - Stifel Cornell Burnette - Citi Andy Lazar - Barclays John Baumgartner - Wells Fargo Tim Ramey - Pivotal Research Group Bill Chappell - SunTrust Brett Andress - KeyBanc Capital Markets Bryan Hunt - Wells Fargo Kenneth Zaslow - BMO Capital Markets.

Welcome to Post Holdings Fourth Quarter 2016 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 was being recorded and will be available for replay beginning at 12 p.m. Eastern Time.

The dial-in number is 800-585-8367 and the passcode is 1081077. [Operator Instructions] It is now my pleasure to turn the floor over to you, Brad Harper, Investor Relations of Post Holdings, for introductions. Sir, you may begin..

Good morning and thank you for joining us today for Post’s fourth quarter 2016 earnings conference 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.

Our press release supporting these remarks is posted on our website in both the Investor Relations and the SEC filings sections 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..

Honey Bunches of Oats, Pebbles, Great Grains and the Malt-O-Meal branded bags. They represent approximately 80% of sales. Consumption dollars and pounds grew for three of the four, the exception being Honey Bunches of Oats.

Honey Bunches of Oats consumption performance faced pressure from lapping both discontinued products as well as the merchandising event that did not repeat. Despite tough consumption comps, shipments for the brand remain healthy. Pebbles turned in a great quarter with pound consumption increasing 11.6%.

Great Grains saw good pound consumption growth of 3.8% overall and 9.5% for the core SKUs, for which we introduced new advertising support. Malt-O-Meal branded bags performed well during the quarter with pound consumption growth of 8.5%.

Overall, consumption results for Post Consumer Brands were strong as we saw growth in both base sales and incremental sales behind planned higher merchandising support. Michael Foods continue to perform exceptionally well.

We anticipate the entire impact of avian influenza to be a 2-year phenomenon beginning in the second half of fiscal 2015 and ending in the second half of fiscal 2017 with the final stages pressuring earnings. During the fourth quarter, mix continued to favor high margin value-added egg products. However, we expect to see mix weaken in 2017.

Volumes continue to improve towards pre-AI levels albeit at a slower pace than expected. Despite near-term challenges as we emerge from the impact of AI, we continue to be highly optimistic about our eggs business model and competitive positioning.

Once fully through the final stages of repopulation and volume recovery, we expect the resumption of a less volatile modestly growing business. Beginning in 2017, we are implementing the transition to cage-free for several of our customers. In August, we announced our plan to convert our Bloomfield, Nebraska egg farm to a cage-free facility.

We continue to expect to expand our cage-free egg supply in alignment with our customer’s timeframes for transitioning to cage-free housing. Turning to Active Nutrition, the high growth rate of the Premier Protein shake business continued in the fourth quarter with sales growing more than 30%. Premier continues to grow velocities and distribution.

PowerBar stabilizing, we plan to continue investing in the brand to drive growth. Dymatize grew 10% year-over-year this quarter as we are cycling the reset baseline business. It’s three core product lines grew 52% compared to the prior year quarter.

Sequentially, sales declined as inventories were going down in advance of shipping, re-branded packaging. Entering 2017, costs of Dymatize have normalized and we expect the brand to contribute modestly to adjusted EBITDA. Within Private Brands, our granola business continues to perform well.

Our capacity expansion is on track to come online in the back half of fiscal 2017 and we expect this to drive margin leverage. We also just recently brought on new capacity in our nut butter business. While not in evidence in 2016, M&A remains a central theme to Post strategy. We analyzed many opportunities this year.

In fact, we spent approximately $6 million in expenses related to exploring acquisition candidates. Despite this commitment, our M&A during 2016 was modest. Be assured, we will continue to work to find opportunities at a sensible value. Our capital structure remains quite liquid. At year end, we had cash on hand of $1.1 billion.

We are more accepting of leverage than most. Nevertheless, our net leverage ratio was a modest 3.7x and our debt is 100% fixed rate. In short, we are confident in our ability to identify and execute opportunities in a dynamic environment and we have the patience to allow them to develop. With that, I will turn the call over to Jeff..

Thanks, Rob. Good morning. As Rob mentioned, we finished the year with solid performance. Fourth quarter revenue was $1.3 billion and adjusted EBITDA was $219.5 million. Starting with Post Consumer Brands, fourth quarter net sales were $442 million, relatively flat compared to prior year.

Volumes were up 0.7%, with increases for Malt-O-Meal branded bags and Pebbles offset by 0.8% lower average net selling prices and declines for MOM branded boxes and Great Grains. Additionally, the prior year quarter contained three more invoicing days for the legacy MOM business. Adjusting for the invoicing dates, sales grew 1.7% with volumes up 3%.

Post Consumer Brands’ adjusted EBITDA was $106.8 million for the quarter and benefited from synergies and other cost savings.

This was partially offset by a higher trade rate, higher advertising and promotion spend, and $1.8 million of increased spending related to the incremental corporate-wide investments targeted to brand building and productivity. Moving to Michael Foods Group, net sales were $522.6 million for the fourth quarter, a decline of 16% on a comparable basis.

Our egg volumes increased to 8% as we began to lap prior year periods impacted by reduced egg supply caused by AI. Egg revenues decreased 21% as we continue to roll back the temporary component of AI pricing to grain based customers. We expect a further roll back AI pricing headers in the first quarter of fiscal 2017.

We also experienced lower pricing to our market based customers in line with Urner Barry market prices, primarily for ingredients and retail shell egg customers. Potato volumes increased 2% driven by growth in retail mass sales. Also, we have lapped the exit of our lower margin business.

Cheese volumes declined 6% as we exited additional lower margin business during the fourth quarter. As a result compared to fiscal 2016, we expect cheese volume losses throughout 2017, but with only nominal impact on profit.

Positive volumes declined 2% as the prior year quarter benefited form high volumes with the food ingredient customer that did not repeat at the same level this quarter.

Michael Foods Group adjusted EBITDA was $97.5 million, had benefited from the acquisition of Willamette Egg Farms, higher egg volumes and the favorable price cost relationship in pasta. This was partially offset by reduced pricing within the egg business.

Turning to the Active Nutrition, sales were $159 million and increased 17% compared to prior year. Premier Protein shake net sales grew more than 30% while Dymatize net sales grew 10%, as we lapped prior year product supply and production issues.

Dymatize international sales however, continued to be soft driven by competitive pricing pressures arising from the strong U.S. dollar. Active Nutrition adjusted EBITDA was $14.4 million and benefited from higher volumes and lower raw material costs at premier and manufacturing cost savings associated with the Dymatize facility closure.

This was partially offset by anticipated increase to advertising and promotional spending across all three brands, including the PowerBar and Dymatize brand re-launch efforts. $3.3 million of this spend related to the incremental corporate wide investments.

As expected, fourth quarter Active Nutrition adjusted EBITDA margin of 9% was lower than other quarters in fiscal 2016, resulting from the aforementioned heavy in-store promotions and increased spending on brand building. Recall, the quarterly margins in this segment fluctuates significantly depending on the timing of promotional activity.

For the full fiscal year, Active Nutrition adjusted EBITDA margin was 13%. Through operating leverage, we expect fiscal 2017 annual adjusted EBITDA margins to be in the mid to high teens. Moving to Private Brands, fourth quarter net sales were $137.2 million, a decline of 2% from the prior year.

Volume increases for organic peanut butter and granola were offset by reduced volumes for dried fruit and nut and conventional peanut butter. The higher conventional peanut butter volumes in the prior year related to a low margin industrial customer, but that did not repeat this year.

Sales revenue also or negatively impacted by lower net pricing for almond products related to declining almond prices. Private Brands adjusted EBITDA was $17.4 million and benefited from higher granola volumes and favorable nut butter product mix.

This was offset by reduced net pricing in the nut butter business and higher co-manufacturing costs in the granola business. Now turning to our outlook, we expect adjusted EBITDA for fiscal 2017 to range between $910 million and $950 million. We believe the pacing of adjusted EBITDA will modestly favor the second half of the fiscal year.

We expect the Michael Foods Group segment adjusted EBITDA to decline significantly from fiscal ‘16 to fiscal ‘17.

This will be offset by pacing in of incremental cost reductions within the Post Consumer Brands segment, Active Nutrition growth and cycling approximately $50 million related to incremental investments in brand building and above target incentive compensation related to fiscal 2016’s superior performance.

Regarding our capital expenditure outlook for fiscal 2017, we plan to invest between $180 million and $200 million. This includes $60 million to $70 million related to growth activities. Finally, we estimate cash taxes for fiscal 2017 will be approximately $135 million based on the midpoint of our guidance range.

With that, I would like to turn the call back over to the operator for questions.

Operator?.

Thank you. [Operator Instructions] Our first question comes from the line of Chris Growe with Stifel..

Hi good morning..

Hi Chris..

Hi.

I just had two questions for you, if I could ask first on, when you look at the EBITDA guidance for the year, it’s bracketed in a relatively wide range, two things I had just ask in relation to that, could you talk about what factors could push it to say the upper end of the range or lower end of the range, is it purely just the volatility in Michael Foods.

And then related to that, the level of EBITDA growth for the year, just understand like the factors that are benefiting like the $50 million of lower incentive comp and advertising spending are there other factors of what we should consider in terms of the growth EBITDA year-over-year?.

Sure. So I think admittedly, we are as a result of exiting AI in a year in which Michael has a higher than ordinary level of volatility, so we factored that into both our guidance and the establishment of the range.

So, with respect to what could cause us to be on the lower side, higher volatility from our expectation, changes in the competitive environment in the cereal business or really in any of our business are the key components of being on the low or high side of the range.

With respect to items beyond the $50 million that drive growth, we would include cycling synergies that were realized partially in fiscal 2016, so the annualization of those synergies, incremental synergies coming out of PCD, organic growth within Premier and organic growth in Private Brands supported by the repatriation of the co-manufacturing that we are doing this year resulting from our capacity limitation..

Okay.

Have you said how much these synergies are that you have achieved so far from combining Post and MOM?.

What we have said is that we met the target of $50 million as we exited last year, fiscal ‘16..

Okay.

Is that a run rate or is that what you achieved in ‘16?.

That was achieved in ‘16..

Okay. Thank you for the time..

Thank you..

Our next question comes from Cornell Burnette with Citi..

Hello, good morning..

Hey. Good morning..

Okay, great. Hey, just wanted – a few questions here. I mean the first one is in RTE cereal, a number of your competitors cited headwinds in the quarter from inventory de-stocking on a retailer level, what impact did that have on your cereal volumes in the quarter.

And then do you expect shipments into the retail channel need to accelerate going forward given that the retail takeaway data that we see from pulse has been pretty strong, I think sales were up 3.8% the latest 12 weeks of data?.

So we did not see a significant inventory issue in the quarter and we would expect, with the exception of some volatility of inventory level, that retail would be, shipments to track consumptions. So borrowing some changes in inventory, we would expect some acceleration in shipments following the strong consumption that we have seen..

And then what are your comments just on generally what you are seeing in the pricing in the category, are you still seeing things, mostly discipline and promotions remaining in check across the category?.

The quick answer is yes. There is always some timing from quarter-to-quarter around promotional events. But in general the environment I would characterize is more of the same..

Okay.

And then lastly, when you kind of commented and say that the EBITDA this year seems to be weighted a little bit more, tilted towards the back half, is the biggest driver of that coming from processed eggs or is there anything else that we should kind of be aware of?.

The drivers of that more have to do with the slope of the growth in Active Nutrition and the timing of the incremental realization of synergies. So as synergies flow through PCB, that EBITDA level should increase throughout the year, barring decisions to make incremental investment in brand building..

So then would you say that in the processed egg business, obviously there is some volatility from quarter-to-quarter in terms of seasonality, but for the most part kind of, excluding kind of general things in seasonality, that business is going to be somewhat stable in terms of the type of EBITDA that we see coming across the year in that segment?.

No. I would not characterize it that they. I would caution drawing too many conclusions about quarterly cadence within the egg business this year because of the relatively higher level of volatility.

So we have looked at it from have to half and made the comment that we have made that we are not going to try to be more precise on a quarterly cadence within Michael because of that phenomenon..

Okay, that’s it for me. Thanks a lot..

Thank you..

Our next question comes from Andy Lazar with Barclays..

Good morning everybody..

Hi, Andrew..

I guess, you have got it to a significant decline in segment EBITDA year-over-year in ‘17 for Michael from the, I guess, the 447 level in ‘16.

I guess, is there any framework you can provide or suggest to help us think about the potential order of magnitude to figure out kind of what significant might mean?.

We have modeled everything up to $100 million decline..

Got It. .

And have factored that into our guidance..

Got it. Thank you.

National pasteurized eggs, I guess, can you remind us of how big that business is in terms of sales and EBITDA? I think we have seen maybe a $50 million figure for sales in an article from a couple of years ago, but not sure if that’s still a relevant figure, and then maybe an EBITDA margin structure more or less.?.

We can’t remind you, because I don’t think we have ever said. But the EBITDA for 2017 is modest. It will be in the $5 million to $10 million range, and then we would expect significant acceleration in ‘18 as a result of synergies, it’s a highly synergistic acquisition..

Got it.

And that’s obviously incorporated in the $910 million to $950 million range going forward?.

Correct..

Okay. In ‘17, okay. And then I think that is about it for me. Thank you very much..

Thank you, Andrew..

Our next question comes from John Baumgartner with Wells Fargo..

Hi, good morning. Just starting off in cereal, so you have referenced the trade strategy tool you are just now being implemented there.

And I guess in light of that, can you speak of the returns that you have been seeing on the incremental spending you placed into the market in that business in the back half of fiscal ‘16 and maybe what those returns might tell you about your flexibility to maybe reduce that trade promo going forward as you really get into the analytics?.

Well, the incremental spend we put in was less around trade than it was around advertising. So, we stepped up our advertising in the last quarter for more overall investment and brand equities and that’s a long tail return. So, I wouldn’t necessarily speculate on its short-term impact in either the quarter or immediacy into 2017.

The trade tool we expect to be a valuable investment because of the degree to which it will improve our overall planning with customers, allow us to have a calendar not targeted at each other as was historically the case, each other being Post and MOM, to more tightly control the overall spend under Post Foods, it was a highly decentralized checkbook, in which the individual sales teams were controlling the spend under our new trade tool, to highly centralize spend.

So it’s more about planning, measurement and efficacy, but yet to come than an immediate return that I can provide you..

And then just a follow-up for Jeff, you mentioned about the focus on costs.

And I’d like to ask on the corporate expense line, is spend elevated for you relative to your competitors? And I understand there are a number of factors that go into that from diligence expenses and so on, but now that you are kind of moving past the large acquisitions and the integration of MOM, how would you characterize the opportunity to kind of the underlying spending corporate? I mean, can that come down appreciably going forward, or is this kind of the run-rate to think about?.

Well, there is a lot of variables in there in 2016. You mentioned a couple of them. The M&A spending, as you know, is not necessarily tied to transactions that we close. Obviously, when we do close a big deal like the MOM transaction, it will spike up.

But in the current year, there is quite a bit of spending on transactions that actually did not close, and that’s something that, while difficult to predict from period to period, it’s something that we would expect to be part of our baseline costs going forward.

Other things that impacted ‘16 that caused appearance of an elevated level, again, the corporate incentives, so we talk about incentives, incentives also were elevated at corporate based on the overall performance, so we would expect those to normalize in more normal times.

And then we incur costs for our equity compensation on a mark-to-market basis, so with the performance of our stock during the year as it ran up during the year, so did our cash level stock compensation, which again may or may not repeat itself year after year. But to your general comment, I would say there are certainly opportunities.

However, we tend to think of our corporate spending a little bit differently than others, I think and that we look to have scale to continue to grow and oftentimes, make those investments in advance of the actual M&A activity that brings the growth.

So, we believe that we are situated such that we can add some significant M&A without incrementally adding to our corporate spend at this point..

Fair. Thanks..

Our next question comes from Tim Ramey with Pivotal Research Group..

Good morning. Thanks so much. Just cycling back to MFG, you are thinking about the drivers of top line, there are two that are somewhat knowable I would think, volume on a recovery basis would be somewhat knowable in volume on an organic growth basis would be somewhat knowable, probably price is not so knowable.

Can you give us some help on those first two metrics for top line for MFG for ‘17?.

So, we don’t necessarily make a distinction between recovery volume and organic growth volume. We look at it as a 2-year cycle in which organic growth is really precluded by the supply shock that occurred with AI. So, we have a mid single-digit volume growth not necessarily trying to parse it in the manner that you have.

So, that’s as precise as we can answer the question. .

Mid single-digit for the full year?.

For the full year..

Okay. I mean that seems lowish given that you only really have 1 quarter of recovery in the 2016 year.

Is that fair to say?.

It potentially is a conservative assumption, but it’s also coming off of the addition of Willamette.

So rolling over Willamette has reduced the growth rate in ‘17 versus the core organic, I just used the same word you did, but the core overall growth rate of legacy Michael that would have occurred without Willamette flowing through the ‘16 numbers?.

Got it. Okay.

And then just on the re-contracting, if that’s correct to assume for your QSR customers in the egg business, is there anything you can say about where you are at in terms of updating pricing, including a risk premium for AI or any sort of structural change in the pricing mechanism?.

The short answer is there is a permanent AI adder, it’s not a – we are going through the renewals as the renewals come up. So, it’s a customer-specific negotiation that takes place, but there is a – there is definitely a permanent component to the by security costs, etcetera, that is being passed along in our renegotiated contracts.

But the general structure of the contracts is as before just with that incremental costs that are included..

Great, yes.

I guess my question was that kind of is there a way to say we are halfway though that or a quarter of the way or?.

Well, from our prepared remarks, you should note that we are significantly lower now in terms of pricing than we were at the peak of the AI adders and we have one more quarter to go, so we would expect that the first fiscal quarter of ‘16 will still maintain some adders that are above the – what we call the permanent level and then starting calendar ‘17, we would expect to be fairly close to what we would consider the permanent level of pricing..

Okay, thanks so much..

Thank you..

Our next question comes from Bill Chappell with SunTrust..

Thanks. Good morning..

Good morning..

Hey, Rob, on the M&A front, I understand it’s an active market and there are things out there, but have things changed over the past year in terms of valuations or just your ability to go after things, because spending $6 million looking at different deals, obviously one larger deals wasn’t for sale after all and I am – so just trying to understand, can you really consummate some of these deals, do you feel confident in that or have valuations gotten kind of away from where you are comfortable?.

Well, we can certainly execute. We are – I think if anything has changed and I am not sure if anything has dramatically changed, we continued to try to approach M&A from a perspective of finding value, not just executing M&A.

But the nuance I would say is that we are in the first several years of our corporate evolution, we cast a wider net looking at platforms, looking at opportunities that would be new channels or new product categories for us, i.e. Michael Foods.

As our portfolio has grown and matured and has had internal success, what we are doing is narrowing our focus to where we have the opportunity to really drive competitive advantage within, advantages within our portfolio. So it has made the M&A pipeline more narrow, but deeper.

Now, I don’t want to leave you with the impression that we would not add a platform opportunity, if it came along and made sense, we would do so. But the more near and attractive opportunities, are things that have some nexus to our portfolio..

Got it.

And then just switching back to Michael, just to try to make sure I understand, where are we on supply and I guess what are your assumptions of when you are back to kind of full supply as we move to this next year?.

The supply is pretty much coming back along the lines that we have been talking about throughout this process. So for the most part, we would expect to be back to full supply by the time calendar ‘17 starts.

There has been some small movement in that at some of our larger farms where we consciously – our larger third-party contracted farms, where there has been some conscious decisions to go a little bit slower based on what we are seeing of the market in terms of the supply demand equilibrium, but largely back to full supply at the start of calendar ‘17..

Okay.

And just to make sure I understand, so it’s also, you shredded, I guess shredded is the wrong word, but some of the smaller customers you weren’t servicing during this timeframe, is the expectation they all come back as well over the next year?.

Well, that’s obviously part of the challenge and part of the reason for the commentary about supply coming back more slowly than originally anticipated.

We would endeavor to bring back the customers that are margin enhancing, some of the customers that we lost or walked away from were some of the lower margin customers that all else equal, we would not pursue.

But clearly, part of the challenge for the Michael Foods business in ‘17 is to continue to sell the value proposition for our products and to bring back those customers over time..

Got it. Thanks so much..

Our next question comes from Brett Andress with KeyBanc Capital Markets..

Hi, good morning..

Hi Brett..

I am just trying to better understand what you guys have set on eggs, so you did just under $100 million of EBITDA and I think what is probably the absolute trough of egg pricing this past quarter, so I guess as volumes starting to pick up into October and November, I mean why wouldn’t first quarter EBITDA for Michael’s be I guess at least comparable to what you did in the fourth quarter?.

So the margins for eggs actually came down in the quarter, so I am not sure I would agree that that was the peak of the egg pricing. The offsets between the first and fourth quarter are simply pricing generally coming down and volumes growing.

So the dynamic will have a result that could deviate from the fourth quarter of 2016, again because of what we in general, don’t give quarterly guidance and with the potential volatility around Michael, we certainly don’t want to add to a level of precision that’s not appropriate quarter-to-quarter this year.

We have given as much as we are comfortable giving about cadence..

That’s fair.

Do you guys have a goal, I think internally of what a normalized kind of EBITDA dollar run rate is for this business as you start to look out even past ‘17?.

Well, let me go back to the acquisition case. When we acquired the business in 2014, we indicated that it had a $250 million baseline EBITDA with a 3% to 5% EBITDA growth rate.

The thesis is intact when we mentioned our long-term optimism on the category once we get past this 2-year phenomenon, we continue to believe that the business represents a business that grows within that context at a relatively low level of volatility.

We just happened to have a period of time covering 2 years but 3 fiscal years in which we have had a disruption of the business model. We would argue that the business model has worked through that timeframe, but that it has made it more challenging to reveal the consistency of its underlying core performance.

So if you run that we 3%, 250 and then add in the acquisitions we have done, we are ahead of that trajectory and we would continue to believe that trajectory is intact..

Thank you..

Our next question comes from Bryan Hunt with Wells Fargo..

First of all, I would like to touch on the RTE cereal category, if you look at the beginning of this current quarter, your Nielsen data has accelerated nicely for the 4- week period and the 12-week period versus what you are doing at 52-week and I was wondering if you could put the growth in context for us, whether it’s promotional, timing, product line extensions, shelf space gain and just help us understand if this is a good pacing going forward as well?.

Well, I think in this category, we would be imprudent to necessarily sign up permanently for the rate of growth that we have seen this quarter. So I would be lulled to do that. We have had success around some merchandising innovation. We have had success around some key events.

We have had some success around the positioning that we have in the overall category. The consumer seems to be more attractively responding to the value segment than the overall category. All things that are more continuation of the same then new phenomenon, but this was a particularly strong quarter for consumption..

Great.

And then my second question is when you look at Dymatize, you had mentioned you would expect it to grow from a loss to actually contributing in ‘17, is there any way you can give us or characterize the loss from fiscal ‘16 just so that we can understand the potential bridge?.

We haven’t given that amount, but it’s a relatively immaterial amount in the total in both fiscal ‘16 and fiscal ‘17, so it’s a single digit number. The swing is a single digit number..

Alright, great.

And then my last question is when you look at your broad portfolio of cost, excluding Michael Foods because that’s well documented on what you do there in terms of pass-throughs, but when you look at your portfolio of costs outside of Michael’s, is there any way you can give us some context on what you are anticipating for overall inflation or deflation across your materials for 2017?.

Sure. Let me go by segment because the impact is different by segment. In the Post Consumer Brands segment, we are seeing the input costs as a small tailwind. So a benefit from ‘16 to ‘17, primarily because our nut costs for almonds are going down, some lower wheat costs, while energy and sugar costs are higher.

In the egg and nutrition segment we see that that protein is a small benefit for us as well. In the either businesses, it tends to be more of a pass-through phenomenon unlike the eggs, so the impact is smaller..

Very good, I appreciate your time..

Our next question comes from Kenneth Zaslow with BMO Capital Markets..

Hello.

I just have a couple of housekeeping but then add on to that, so when you talk about the $50 million, I am assuming $25 million of that is [brand] equity and then $25 million is the comp, is that fair?.

It is..

Okay, good.

On the $25 million, I know you addressed it, but maybe it wasn’t clear, maybe, what is the return on that and why would you not keep that going and I understand that you are trying to meet an EBITDA target, but is it more about adjusting to get in the EBITDA or getting the returns on the $25 million, because it seems like – I am trying to figure out, which one you are trying to do here?.

Well, I think that given our leverage profile, it’s very important that we have a predictable consistent cash flow. So we do want to consistently meet our EBITDA targets.

However, the spending that we lead into 2016, a goodly portion of that is advertising and in any given period of time, advertising can fluctuate around 100 scale from 80 to 120 and its long-term efficacy is unchanged as long as multi-year progression is not too negatively biased.

With respect to the portion that was non-advertising, they were discreet projects that have been initiated and either are completed or ongoing. To the extent that we have positive NPV projects like those in the future, we would certainly undertake them.

So I am not necessarily suggesting that we are abandoning productivity products because we are trying to hit a target, that’s not the case..

Okay.

The second question, you said on Michael Foods, the base case is $250 million EBITDA, I am assuming that’s just for the egg business, not for the whole business, right, just for the egg business?.

No. I am talking about as of date of acquisition which was just Michael Foods exclusive of Dakota, exclusive of any M&A that’s occurred since then, it was $250 million..

Okay.

And I guess what I am trying to figure out is okay, once you get to this normalized range, whatever the normalized range is and whenever the time period is, what’s the next step for Michael Foods to grow that business outside of, again the AI issue or whatever, but what do you guys do once you would normalize it, what’s the strategy beyond that to actually grow the business through the volatility of the margin?.

Sure. Well, the original thesis remains intact. The long-term, the transition from shelled eggs to value added egg products is a benefit to both food service customers and retail consumers, so driving that change.

And within value added egg products, increasingly driving customer benefit by moving them up the value chain from liquid to pre-cooked frozen, etcetera. So that’s a continuity of the strategy to which we invested, it’s not a new strategy.

Obviously, on top of that, there is tactical M&A, so between the organic growth of the category and tactical M&A, we think there is an attractive growth story..

Okay.

And then my final question is again you kind of touched on, but how come acquisitions did not get done in the last year, just was it evaluation, was it – again, you guys are clear that you want to get things done, what was the hold up again, there seems have been some assets that were available, was it – what was the hang up, I guess?.

Whether it’s ultimately valuation or operational intensity or specific risks identified. There could be any number of reasons and I think we do want to acquire, but we want to acquire the right assets at the right price..

Thank you..

Ladies and gentlemen, that does – we have reached our allotted time for questions. I will now turn the floor back over to Robert Vitale for any additional or closing remarks..

Thank you, all. We are very pleased with the year. We are excited about the year starting and we look forward to speaking with you again in February. So meanwhile, have a great and healthy holiday season..

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect your lines..