Welcome to Post Holdings Second Quarter 2020 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 is being recorded and will be available for replay beginning at 12:00 p.m. Eastern Time.

The dial-in number for the call is (800) 585-8367 and the passcode is 7265844. [Operator Instructions] It is now my pleasure to turn the floor over to Jennifer Meyer of Post Holdings for introductions. You may begin..

Good morning. This is Jennifer Meyer and thank you for joining us today for Post's Second Quarter Fiscal 2020 Earnings 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'll have a brief question-and-answer session.

The press release that supports 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..

Good morning. Thanks, Jennifer and thank you all for joining us. I want to begin my comments by recognizing and thanking the thousands of Post employees who have risen to the challenge and kept our supply chains working. We all owe gratitude to the people who keep our stores stocked and who do their part in making this challenge just a bit easier.

As you might expect, we had a strong second quarter. Our retail channel businesses performed well and foodservice trailed off as the COVID crisis erupted. This morning, I want to share with you our principles for managing through this and briefly comment on how we expect it to continue to benefit our retail businesses.

Most of my time will be focused on helping you understand the impact on foodservice and the path to normalcy. As you saw in our release, we withdrew our fiscal 2020 guidance, which primarily resulted from uncertainty surrounding foodservice volume trajectory. At the onset of this crisis, we adopted 3 principles.

First, we would protect the physical safety of our colleagues. Second, we would keep our supply chains intact. And finally, that we would cushion the economic impact on our people. While we remain committed to delivering long-term value to our shareholders, we are also committed to navigating this crisis in a compassionate manner.

We are investing in our frontline people in the form of incremental bonuses and in the form of additional safety measures. As I mentioned, essential workers in our supply chain are helping to feed each of us and we owe them our gratitude. We do have plants that support foodservice in which the demand reduction has led to a temporary furlough.

We are structuring furlough programs to minimize the impact to employees until we can return to full production. Cost reduction actions are more restrained than they would be if we considered the demand destruction permanent. We are balancing the obligations that flow from our principles with our objective to build value.

We believe this balance is not only the morally right thing to do, it is the economically right thing to do. Our culture, our respect for each other and our commitment to our purpose are all being strengthened. Post has a diversified set of businesses and we see that clearly in the impact of COVID-19.

Our retail businesses saw a surge in demand and our foodservice business saw a dramatic decrease in demand. My comments about retail will echo what you've heard elsewhere. March had spikes in demand, during which our supply chains were stretched. I am quite proud of how they performed across each of our platforms.

Jeff will provide more detail, but it's fair to say our results were quite solid. We believe we are well positioned to benefit from this experience. As a general statement, compared to our competitors, our business includes a greater number of brands with lower household penetration.

I would include in this category, MOM brand bag cereal, Bob Evans brand side dishes and Premier Protein brand shakes. This experience accelerated household penetration and we expect the benefit to be long-lasting. Meanwhile, specifically within cereal, there was a reengagement with the category that seems to have momentum.

It is early to make predictions on the durability of this trend, but I would say we have cause for cautious optimism. This is true in both the U.S. and the U.K. In the short term, specifically the balance of 2020, we expect cereal and refrigerated retail products to be strong for the balance of the year.

protein shakes had a demand spike in March but fell off in April. Most of the April result is pantry de-loading, but there is an element of on-the-go consumption that we may temporarily lose. Nonetheless, we expect the trial bell -- benefit to remain. If you tune into the BellRing call, you will get greater detail.

On balance, we expect to have quite a strong year in our retail businesses. In contrast, our foodservice platform has been materially impacted by shelter in place orders and the resulting demand destruction. As I mentioned, our cost reduction actions are restrained by our assumption that the demand will rebuild as the economy reopens.

Within foodservice, we have channels directly affected by COVID response and those less affected. Directly affected channels include full service restaurants, quick service restaurants, education and travel and lodging. These channels represent approximately 50% of segment sales.

Less affected channels would include food ingredient, health care, government and other smaller channels. In the first month of the crisis, distributors essentially stopped purchasing in order to reallocate their inventory from affected to unaffected channels. This cost us one purchasing cycle and it costs us some aged inventory.

We are now through this initial cycle, but it bottomed at 65% declines through most of April. We are now running closer to down 45% and it seems to be improving each week. We expect that demand recovery will vary by channel and be based on consumer purchasing confidence.

The April loss of a purchasing cycle resulted in revenue levels below our fixed costs. Meanwhile, we are incurring incremental costs from the demand fall-off. These are not systemic costs. They are instead reactive to managing the crisis.

For example, we are meeting demand for conventional egg products using cage-free inventory simply because of a demand/supply mismatch. We also have significantly higher freight costs in redistributing product.

At the risk of redundancy, I will again stress that we are not attacking fixed costs as aggressively as we are retaining capacity for the demand rebuild. As I mentioned, our recovery trajectory is encouraging.

With the loosening of shelter in place orders and the adaptations being made, such as curbside delivery, we expect an improvement each month and into Q4, with Q4 significantly outperforming Q3. We expect full recovery to take through fiscal '21 as channels like travel and lodging will take longer to heal.

This high degree of variability is why we withdrew guidance. Despite the reduction in expected EBITDA from foodservice, we will come close to our original estimates for second half free cash flow. The decline in foodservice EBITDA is offset by increases in retail plus natural declines in working capital, capital spending and taxes.

In no scenarios do we have any concerns about liquidity and are frankly well positioned to be offensive should attractive opportunities arise. We entered the crisis with over $500 million in cash on hand. In mid-March, we had some concerns about financial system liquidity and we drew $500 million on our revolver.

These concerns were unfounded and we are now beginning to lower the amount drawn. In April alone, excluding BellRing, we generated $140 million in cash. Because of the initial uncertainty, we suspended our share buyback program. We will continue to reevaluate our capital allocation strategies as more information becomes available.

We want to strike the right balance between the prudent level of defensive positioning and the opportunity to take attractive strategic actions should those opportunities arise. Let me close by saying that our people have done an extraordinary job across the board.

Where we are benefiting, we have stepped up into greater demands on all aspects of our business. And where we are hurting, we are making tough decisions in a humane and prudent manner. This is a challenging year, but I'm more proud of this company than I have ever been. With that, I will turn the call over to Jeff..

Thanks, Rob and good morning, everyone. Adjusted EBITDA for the second quarter was $291.7 million, with consolidated net sales for the quarter growing 7.7% year-over-year. All of our retail businesses performed well this quarter, with strong volume lifts driven by consumer pantry loading and increased at-home consumption in reaction to COVID-19.

At the same time, we experienced a sharp decline in demand for our foodservice products in the second half of March. Starting with Post Consumer Brands. Net sales and volumes increased by 10.6% and 14.2%, respectively, with the increases largely attributable to consumer reaction to COVID-19.

Volumes also benefited from higher levels of promotional activity. Many of our promotions during the quarter occurred in January and February. However, some large promotional events were in process in March prior to the implementation of widespread stay at home orders and continued during the industry-wide pantry loading phase of the pandemic.

This resulted in significantly higher sales of promoted product than historically seen. These planned programs are now behind us and we do not expect second half promotions to be at these levels. The effect of these items combined with growth in private label products resulted in an average net pricing decline of 3%.

Gross margins modestly improved over the prior year, but we were pressured by the aforementioned decline in net pricing. Cost savings from implementing our new integrated business planning process accelerated this quarter to nearly $8 million. These savings are incremental to our other continuous improvement initiatives.

SG&A costs were elevated, resulting from higher warehousing related to transitioning certain warehouse locations as well as higher product donations. Net of all of these factors, segment adjusted EBITDA improved 7% compared to the prior year. Weetabix net sales increased 9% over the prior year.

This reflects a 6% and a 4.5% improvement in volume and average net pricing, respectively. Growth in both branded and private label biscuits, driven mostly by increased consumer purchases in the last half of March, was modestly offset by declines in non-biscuit products.

We also lapped elevated international shipments resulting from prior year Brexit preparations. Average net pricing benefited from targeted base price increases and favorable mix. A slightly weaker British pound to U.S. dollar exchange rate caused an approximate 180 basis point headwind to both the net sales and adjusted EBITDA growth rates.

Overall, Weetabix segment adjusted EBITDA increased 12.5%. Net sales in foodservice decreased 2.7%, with volumes down 4.2%. As Rob discussed, the declines reflected lower demand in March from foodservice customers across the 4 sub-channels most impacted by COVID-19.

Volume growth was robust in January and February, increasing 5.4% year-over-year, masking the sharpness of the volume declines experienced in the last 2 weeks of the quarter. Adjusted EBITDA declined 27% from the prior year, driven by a number of factors.

We saw unfavorable fixed costs absorption as well as $6 million in higher reserves for short-dated inventory. Both of which were caused by the sharp declines in demand late in the quarter.

Integrated supply chain costs were elevated and included $2.8 million in start-up costs at our new precooked egg facility and higher freight costs,, largely caused by inefficient load factors. Last, we incurred approximately $3 million in expenses associated with the February fire at the Bloomfield laying facility. Moving to Refrigerated Retail.

Net sales and volumes increased 8.2% and 2.4%, respectively. Side dish net sales increased 23%, reflecting a 13% volume increase and an improvement in average net pricing. We saw a solid organic volume growth as well as growth driven by consumer pantry loading.

Improvement in average net pricing was driven by targeted price increases communicated at the end of last quarter. The sausage business also saw a significant spike in demand in the last 2 weeks of March and benefited from an improved price-cost relationship.

Refrigerated Retail segment adjusted EBITDA increased 1.7% as these benefits were partially offset by lower cheese and retail egg volumes combined with higher cheese and egg input costs. BellRing net sales increased 19%, while adjusted EBITDA decreased 14%, both of which reflect BellRing's elevated marketing and promotional activities this quarter.

As with our other Retail businesses, BellRing saw sharp increases in volumes from pantry loading in the last several weeks of the quarter. You can hear further detail about BellRing's results on their conference call later this morning. Turning to our capital markets activities.

Before we temporarily suspended our share repurchase program, this quarter, we purchased approximately 2 million shares at an average price of $101.75 per share. Our remaining share repurchase authorization is approximately $162 million. During the quarter, we issued $1.25 billion in principal value of [indiscernible] senior notes.

The proceeds were used in part to redeem our 5.5% senior notes due in March 2025. We also retired our 8% senior notes this quarter. With these transactions, our bond maturity ladder has been extended to 2030 and our first maturities are not until 2026.

Last, in March, we amended our $750 million revolving credit facility, adding flexibility and extending its maturity to 2025. As a reminder, neither BellRing nor Post are obligors or guarantors of the other party's debt. Accordingly, we report leverage statistics for Post independent of BellRing net debt and adjusted EBITDA.

Post pro forma net leverage on this basis was approximately 5.3 times as of March 31. For the first 6 months of the year, our cash flow from operations was $89 million, which was down from a year ago.

The primary driver of this decline was $50 million in higher net settlements of our interest rate swaps and the timing of working capital across several of our segments, in particular, increased accounts receivable with the surge in sales at the end of the quarter.

We expect the operating cash flow to improve significantly in the second half of fiscal 2020 when compared to the first half of the year.

In fact, in April alone, Post and BellRing together generated approximately $165 million of cash as some of the working capital timing reversed, bringing our consolidated cash balance at the end of April, including BellRing, to approximately $1.35 billion.

As Rob mentioned, we feel confident in our current liquidity position and our ability to continue to generate positive operating cash flow, which combined will provide us the necessary flexibility to navigate this environment. With that, I'll turn the call back over to the operator for questions..

[Operator Instructions] Your first question comes from the line of Andrew Lazar with Barclays..

I've got two questions, if I could. First would be, Rob, I think you mentioned not much reason to think that your expectation for second half plans would change as benefits to the Retail side would likely offset the challenges in foodservice. I think this comment was in regard to cash flow, but correct me if I'm wrong.

Would you expect the same to go for EBITDA, broadly speaking? Or would there be a reason for those two to diverge significantly?.

No. There would be some fairly significant divergences because we're bringing in and characterizing the cash flow as essentially intact. We're bringing in balance sheet changes as well, things like working capital, capital expenditures and taxes. So the decline in foodservice EBITDA will be partially offset by Retail benefits but not entirely..

Thanks for that clarity. Okay. And then, I guess I was intrigued by some of your comments around being cautiously optimistic around the reengagement that you're seeing in certain Retail categories like ready-to-eat cereal, for instance, with some of all this, incremental trial that you've been getting.

And I know it's real early, but maybe you could share a little bit more of what you're seeing there.

Maybe it's some anecdotal evidence that you're seeing around the potential for some of this to be a bit more sticky going forward and kind of what you're doing or the changes basically in how you approach your marketing plans to make sure you're trying to convert as many of those folks into sustainable consumers as you can. Thank you..

Yes. Well, I think you'd have to say it's entirely anecdotal because if you just look at the data, the data reflects such volume growth that is not sustainable.

So what we're trying to parse out is what is the surge impact, not just the pantry loading, but the surge impact from consumption while in shelter in place from what is durable and it's frankly very difficult.

But the reason for some cautious optimism is and again, anecdotally, we hear about consumption at different day parts much more leaning into snacking as a healthier form of snacking, consumers who had not experienced the category in a number of years experiencing it and enjoying it and coming back to it.

So I think it's more intuitive and based on conversation because the data right now would give you all sorts of false conclusions. And that's why I'd characterize it as, one, very early; and two, cautious..

Your next question comes from the line of Chris Growe with Stifel..

I hope you guys are well. I want to follow on Andrew's question just to better understand that foodservice versus Retail dynamic. And given that food service is in rough terms 30% of your business, a little less than that and yet this Retail business, the other major chunk of your business, is doing so well.

I guess I'm trying to understand how the foodservice weakness kind of -- is not being offset by the Retail strength. And I guess just to reiterate that.

Is it that you're preparing for a reopening of the foodservice businesses, therefore, there's a high degree of costs you're bearing? Does that continue throughout the quarter? Is that the idea you're trying to leave? And therefore, there's a pretty large profit hit that doesn't quite offset the benefit from Retail..

I wouldn't say we are preparing for it because that suggests we're changing things. What we are not doing is aggressively reducing costs if we didn't think the reopening would happen. So if our demand -- so let's go back to what I said in my prepared comments about demand flows in real time.

So we do roughly $450 million a quarter of volume, call it roughly $150 million a month and that was down 65% in April. So that's $100 million of revenue decline. So other than the variable costs, there's very little we can do in a revenue decline of that magnitude in that short period of time.

So that has a fairly significant impact on short-term profit irrespective of trajectory of recovery simply because it happened so fast with really very modest ability to react to it other than the natural variable cost.

So when you de-load the system that fast with that level of magnitude, the absorption impact and the reaction time suggests a disproportionate impact on profit. It has very little to do with the cash-generating potential of the business because as it recovers, that phenomenon reverses, but it makes for an ugly quarter..

Yes. Okay. And then just as a follow-on. As you think about this quarter, which had a different makeup, if you will, in EBITDA than what I expected, a very good performance overall.

How much -- are there incremental COVID costs that you could call out to say that there was an incremental burden on EBITDA this quarter? And I'm trying to again put aside these, like the significant effect on foodservice.

For example, just unique costs and then how much of those continue into Q3 for you?.

Sure. Well, of course, there are incremental costs around safety and employee welfare. We are bonusing supply chain workers in a fairly aggressive manner. But I think the biggest nuance to the quarter, which is not -- and those 2 costs will be ongoing for the duration.

And we, I think, have learned a lot in this experience and want to look at how we approach workflow, period, as some of that may be permanent. That doesn't necessarily mean it's higher or lower cost. It just could be a change. I think the nuance in the quarter that is not obvious that it's COVID related is that we had -- this is cereal.

We had promotion plans going into the second quarter, which when the surge impact hit in March, those plans were too developed to retract. And what it did was it accelerated a considerable amount of volume onto promoted pricing that really would have ordinarily been at base pricing. So it's a COVID impact on pricing that will not repeat..

Your next question comes from the line of John Baumgartner with Wells Fargo..

Rob, just a big picture, sticking with the foodservice egg business. Clearly, a lot of uncertainty in the number of permanent outlet closures, the traffic levels for outlets that continue on. I know you're a big proponent of the optionality trees and kind of planning for the unexpected.

So how do you conceptualize COVID? I mean you broadly mentioned your time frame through the end of 2021.

But how do you think about the short-term ability to repurpose egg supply into Retail? And then medium and longer term, how do you see the structural opportunities changing for the business versus your base case?.

Well, let me start with how we think about recovery and Jeff mentioned and I think I mentioned as well that the subcategories are different. We think that there will be a fairly rapid recovery in QSRs, where the predominant transaction is either takeaway or drive-through. Education is binary. They will either be open or closed.

And what we are seeing is that secondary -- primary and secondary is likely to be open and colleges will be individual decisions. Full service restaurants, we think, will have a slower path to recovery as they implement social distancing protocols that could constrain demand.

And then the longest tail is travel and lodging and I think that's largely self-evident. So we look at that as a -- if you look at when does '19 repeat, we think '19 repeats in '22, with '20 being the low point, '21 being somewhere in between as we rebuild demand. So exiting '21 at a full run rate to '19.

With respect to the structure of the business, we continue to believe that in anything other than a black swan environment like the one we're in, that it's a competitively advantaged business that we want to invest more in, not less. And we think that there will be opportunities that come out of this foodservice disruption.

It's a bit early to capitalize upon them, but we are fairly confident that they will emerge. So we don't -- this doesn't really change our outlook on the foodservice category. We are not going to change our strategy based -- we will obviously modify our strategy based on the way consumer behavior changes coming out of it, which it undoubtedly will.

But I think we want to be very careful not to build the entire framework around such a rare event. With respect to repurposing into Retail, we will continue to do that as we can and are attempting to do it now.

There were challenges at the height of the panic buying related to retailers not wanting to add complexity into their supply chains, which was quite understandable. So it made it a bit more challenging early on. Over time, that's certainly a meaningful opportunity..

more permanently improving less-than-full truckloads that have been an issue in the past or maybe redeploying CapEx from harder assets into more digital IT capabilities.

How do you turn this dislocation to an opportunity for you?.

Well, I think it's a great question.

And one of the challenges that we had in moving on those opportunities was that we had such demand challenges to meet because of great growth in potatoes and solid growth in eggs that this does give us a moment to step back and say how are -- are there some areas into which we can pivot to be stronger coming out of this? And we're doing that across the board, not just in foodservice.

But one of the lingering effects of this is likely going to be an acceleration of shift to e-commerce. And we are certainly investing like everyone else is and making sure our capabilities in e-commerce are where they need to be..

Your next question comes from the line of David Palmer with Evercore ISI..

I just wanted to follow up on foodservice. You have a lot of breakfast exposure there. That daypart has been hard hit, as I'm sure you're aware, something like 10 points worse than other dayparts in terms of the decline rate. Arguably, it's not as much tied to some of the stimulus dollars.

It's more about people literally commuting more to work, so it's going to depend on them reopening. But you are beginning to see some reopening of states. The Texas and the Georgia are already going. Florida just reopened. A player like a Starbucks is 85% reopened this week, 90% by -- or more by early June.

So are you beginning to see little examples of this -- of how the rebuild will go for you? And can we talk maybe some real numbers about what sort of decline rates we're talking about here and maybe the tail that you can expect in terms of weakness beyond the reopening just framework-wise?.

Well, first of all, yes, we are seeing some -- a case for optimism in terms of the rebuild as we go from really the depth of April into some of the recovery in May and beyond as we move through inventory dislocation into replenishment and replenishment is continuing to grow each week.

As it gets to things like Starbucks reopening, we have a lot of confidence in their plans for safely operating their units that they will rebound fairly quickly. In terms of adding discrete and specific numbers around the reopening, I would say if we could do that instead of withdrawing guidance, we would have changed it.

The challenge is, this is a work of first impression for all of us. So we have very broad assumptions as to what these pace of recoveries will be, but they are fairly broad assumptions. Thus far, we've been pretty accurate.

But we want to recognize the fact that this is a time period in which we are dealing with a level of uncertainty really unlike anything we've seen before and respect that and be cautious with respect to trying to put too fine a point on what the near-term future holds even at the same time as we feel very comfortable about the longer term.

So if you look -- I mean your firm, I think, coined the human ingenuity trait. We feel very good about the human ingenuity trait and the likelihood that this ends. We feel very good about the business model as that develops. But exactly how that occurs and what reopening looks like and what can happen state by state, our crystal ball is not that good..

And just a quick one on the -- you've mentioned egg prices.

Any sort of noise with regard to margins with regard to egg prices that we should be thinking about for the upcoming quarter?.

Well, so what I mentioned was that when the crisis hit, we obviously had inventory. And very abruptly, our inventory didn't necessarily line up with our demand. We obviously have a production planning cycle that starts with certain demand assumptions. And when those demand assumptions got upended, it left us with an inventory mismatch.

So it was less about egg pricing than about having the higher cost to egg servicing lower cost segments. And that's what I was referring to. That is largely working its way through in April, maybe close to done by now, should be behind us through the balance of the year..

Our next question comes from the line of Jason English with Goldman Sachs..

I want to stick on foodservice and eggs for a minute. It looks like egg prices -- not surprisingly, liquid egg prices have hit a new all-time low. I think around half of the prior low, which is pretty substantial. And to your point, it sounds like there's a lot of inventory out there.

So as we leg into a path to recovery, is there risk that some of your customers instead of buying off your grain-based market prices opt to exploit what is probably a pretty substantial arbitrage right now and leg into the cheaper liquid egg markets to help deplete some of the inventory that's out there? That's sort of question 1.

And then secondly, sticking on that, it sounds like given the price levels that we're at, it has the potential to be quite devastating to some of your competitors. And you sort of hinted at the -- or I think you termed opportunities in the wake of this from a competitive perspective.

Can you expound upon that? How do you think this changes your competitive position over a longer duration? And is there opportunity perhaps for you to consolidate the market even further?.

Well, in reverse order, I think the beauty of our business is that we are somewhat diversified. The negative of our business is that when there's a windfall purely to Retail, we don't experience it in the same way a pure retail business would.

And as we -- as this recovers, we won't have the lag effect that some of our more pure retail businesses will as well. We'll have recovery. So we have a nice balance in our business that allows us to be fairly aggressive with respect to companies that our more middle market sized businesses that are 100% foodservice-driven, of which there are many.

I'm not sure the time is just ripe yet for that kind of activity, but I think there will be an opportunity in the not too distant future. In terms of the behavior of our customers, I think, by and large, our customers will stick to the pricing models that they have been accustomed to for, in many cases now, decades.

Will there be some opportunism? Certainly, could be. I think that, that's relatively modest. And frankly, I'm not sure that in the commodity price market we are in now that the gap is as big as it may -- you may think it is..

Okay. That's helpful. And then switching back to the cereal business. Certainly, some upbeat commentary from you both in terms of the near term, which we've seen in the data, but also the potential medium and longer term if some of this penetration or re-adoption holds. But I'm curious what you're seeing in some of the most recent data.

As we look at some, albeit limited sample set, scanner data through just last week, it suggests that the category has decelerated pretty substantially. And I think actually, last week, the week of May 2, fell into some declines. And this is only in the grocery channel.

What are you seeing as you look across all channels in terms of underlying sustained momentum for that category?.

Yes. So I have not seen that. What -- we're looking at all channels. I would characterize just March, April and early May as low 30s, low 20s, high single-digits. So I don't know that we're at a point where we can conclude much just yet. I would have been surprised. I frankly was most surprised by the April number being as high as it was.

So I think that we just need to let the data develop a bit before we start making conclusions because this is such an outlier in terms of consumer behavior..

Your next question comes from the line of [indiscernible] with Jefferies..

So I just want to step away for a minute from the foodservice side, give you a break. In terms of just cereal in general, right? Obviously, we've seen the lift. We don't get it. I guess kind of 2 questions. The first question simplistically is, have you seen any real delta between kind of this lift, let's say, in the U.K.

with Weetabix relative to what we've seen in the U.S.? And I don't mean quantitatively, just anything kind of more qualitatively. Any thoughts around that going forward? What any differences could be? I mean it's a very general question.

And then secondly, still on cereal, is just that promotional piece, right? It sounds like there's a little bit of promotional pricing that was kind of already in there.

But now if we think about kind of where we could go in the second half of the calendar year, the feel is that promotional pricing maybe being pulled back now, maybe some AMP all-in for a number of companies maybe across the board.

But as at home maybe shifts kind of, let's say, back to normal, but as away from home kind of picks up and at home kind of starts to drift a little bit, the feel is that maybe promotional pricing or AMP overall actually starts to lift. So the U.K. versus U.S.

and then how are you thinking about maybe category promotional and AMP overall kind of for the rest of the calendar year?.

So a couple of interesting differences between the U.S. and the U.K. I've largely talked about the U.S., so let me focus on the U.K. We saw 2 phenomena. One, we saw the same level of surge buying, but we saw a more rapid decline to pre-COVID plus 2-ish. So we went back to a better replenishment rate without the April phenomenon of being up in the 20s.

And I frankly don't have attribution for that difference at this point. We're still trying to understand how the different markets are behaving. But the market has behaved very well in terms of steady-state consumption. The other interesting phenomenon is that there's been a fairly significant shift in our business from private label to branded.

And we're attributing that simply to consumers seeking comfort in a crisis, a known brand, particularly one with the strength of Weetabix, nothing more than that.

So it's been a real positive, but we did not have -- I think we, in the U.K., skipped the second month and went straight to more of a replenishment, right? In terms of promotion, again, I want to be real clear as to what happened in the quarter.

Because of the way we account for promotion, a run-up in volume above our expectations for a promotional event will all be treated at that promoted price. So we way over performed our promoted volumes because of preplanned events that then ran into the surge buying. And that's largely exogenous to the balance of the year.

I don't think there was any lingering effect into April, although maybe it was a day or two.

In terms of the balance of the year plan, I would say, to an unusual degree, it's shortened and very much consultative with each of our customers, because what we're trying to do in tandem with them is to make sure that we have a demand flow and a traffic flow in stores that can be safely managed.

So I wouldn't -- I would be very surprised to see if the balance of the year was heavily promoted. I would not be surprised to see if there was some pullback in promotion to manage some of that traffic. But the most true thing I can tell you is that it's a work in progress..

Yes, that's very helpful. And then, I guess just a quick follow-up is just around go-forward cash allocation.

I mean, obviously now we're in a unique situation, but I think you had said earlier that there could potentially be some incremental opportunities on the foodservice side just given what's occurred, especially in full service and the overall supply chain.

So would you say, kind of generally, relative to a month or 2 ago, you might be -- you could be leaning a little bit more or keeping your eyes open a little bit more to opportunities kind of in that channel, that side of the business potentially relative to just traditional branded packaged food? And that's all I have..

I wouldn't necessarily say we're more focused on it. I would say we think there's likely to be greater value there. We want to be open to opportunities across the landscape. But if you look at what has happened, most businesses that are -- that skew retail have benefited and most of that skew foodservice have not.

So it just intuitively strikes us that the value may be better on the foodservice side..

It makes sense. Thanks so much..

Your next question comes from the line of Michael Lavery with Piper Sandler..

One on cereal. Can you talk just about your thinking on innovation launches or nontrade marketing? And I realize at the moment, there's a need for simplicity.

But maybe later in the year or sometime when you still have a little more of the consumers' attention than maybe usual, is it a time to get in front of them in different ways and spend more? And then just second, a follow-up on -- back on foodservice.

Just any onetime costs to watch out for in this quarter? It sounds like the obsolete inventory risk is lower, but I did have a brief technical issue during Rob's comments, so sorry if I missed something on either one of those..

In terms of innovation, I think, to an unusual degree, innovation is supply chain driven. So where customer supply chains will allow it, we will continue; and where they need to maintain a more simple assortment, we will delay. So I don't really want to get too much more in innovation.

I think you all know that we had a lot of ambition for our current year and moving into next year, but that's largely going to be driven by conversations with customers about how aggressive they want to be on changing assortment. In terms of onetime costs, there are not huge onetime costs.

There are a myriad of incremental inefficiencies that result from the demand being drawn down so quickly.

I highlighted on the call 2 of them, one being the mismatch between the nature of our inventory and the nature of our demand and the other being the cost of moving product that had already been shipped to where it was now needed, so essentially, double handling in freight. There's numerous such costs.

I wouldn't characterize them as significant in individual, but they can add up in aggregate..

Your next question comes from the line of Bill Chappell with SunTrust..

I just want to dig back into cereal and see -- I understand the strengths and it's hard to kind of understand all the -- what it's actually telling you when everything is going up. But did -- with -- excluding Weetabix, you're kind of over indexed to kids and then to value.

And so I just want to see if -- clearly, kids are at home from school and college and everyone's going for more comfort food. And I think your brands would definitely fall into that category. So I didn't know if you thought that part was kind of sticky or it's more getting a temporary lift.

Or as you switch to the value side, if you're seeing -- as unemployment rates go up over the past month, if you're seeing a faster move to the bag category; and the value side, if you're seeing an incremental lift. It's tough for us to see one versus the other as we look at the numbers..

Yes. I mean the numbers are hard to draw conclusions from, so my answers are largely based on intuition. But in my prepared remarks, I commented upon how Post has certain brands that score very well from a taste perspective but don't have the same degree of awareness or household penetration and in that, I called out MOM bags.

So MOM bags have very high repeat rate once they have trial, but they historically have suffered from an insufficient trial and relatively lower ACV than some of our peers. So when you got to the panic buying and shelves were empty, it was fairly self-evident of a broad trial opportunity. And our expectation is that some of that will stick.

But again, that's, at this point, intuition, not much more than that..

Okay. And we'll just leave it at that. And then moving to 8th Avenue, which I don't think you really talked to about as much, that clearly was a much better quarter for them but obviously more moving parts from private label, too.

How is that doing? Is that progressing from kind of their hiccups of 2019?.

It is. They -- particularly within the nut butter business, they had a terrific quarter. The pasta business had a very strong retail business. The portion of it that is foodservice, which is roughly 1/3, was off, not as dramatically off as you might expect, but it still had some weakness.

But on balance, 8th Avenue performed very well and we expect COVID to be a net benefit to 8th Avenue for the year..

And it made an acquisition intraquarter?.

We acquired a factory that manufactures -- and the assets that manufacture the Peter Pan brand. So it was this co-manufacturing arrangement..

Your next question comes from the line of Ken Zaslow with Bank of Montreal..

Can you talk about how your ability to get product to the shelves? Are you seeing out of stocks? Are you able to fully supply your retailers with the business -- with product? And then my follow-up question is, can you talk about consumers' interest in private label versus big brands? There's been a lot of debate on, are consumers actually trading down to private label? Or are they seeking a greater focus on brands? And maybe that also relates to what can be on the shelves..

Yes. Your first question of, are we able to supply the shelves? I almost am scared to answer for tempting the fates. But so far, we have been able to meet the demand and continue to perform very well. And kidding aside, I expect that to continue.

What I am truly most proud of is the responses of our supply chains around the company, both in situations in which they're being stretched from incremental demand and where they're under pressure from demand destruction. It's been a -- I hate to say -- use the word heroic too loosely given what health care workers and others are doing.

But the people showing up every day, doing their job in the supply chain are maybe just behind health care workers. So I feel very good about that. On private label, I think there's a couple of observations.

One is that there are some consumers who are, as I mentioned in connection with Weetabix, seeking the comfort of well-known brands in a time in which anxiety is quite high. And there are others who are seeking the economic efficiency of private label in a time in which economic pressure is quite high.

And then there is the fact that there have been some shortages, so people are indiscriminate. I think when you put those 3 things together, you land on -- you've got to let little data develop before you can reach to conclusion..

That’s a fair point. Thank you..

This does conclude today's conference. Thank you for participating. You may all now disconnect..