Ralcorp Holdings Inc. (RAH)

Q4 2011 Earnings Call

November 30, 2011 8:00 AM ET

Executives

Matt Pudlowski – Director, Business Development

Kevin Hunt – Co- Chief Executive Officer and President

Dave Skarie – Co-Chief Executive Officer and President

Scott Monette – Corporate Vice President, Treasurer and Corporate Development Officer

Analysts

Jonathan Feeney – Janney Capital Markets

David Palmer – UBS

Brett Hundley – BB&T Capital Markets

Alton Stump – Longbow Research

Chris Growe – Stifel Nicolaus

Amit Sharma – BMO Capital Markets

Bill Chappell – Suntrust

Alexia Howard – Sanford Bernstein

Presentation

Operator

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Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Ralcorp Holdings Fourth Quarter 2011 Earnings Conference Call and Webcast. At this time, all participants have been placed in a listen-only mode and the call will be open for your questions, following managements prepared remarks. (Operator Instructions)

I would now like to turn the call over to Matt Pudlowski, Director of Business Development for Ralcorp Holdings. Please go ahead.

Matt Pudlowski

Thank you, Jackie, and good morning, everyone. Welcome to today’s conference call to discuss Ralcorp’s financial results for the fourth quarter and fiscal year ended September 30, 2011. Participating on the call this morning are Kevin Hunt and Dave Skarie, Ralcorp’s Co-CEOs and President’s; and Scott Monette, Corporate Vice President, Treasurer and Corporate Development Officer.

Before we begin, I’d like to remind everyone that today’s call contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties which may cause actual results to differ materially from those included in the forward-looking statements. Ralcorp undertakes no obligation to publicly update any forward-looking statement whether as a result of new information, future events or otherwise.

Forward-looking statements and these remarks should be evaluated together with the many risks and uncertainties that affect Ralcorp’s business, particularly those mentioned in the cautionary statements in yesterday’s earnings press release and the periodic reports filed by Ralcorp with the Securities and Exchange Commission.

In addition, during today’s call, we will reference certain non-GAAP financial measures such as adjusted earnings before interest, income taxes, depreciation and amortization, and adjusted diluted earnings per share, which have been reconciled to the most comparable GAAP measure in yesterday’s earnings press release.

I would also like to point out that a replay of today’s call will be made available on our website. At the conclusion of our prepared remarks, we will open the call for questions.

With that, let me now turn the call over to Kevin.

Kevin Hunt

Thank you, Matt, and good morning, everyone. I will start off by giving you on overview of our earnings for the fourth quarter and full year fiscal 2011. And then I will discuss our acquisition of Sara Lee’s Refrigerated Dough business. Following that, Dave will provide an update on the post-separation and then Scott will provide an overview of the segment results.

Adjusted fourth quarter fully diluted earnings per share was $1.34 versus $1.26 last year or a 6% increase. EPS was adjusted for a number of items that were highlighted in the press release last night, primarily the non-cash impairment of post-intangible assets.

I’m pleased to highlight the fact that pricing was more closely aligned with raw material inflation in the quarter, particularly in our Snacks, Sauces and Spreads and Pasta businesses. Adjusted EBITDA, an important measuring stick for our performance internally also grew 8% over last year.

Our total revenue for the quarter was in line with expectations and up 8% to $1.2 billion due to a full quarter of sales from AIPC and higher net pricing. Volumes in our private brand business were up 4% in the quarter versus last year driven by an extra month of AIPC.

AIPC volume for its top 20 customers was up 2% in the quarter versus last year. Also in the quarter, we saw 2% volume growth in private label ready-to-eat cereal and 4% volume growth in hot cereal, both versus last year.

Our Frozen division benefited from new product activity with a major food service customer. Our volume in our Snacks, Sauces and Spreads business was negatively impacted by decisions we made to rationalize certain low margin customers.

As most of you know, this is a process we have done before and we remain committed to taking a discipline approach particularly where we have dramatic increases in raw material costs that necessitate significant price increases.

Next, let me spend a moment commenting on AIPC’s performance for the quarter and for the period since the acquisition. As a reminder, AIPC was our largest ever private brand acquisition with a purchase price of $1.2 billion. We completed the acquisition in July 2010, around the same time we completed three other smaller acquisitions.

You may recall that we originally projected earnings per share accretion of $0.50 for fiscal year 2011 for all four of those acquisitions with the primary driver being AIPC, actual accretion for fiscal year 2011 was $1.09 or more than double our original expectations, an outstanding performance.

For the fourth quarter AIPC contributed accretion of approximately $0.31 per share, compared to $0.17 in the prior year. AIPC’s was even -- AIPC’s performance is even more remarkable given durum wheat, which is AIPC’s principal raw material, cost increase of almost 90% since the acquisition was completed. AIPC successfully matched the benefits of pricing and product mix to protect margins despite the significant cost inflation.

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