Ralcorp's CEO Discusses F3Q12 Results - Earnings Call Transcript

Ralcorp Holdings, Inc. (RAH)

F3Q12 Earnings Call

August 8, 2012, 8:00 a.m. ET


Matt Pudlowski – Director, Business Development

Kevin J. Hunt – President and CEO

Scott Monette – Corporate VP, CFO


David Palmer – UBS

Christopher Growe – Stifel Nicolaus

Robert Moskow – Credit Suisse

Alton Stump – Longbow Research

David Palmer – UBS

Heather Jones – BB&T Capital Markets

Bill Chappell – Suntrust

Amit Sharma – BMO Capital Markets




Good morning, ladies and gentlemen. Welcome to the Ralcorp Holdings third quarter fiscal year 2012 earnings conference call and webcast. (Operator Instructions).

I would now like to turn the call over to Matt Pudlowski, Director of Business Development at 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 third quarter.

Also participating on the call this morning are Kevin Hunt, Ralcorp's CEO and President and Scott Monette, Corporate Vice President and Chief Financial Officer.

Before we begin, I would like to remind everyone that today's remarks contain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements involve risks and uncertainties that may cause actual results to differ materially from those included in the forward-looking statements. While Ralcorp takes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events, or otherwise, forward-looking statements in these remarks should be evaluated together with the many risks and uncertainties that affect Ralcorp's business, particularly those mentioned in a cautionary statement in today's earnings press release and the period reports filed by Ralcorp at the Securities and Exchange Commission.

In addition, during today's call, we will reference certain non-GAAP financial measures, such as adjusted earnings report interest, income taxes, depreciation, and amortization from continued operations. And adjusted diluted earnings per share from continuing operations, which have been reconciled to the most comparable GAAP measure in today'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'll start the call with a brief review of our quarterly results and provide some color on buying trends we are seeing internally and in the industry. I will then discuss a significant organizational change we are making here at Ralcorp as well as Bloomfield's performance. Scott will follow with a detailed review of our segment performance. And I'll close with our outlook for the remainder of fiscal 2012 and fiscal 2013 as well as a few general points about the business.

Starting with our performance, Ralcorp's third quarter adjusted diluted earnings per share from continuing operations was $.60 versus $.51 per share last year or an 18% increase. Earnings per share were adjusted for a number of items that were highlighted in the press release this morning. For the second straight quarter, we were able to offset raw material inflation with a benefit of pricing and mix. Our performance was also driven by a combination of acquisitions, lower corporate expenses, and lower interest expense.

The acquisitions of refrigerated dough and Petri added $.03 of accretion in the quarter. The four acquisitions, Refrigerated Dough, Annoni, Petri, and Gelit, we have completed our all on track to reach or exceed their accretion targets for the year.

The largest of these acquisitions, Refrigerated Dough, is highly seasonal and the third quarter is historically the troth in the cycle that consumers do less at home baking during the warmer months. We still expect Refrigerated Dough to generate between $.34 and $36 cents of GAAP accretion. And between $.54 and $.56 of cash accretion for the fiscal year.

We are very pleased that our growth through acquisition strategy has continued to deliver positive results for us this year. The process of finding, acquiring, and integrating acquisitions is complex; through I'm proud of what we've accomplished in this area.

Excluding the impact of acquisitions, adjusted segment profit totaled $89 million for the third quarter of fiscal 2012 compared to $97.7 million for the same quarter in fiscal 2011, which is a decline of $8.7 million. The primary factor contributing to this decline was a negative performance at our Bloomfield Bakers operations, which accounted for $8.2 million of the year-over-year change in the quarter. I'll discuss our strategy with Bloomfield later in the call.

Now let me make a couple comments on volume both for us and for the industry. Volumes grew by 2% in the quarter as a result of the Refrigerated Dough and Petri acquisitions. Because of timing, Annoni and Gelit had a minimal impact on year-over-year results. Our base business volume is down 6% this quarter compared to the same period last year driven primarily by the loss of the [inaudible] at Bloomfield and sharp decreases in consumer purchases of peanut butter and snack nut products due to the price inflation. To give you a better feel for how the base business is performing, if we exclude those specific factors, base business line was down 2%.

For the food industry as a whole, the overarching theme that we continue to see is volume softness across the board driven by significant year-over-year price increases. To that point, for our 22 categories in the 12 week period ending July 15th for all outlets, overall category volume is down 4%. And private brand volume is off 7%. The key driver in these declines continues to be the overall increase in pricing for the categories in total for private brand in particular. However, private brand dollar share was even compared to the same quarter last year. As we left price increases from last year, we would expect to see these volume trends improve.

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