Welcome to Post Holdings Fourth Quarter and Full Year 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 a replay beginning at 12:00 PM Eastern time. The dial-in number is 800-585-8367 and the passcode is 303-9636. At this time, all participants have been placed in a listen-only mode. It is now my pleasure to turn the floor over to Jennifer Meyer of Post Holdings for introductions. You may begin.

Good morning, and thank you for joining us today for Post's fourth quarter full 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 filing section 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. Thank you, Jennifer, and thank you all for joining us. Let me start with my comments this morning by again thanking our many colleagues who each day honor the commitments we have to each other, to our customers, and to our consumers. This quarter ends our fiscal year, and it's certainly been extraordinary. I am proud of the way this organization navigated the extreme shocks created by the global pandemic. For the full year, a year in which a key channel shut down and only slowly reopened, our sales were flat and EBITDA declined by 5.8%. I believe this evidence reflects the resilience of our business. The fourth quarter itself delivered largely as expected. We saw the initial signs of recovery in foodservice, and we saw some moderation of the upsized profitability in our segments that service retail channels. Across the board, our retail channel businesses continue to perform well. While Post consumer brands declined in total volume, Jeff will provide details explaining that this overall decline masks strong growth in the premium branded portfolio, offset by intentional decline in lower margin business plus some channel shifting impacting the portfolio. Isolating this business only, we priced out of approximately $15 million of revenue that contributed only approximately $2 million to profit. We also saw the anticipated reversal of share trends from early summer as we returned to modest levels of merchandising. Within our refrigerated retail platform, we likewise prioritized higher margin branded products over lower margin private label in managing through tight capacity. Bob Evans branded side continues to grow impressively with net sales up 24%. Both segments saw meaningful margin expansion. Additionally, both Weetabix and BellRing had quite strong quarters. Our foodservice business returned to positive even this quarter and continues to recover. However, this is a slow build, and ultimate recovery to pre-pandemic levels will not occur quickly. We continue to see profound weakness in key channels, such as education, and travel, and lodging. At the same time, we were quite encouraged by the adaptations in all sectors of the restaurant industry that have led to impressive volume recovery. You’ve seen that we provide guidance for only the first half of fiscal 2021. Based on the recent vaccine news, we are cautiously optimistic that the pandemic will have waned by the midpoint of our fiscal 2021. Meanwhile, we have growing concern that the ensuing months will bring new challenges with respect to managing our supply chains without some degree of interruption, as COVID impacts our workforce. While we have clusters of outbreaks across our business, this is a generalized concern rather than a reaction to anything specific. We have made substantial investments in plant redesign, protective equipment, and additional training, and we believe our work environments are well protected. Nonetheless, we will continue to be affected by outbreaks in these communities in which our factories are located. Our first half guidance is roughly in line with the results of the second half of fiscal 2020, the timeline impacted by the pandemic. However, we expect greater contribution from foodservice and less from our retail channel businesses. To provide a bit more context, we expect to continue to see performance in our retail channel businesses at levels ahead of pre-pandemic metrics, but we do not expect to repeat the surge demand results that occurred in April and May. Relative to prepandemic levels, we expect the first half in foodservice to materially underperform. However, we expect it to materially improve from the most recent six months. While we have seen solid volume recovery in several channels and we are better able to manage costs at this demand level, we do continue to see anemic performance in a handful of key channels. Last, foodservice contains some first half headwinds related to the timing of commodity changes versus the automatic timing of repricing of its grain-based contracts, which tends to have a three month lag. We believe we have been appropriately cautious with respect to our volume and profit assumptions. Risks to this midyear outlook would be supply interruptions for our retail channel businesses and foodservice demand sensitivity to mobility restrictions. If our assumptions regarding the virus trajectory prove accurate, we would expect the second half to accelerate over the first. If you participate in the BellRing call, you will hear that we expect attractive profit growth in BellRing to be skewed to the latter half of the year. Foodservice recovery would be the second material driver. Our outlook on the first half is sufficiently cautious for consumer brands, Weetabix, and refrigerated retail that we do not expect the profit decline despite greater consumer mobility. One comment specific to Weetabix: we are well prepared for the final Brexit departure on December 31st. Our primary preparations throughout the working capital build-up to protect against delays in inbound raw materials. We do not expect this to have a material impact on our operations, but it could cause some currency fluctuations in the short term. We did provide full year guidance with respect to capital expenditures. We are investing aggressively in our business to drive productivity and better leverage the recovery. In terms of capital allocation, recall that in March, we were singularly focused on liquidity as we learned each day how to operate in this new environment. Today, we are much better equipped to manage challenges, and we're being more aggressive with respect to our share repurchases and our consideration of M&A opportunities. While we can never be assured of success, we're actively evaluating opportunities where we may find value. The market for such opportunities is richer than it has been in quite some time. I want to return to where I began; it's been an extraordinary year. All of us have been tested. Together, we have risen to the challenge. While we can now see some light at the end of this ordeal, our results must and will remain as we navigate what we hope to be the final stretch. I am deeply grateful to all my colleagues for the efforts, large and small, across the world in each community we serve. Lastly, before I turn the call over to Jeff, I want to specifically thank Jay Brown, who decided to retire from the board this year. Jay was one of the initial directors when Post separated from Ralcorp in 2012. Over the years, his support, his challenges to us, and his counsel helped make Post a better company and a better investment. We thank him for his contributions.

Thanks, Rob, and good morning, everyone. Adjusted EBITDA for the fourth quarter was $274.8 million, and consolidated net sales were $1.4 billion. Although the COVID-19 effect was less pronounced when compared to the second and third quarters, each of our businesses continues to be impacted by changes in consumer and customer behaviors. Starting with Post consumer brands, net sales and volumes decreased 3.2% and 6.3%, respectively. Legacy Post branded cereals, such as Honey Bunches of Oats, Pebbles, and Great Grains, continue to show strong volume growth, up 5% in the aggregate this quarter. This strong performance was outweighed by declines in private label and government business, Malt-O-Meal bag cereal, and licensed brand cereal. The surge in demand from Malt-O-Meal bag cereal products in prior periods caused challenges in our supply chain and impacted our bill rates this quarter. Moreover, we saw channel shift and category demand for mass to traditional grocery, and these products over-indexed to mass. Partially offsetting these volume declines was a 3.3% improvement in average pricing, resulting from reduced promotional activity and a favorable product mix. Gross profit margins meaningfully improved over the prior year, driven by improved net pricing and $5 million in cost savings from implementing our new integrated business planning process. These benefits were only partially offset by input cost inflation, increased compensation, and costs for health screening and personal protective equipment. The net result of these factors was segment adjusted EBITDA of $121 million, which is relatively flat with the prior year. Weetabix's net sales increased 8.5% over the prior year. Volume growth of 5% was driven by extruded products as we lapped the prior year capacity constraint and cereal biscuits. This growth was partially offset by lower volumes for on-the-go breakfast drinks. The stronger British pound to US dollar exchange rate resulted in an approximate 450 basis point tailwind to the net sales and adjusted EBITDA growth rates. Overall, Weetabix's segment adjusted EBITDA increased 12%. Our foodservice business continues to be significantly impacted this quarter, with net sales and volumes both declining 23%. Our recently completed acquisition of Henningsen Foods is a slight benefit to these results. These declines reflect lower away-from-home demand in reaction to COVID-19, particularly in the morning day part within the full-service restaurant, quick service restaurant, education, and travel and lodging channels. Foodservice volume recovery remains highly correlated with the degree restrictions are imposed on mobility and gathering. We continue to anticipate a full recovery will likely take through fiscal 2021. Adjusted EBITDA declined 69% to $23.7 million, primarily resulting from loss contribution margin on reduced volumes, unfavorable customer product and channel mix, and some payroll fixed cost absorption with significantly reduced production volumes and lower net pricing. The lower net pricing was caused by unfavorable mix, lower market-based pricing, and temporary price reductions to move excess and short-dated inventory. Moving to refrigerated retail, net sales increased 2%. Volumes decreased 5.5% as growth in sausage was offset by declines in egg and cheese products. Side dish volumes were relatively flat overall, as 9% growth in Bob Evans branded products was offset by declines in the exited private label side dish business. Overall, net pricing improved reflecting favorable mix, targeted side dish price increases, and higher branded cheese pricing. Segment adjusted EBITDA grew 11.6%, benefiting from higher net pricing and an improved price-cost relationship for sausage products. Our side dish manufacturing costs and lower profitability for cheese products offset this growth. BellRing's net sales increased nearly 32%, while adjusted EBITDA increased 21%. Sales of premier protein branded products increased 37%, benefiting from RTD shaped distribution gains for both existing and new products, incremental promotional activity, and lapping prior year reductions in customer trade inventory levels. Dymatize and PowerBar net sales grew 15% and 1%, respectively. You can hear further details about BellRing’s results on their conference call later this morning. Turning to cash flow, we had a very strong quarter generating $217 million from operations, including $70 million from BellRing. Reduced working capital was a key contributor to this quarter’s performance. For the full year, we generated $626 million in cash flow from operations, netting $391 million of free cash flow after deducting capital expenditures. Solid working capital management, lower cash taxes, and reduced capital expenditures largely offset the negative cash flow impact COVID had on our adjusted EBITDA. As a reminder, we report leverage statistics for Post independent of BellRing net debt and adjusted EBITDA. Post pro-forma net leverage on this basis was approximately 5.5 times as of September 30th. Turning to share repurchases; during the quarter, we purchased approximately 1.5 million shares at an average price of $86.69 per share. For the full year, we purchased approximately 6.1 million shares at an average price of $97.65 per share. Since year-end, we have acquired approximately 700,000 additional shares at $90.51 per share. Our remaining share repurchase authorization is currently approximately $230 million. In closing, we continue to maintain significant liquidity for strategic actions and remain confident in our ability to continue to generate strong cash flow during the pandemic. With that, I'm going to turn the call back over to the operator for questions.

Thank you. Our first question comes from Andrew Lazar of Barclays.

Maybe to start with, you mentioned the decision to exit some low margin business, some of which was private label, I guess both PCB and refrigerated segments. And guess what drove the decision to start doing this, what seems like more significantly this quarter? Was it primarily just managing limited capacity, or is there something more structural behind that? And do you expect or should we expect another three quarters of this sort of negative impact in these segments until the dynamic is lapped?

No, it's predominantly around managing right capacity and different lines and different segments to make sure that we have a supply chain that can be resilient through what we're anticipating as a challenging period upcoming. So it's entirely about supply chain management.

Rob, you mentioned that there are M&A opportunities and a more substantial pipeline than you've seen in some time. Would you say that's a general observation across all segments, or do you think these opportunities are primarily emerging in specific areas of your business?

Interestingly, it's a fairly broad commentary. I think there are two buckets there. Foodservice opportunities that have been under stress and there are branded opportunities that have naturally seen what has happened and are seeking to capitalize on it. So I think it's two very different buckets and quite a bit in between from companies doing pruning and portfolios. So I think it's a wide range of what I would characterize as monetized opportunities with potentially good value.

I believe it would be challenging to balance the COVID benefits that some of these businesses have experienced with what a more normalized situation would look like, as well as how much you would pay for that. How do you manage this internally when considering the offsets in relation to the valuation of these assets?

Well, I would think everybody on the phone is doing that exercise, that we are trying to make some assessments as to what the volume list at retail has been with regard to COVID and try to adjust for them and adjust the financial impacts for more of a pro forma normalized. And I think frankly, our expectation is that there will be a COVID stick trying to judge that category by category in the arc.

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

I guess I wanted to come back to the Bob Evans business heading into FY '21. At this point, has the visibility into household penetration at retail? I know at the time of the deal, one of the opportunities was to sort of build out from that core in the Midwest. Any sort of notable data at this point on trial or repeat purchases across those emerging geographies?

We have been adding about 1 percentage point to household penetration, and our repeat buy rate is north of 50%. So very attractive repeat buy, a decent household penetration growth. So we feel very good about Bob Evans, as you saw. We had really quite substantial growth on the side dish business and solid growth as well on the sausage business, which combined both good volume growth and attractive pricing.

And then maybe a follow-up for Jeff. On the foodservice margin in light of the sequential recovery in the foodservice margins, presumably there was some benefit from a reduction in obsolescent cost there. But can you walk through any other contributors, specifically any related impact from more, I guess, permanent cost adjustments in that business at all? Thank you.

John, there really wasn't much in the way of permanent cost reductions. As we've talked about before, we're trying to be reserved in our approach to that. So we are taking actions to minimize the amount of idle workforce to the extent possible while maintaining the workforce. Really, probably the thing I would comment most that's hidden when we talk about the top-level volumes is the impact of mix on that business. So as we talked about before within that business, we have a food ingredient component and a foodservice component. The food ingredient component is actually up year-over-year, and that's a low margin business generally, but during COVID even more low margin business as we have to price to move product. So that's the biggest thing I would highlight to you, is don't necessarily stop at the headline number of volume down 23%. There are some margin pressures that are more into details as you decompose the components of that business.

Our next question comes from the line of Chris Growe of Stifel.

I just want to ask a question, if I could, first on PCB and refrigerated retail. As you're kind of getting production pared back to your brands, trying to get away from government bid business or private label, those kinds of things. Is that an ongoing drag to volume in, say, the first half of '21? I assume that's incorporated in your guidance if so. But do you have any frame of reference for how big that could be and just to keep in mind the limitations of growth in those divisions?

Well, we called out approximately $15 million of revenue, contributing about $2 million of EBITDA for the quarter.

That was in PCB…

That was in PCB. The numbers are smaller dollar-wise, and the pounds are more like about GBP7 million in Bob Evans, and the average per pound is lower. So it's more like $4 million or $5 million in the refrigerated retail platform.

And that should come back to continue in the first half of the year. Is that what you're saying then?

Yes, and it's baked into the guidance…

And then just a second question on the phasing of EBITDA through the first half of the year for Post. I think you said a little higher in the first quarter versus second quarter. Is that a function of comparisons? And I see PCB had some shifting around of profitability in the year-ago period. I just want to get a sense of what could be different? Is it COVID cost or anything related to that, or is it more about the comps year-over-year in the business?

No, it's just a really interesting forecasting dynamic right now. We have the most visibility into the current quarter, and in some respects, more clarity as we look ahead to vaccine distribution. The uncertainty mainly lies in the second and early third quarter because we are unsure of how stimulus will affect the restaurant and foodservice sectors. We are also uncertain about the speed of distribution and current case counts, which could lead to mobility restrictions. Therefore, we're adopting a cautious outlook regarding foodservice, and we aren't anticipating a significant repeat in similar performance. The trend you're noticing is primarily about aligning uncertainty with a careful perspective.

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

I wanted to talk about EBITDA. Looking out, I'm trying to look out past COVID and try to find a year pre-COVID that might be a good discussion point for par, if you will. If you look back to 2019, your EBITDA was $1.2 billion-ish. And then if we were to look out to fiscal '22 to just pick a year that might be somewhat more clean of COVID in terms of your business. How would you think about that versus the par that is fiscal '19 in that $1.2 billion in terms of each of your businesses' earnings power? I would imagine the refrigerated retail, BellRing, Weetabix could be significantly higher, maybe foodservice still a touch lower. So how are you thinking about that? And then I have a quick follow-up.

Well, I think that's the question of the day, maybe the question of the year. And the way we think about it is very much in line with the way you proffered the answer, which is that we expect that there will be a stickiness with the retail products as a result of the trial experience that we have all endured, and we may see additional stickiness because of some lifestyle changes around spending more time in homes. So for the 70%-ish of the business that serves retail channels, we feel very bullish. We believe that there will be a substantial recovery of current levels in foodservice and whether that gets back to bright on the first day of our FY '22, which is October 1st, whether it takes more time than that, is much harder to answer because it requires us to understand exactly the trajectory of the distribution, how people’s psyches respond, how people's behavior accommodates the new realities of technology and how they react to what we expect to be pretty significant pent-up demand to get the hell out of their houses for a while. So it goes back to what I responded to Chris, and that we’re in this very strange shape of our forecasting visibility in that the longer you give us to answer that question, the more bullish we're going to be. We think that foodservice recovers. We think that retail continues to benefit from the trial experiment, but trying to put a fine-tune on exactly when that occurs is more of a challenge.

No, I don't mean to badger on the witness on this one, but there's not just macro stuff that's going on around you, which are all fair and good and create lower visibility. But I mean you have some things internally that you've been doing. Obviously, you've been under pressure from a cost perspective. You probably found some efficiencies. You have the Weetabix integration and efficiencies, BellRing's growth. Refrigerated Retail does seem like it's not just a cyclical upturn, but on a multiyear one, two, and three years will have passed from '19 to '22. So I guess I'm trying to framework it out to think about how you might be thinking about your true earnings power versus that par aside from the trial and repeat stuff that we all have to kind of take on ourselves from an analytical risk standpoint, we all have to make our own minds up. But internally, in terms of generation of profit, what are your thoughts there?

I want to avoid being overly specific about what could happen beyond 2021 since we haven't even provided full year expectations for 2021. However, I can share that we are optimistic about the overall market and the internal strategies we are implementing to leverage recovery. We are committed to investing in all areas of our business, including foodservice, despite the temptation to reduce capital expenditures in what seems to be a weak business environment. Instead, we believe it's important to engage more actively to ensure we emerge stronger across our supply chain, which has faced challenges. We have dealt with numerous unfilled positions while managing COVID-related issues. Therefore, we aim to invest in automation and projects that enhance our capacity. There are many initiatives we can pursue that will improve our business outcomes, and I remain optimistic for the long term. However, we need to be realistic about the next few months, which may be difficult. Once we get through this period, I believe we will begin to realize significant opportunities that are accumulating.

Our next question comes from the line of Bill Chappell of Truist Securities.

Just kind of a general question. Can you help us understand what, if anything, was a major surprise in the quarter or even kind of for the outlook and the understanding of everything would be surprising if we were talking a year ago and to what actually happened? But it feels like a lot of things in terms of trends have already been going for the past six months, especially last quarter. And so just trying to see did anything really run outside your expectations, or is everything kind of what we saw the prior quarter?

I believe this was a very controlled quarter and it aligned well with our expectations. It matched consensus expectations concerning EBITDA. There were various paths to reach this, involving different businesses and margins versus revenue. From our perspective, this quarter unfolded exactly as we anticipated. The surprise is that we are entering a challenging environment in terms of case counts. While we feel optimistic about treatment and mortality, the critical factor for maintaining the supply chain is the number of cases and the resulting quarantines. If we see 200,000 cases a day, that significantly impacts the overall workforce. We need to navigate this carefully and manage our expectations about what could happen in the short term. However, for this quarter, everything unfolded as we expected, and we are being thoughtful about our view of the current quarter and the months ahead.

Can you provide any updates on Weetabix, particularly regarding your thoughts on the branded business and the volume of private label business you do with Weetabix? As that market evolves, have you noticed a shift from private label to branded products in the UK, and has the pandemic affected your overall outlook on that business, not just on the branded side of Weetabix?

It has not changed our outlook. The business has been performing exceptionally well. There's a current thinking or perhaps consensus that as we went into lockdown earlier in the year that consumers reengaged with nostalgic brands and comfort food, et cetera. I have somewhat of a counter thesis that the brands were able to flex production in a manner that private label was not simply as a result of the greater SKU count, such that there was a migration to brands because of a supply phenomenon more than a demand phenomenon. And I think that is true in the UK as well. We have been able, simply by virtue of long run, to be able to keep the output of our base yellow box product in an easier manner than the array of SKUs required to support private label. So there has been a migration to branded in the UK the same way there has been in the US.

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

You called out a decline for the licensed cereal brands in the quarter. I know there's been some new launches there that you get the initial boost and maybe just lapping some of that. But can you give us a sense of what that runway looks like and what we should expect looking ahead a little bit?

To provide some context, a few years back, we began introducing a range of licensed brands, which quickly gained traction to such a degree that we captured a substantial market share. Following our lead, competitors offered their own families of similar products, which somewhat shifted the demand landscape. Ultimately, we found ourselves with a share that wasn’t genuinely ours, leading us to relinquish a considerable amount of that share. Now, we are focused on regaining it through more substantial innovations, particularly with our adult-centric offerings centered around Dunkin' coffee products. While these also fall under the licensed brand category, they are more specialized and refined. The launch has been successful. Additionally, we've rolled out a Tim Hortons partnership in Canada, marking one of the most successful product introductions in the country in recent years. We are optimistic about the potential for both of these product lines. We are also excited about some of our more daring innovations that we expect to discuss in the near future. These innovations were initially scheduled for release in 2020 but were postponed as retailers preferred a simpler product assortment during that time.

And just to clarify, I don't know if I heard this right. I think when you were giving some sense of the first half, you said that you were trying to take a conservative or just a little bit cautious approach, but that you didn't think Consumer Brands EBITDA would be down year-over-year. And so did I hear that right, and would that be for each quarter or for the half in total?

No, I think you heard it just a bit off. What I was trying to suggest is that Consumer Brands and Weetabix and Refrigerated Retail would not trail off in the second half compared to the first half, because we think we've baked in sufficient caution that increased mobility, while it would drive some growth in our foodservice businesses, should not materially draw from the base performance in our retail businesses.

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

Just my two questions. One is, if you think that the supply chain is really the reason for the increase in demand rather than the affinity for consumers to go to like a big brand. How do you assess the COVID stickiness for your PCB and retail business?

I believe that the shift towards brands has involved a trial period that would have been very costly and difficult to achieve. Therefore, I find it hard to believe that after all this trial, we would completely return to pre-pandemic consumption patterns without any lasting change. While I can't quantify how lasting this change will be right now, I do expect that due to the significant trial we've experienced, there will be some lasting impact.

My second question is, as you go through the COVID experience, what opportunities do you have or have you seen that you can improve the efficiency of your supply chain? And how much stick of that in 2022, 2023 and beyond, like how much have you done with the SKU rationalization, streamlining your supply chain that all you come in and say, hey, look, we have another $5 million, we didn't realize, how do you assess that and how much is it?

I'm not ready to specify a number, but I can qualitatively respond to the question. We’ve joked that anything still on the shelf around April 30 needs to be immediately evaluated, as if it didn’t sell then, it likely won’t sell at all. What we did was take SKU rationalization to an extreme by trying to narrow our selection to only the longest-running products. Now, we’re actually moving in the opposite direction by rebuilding our SKUs. SKU assortment, which is a continuous process similar to a horsepower model, experienced a significant interruption due to COVID, leading to a dramatic reduction. We will now rebuild and resume our normal assortment management process, leveraging insights on the profit benefits of better assortments and improved velocity. I expect there will be a continuing impact, though I'm not certain how it will balance out. Regarding supply chain, particularly about automation and improving productivity, we have faced challenges with labor recruitment and turnover. As we invest more in productivity, it should alleviate some of that pressure. However, these are long-term trends, not something that will yield immediate results as we enter 2022.

You're not worried that the SKU, I would say, proliferation but return of that is similar to the merchandising where everybody cut merchandising, there seemed to be some rational behavior in that, then all of a sudden that didn't actually last. Is that possible that could happen with SKU or will you bump that trend? And I'll leave it there. Thank you very much.

Yes, I would not say that we are not worried. I would say that these things tend to behave a bit like a pendulum and never exactly get to the right equilibrium. We'll probably go from a bit extreme narrow to wider and have a permanent effort of getting to the idealized mix, the perfect shelf, we call it. But yes, I expect there will be some overreaction and then there will be a correction.

Ladies and gentlemen, we have reached the allotted time for questions and answers. Thank you for participating in the Post Holdings fourth quarter and full year 2020 earnings conference call and webcast. You may now disconnect your lines and have a wonderful day.