Welcome to the Post Holdings Second Quarter 2022 Earnings Conference Call and Webcast. Hosting the call today for 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 PM Eastern Time. The dial-in number is 800-925-9356, no passcode is required. 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, Investor Relations of Post Holdings for introductions. You may begin.

Good morning, and thank you for joining us today for Post's second quarter fiscal 2022 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 afterward, we'll have a brief question-and-answer session. The press release that supports these remarks is posted on our website in the Investor Relations 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.

Thank you, Jennifer, and good morning, everyone. We had a successful quarter, and despite some near-term challenges, we remain quite upbeat about the year. I want to start by expressing my appreciation to our colleagues who worked towards the BellRing transaction. As you know, this quarter, we completed the spin-off of 80% of our position. The transaction required an enormous effort for many people across our organizations. I'm grateful to each person for their sacrifice and effort. I'm excited for the next chapter of the BellRing story. The Premier Protein brand remains a leader in the developing category with a considerable runway for expanding household penetration and innovation. Dymatize has become a clear leader in sports nutrition; this business has tremendous fundamentals in terms of both growth and cash generation. We believe the transaction will also improve its technical support with greater liquidity in its shares. We are pleased with our Post-performance this quarter. Nonetheless, the business is not firing on all cylinders, and we are still earning below our potential. The expected second-half increase reinforces our thesis. Meanwhile, labor conditions are improving, controllable manufacturing performance is improving, transportation is improving. I make the distinction about controllable manufacturing because we continue to face periodic ingredient shortages that create inefficiencies in our factories and in our broader supply chains. Our procurement team has developed a triage approach to identifying flash points at the earliest possible moment starting with better demand planning. However, because it is triage, it does lead to downstream inefficiencies. I expect the supply chains to continue to improve, and our management of shortages will continue to improve. But the combination of pandemic disruption, labor imbalance, inflation, and now geopolitical instability has led to more lingering macro problems than we anticipated. Speaking of inflation, we have seen ramping cost increases across our business. For the most part, we've enabled the raised prices to offset the cost increases, but the timing varies across our segments. Speaking briefly to each segment. Post-Consumer Brands had a solid performance. Again, it was not perfect as we manage both supply interruptions and the resulting inefficiencies. We have reversed distribution losses in our key multi-mill franchise with expanded distribution available in stores in April. At the same time, we are continuing to see a modest shift towards value-price consumption. Weetabix continues to navigate challenging waters exceptionally well. U.K. and European consumers are more directly feeling the impact of Ukraine-related disruption reflected in higher energy and food prices. Meanwhile, we will face a currency headwind as the pound has weakened against the dollar. Our Refrigerated Retail platform is improving nicely. Our side dish business resumes growth as capacity recovered. We are approaching a level of capacity at which we can resume our brand-building efforts. On the other hand, we have struggled with commodity volatility in both our cheese and sausage categories. Foodservice continues to move towards recovery. Obviously, the $55 million in adjusted EBITDA reflects both the sequential and year-over-year improvement. We continue to expect to exit the year on an EBITDA run rate in line with our pre-pandemic level of profitability. We now expect this to occur at slightly lower volumes with better margins as the business modestly shifts to higher value-added products. This spring, we have seen the first merchants of high pathogenic avian influenza since 2015. We have thus far depopulated two farms. We are working to mitigate the lost supply albeit at materially higher prices. Last night, we affirmed our adjusted EBITDA outlook range of $910 million to $940 million. These outlook numbers reflect the impact of known events which we do not expect to have a material effect. It does not incorporate a significant expansion in the direct impact on post-supply. With more exceptions, our recent acquisitions are performing quite well. Pennington, private label cereal, and Egg Beaters are exceeding our underwriting case. Peter Pan is meeting expectations, but synergies begin to hit the P&L in 2023. All markets underperforming our underwriting case as costs have escalated faster than we have priced. While it is not terribly material, we hold ourselves accountable to getting these right, and we expect to correct this in time. We were active buyers of our shares again this quarter. Although we had some constraints in our ability to acquire shares near the spin date. Since we last reported to you, we have repurchased an additional 1.2 million shares. Since 2017, we have now purchased approximately 23 million shares. You are all aware that borrowing costs are on the rise. Our capital structure anticipated this. Our long-dated and fixed-rate bond ladder positions us quite well to manage through increases in the cost of capital. The war in Ukraine has several impacts on our business. While we do not sell into Russia or Ukraine, both countries contribute to the global grain and energy trade. The realized and potential threat to Ukrainian commodities and the potential sanctions of Russian energy will have a lingering impact on price and potentially availability. While the environment is choppy, our business is gaining momentum. I find it enormously encouraging because this is where we perform best when volatility drives opportunities for significant change. We expect to find such opportunities on both the strategic and tactical levels. Thank you for your time this morning and your continued support. And with that, I will turn the call over to Jeff.

Thanks, Rob, and good morning everyone. Before getting into the details of our quarter, I would like to remind you that BellRing has been presented as discontinued operations for all periods. And the consolidated figures I will discuss represent results from our continuing operations. Second quarter consolidated net sales were $1.4 billion, and adjusted EBITDA was $230 million. Net sales increased 17% and benefited from approximately $70 million of incremental sales from recent acquisitions, pricing actions across each segment, and volume demand recovery in the foodservice segment. Higher raw materials, freight, and manufacturing costs continue to pressure year-over-year margins this quarter, although they improved sequentially. While internal and external labor shortages and supply chain disruptions improved throughout the quarter, we continue to see lower throughput and higher per-unit product costs. Similarly, our customer order fulfillment rates improved, but we're still below optimal levels. Turning to our segments and starting with Post Consumer Brands, net sales and volumes increased 19% and 20% respectively. Excluding the benefit from the private label cereal, and Peter Pan acquisitions, net sales and volumes grew 8.8% and 3.4% respectively. Cereal average net pricing increased 5.4% driven by pricing actions and favorable product mix. Pebbles and Honey Bunches of Oats drove the volume increases. This growth was partially offset by year-over-year softness across value and private label cereal products, and our exit of certain low-margin businesses. As Rob mentioned, on a sequential basis, we have seen some improvement in value sub-segment volumes. Adjusted EBITDA decreased 5% versus the prior year primarily driven by costs related to supply chain disruptions across freight, supply reliability, and warehousing. These disruptions drove declines in throughput and fixed cost absorption, causing higher manufacturing costs per pound. Weetabix net 3% and 4% respectively. The weaker British pound created a headwind to these growth rates of approximately 280 basis points. Average net pricing increased 5%, reflecting both list price increases and modified promotional pricing. Volumes declined 2% as growth from private label distribution gains, and new products was not enough to offset declines in other products. Recall, prior year benefited from COVID-driven at-home consumption. Supply chain disruptions, most notably in packaging and transportation availability, continue to suppress volumes in this segment. Our Foodservice segment had net sales and volume growth of 22% and 11% respectively, lifted by distribution gains and higher away-from-home demand. These gains were achieved despite the negative impact on demand caused by the Omicron variant in parts of January and February. Revenue growth continued to outpace volume growth as revenue reflects the impact of pricing actions and the effect of our commodity cost pass-through pricing model. Although we saw year-over-year growth this quarter, total segment volumes remained below pre-pandemic levels. Adjusted EBITDA grew 34%, benefiting from the volume recovery and improved average net pricing, which combined mitigated the impact of higher costs to produce. Q2 performance was also impacted by employee absenteeism resulting from the Omicron variant earlier in the quarter. Refrigerated retail net sales increased 12%, while volumes decreased 1%. Excluding the egg beaters in all market acquisitions and the divested Willamette egg farms, net sales and volumes increased 7% and 2% respectively. Pricing actions drove increases in average net pricing across all products. Side dish volumes grew 5% this quarter, although supply chain constraints, most notably around labor availability, continue to suppress growth. Adjusted EBITDA decreased to $37 million and was pressured by significantly higher cheese and sale input costs, higher manufacturing costs, and increased freight. Moving to cash flow, we generated $144 million from operations in the first half of the year. Our net working capital increased, primarily reflecting the impact of inflation. As a result of our distribution of 80% of our interest in BellRing, we received net proceeds of approximately $260 million. Following the completion of the spin-off, we redeemed $840 million of our 5.75% senior notes due March 2027. Our net leverage at the end of the second quarter, as measured by our credit facility, was approximately 6.1 times. On this basis, we expect to further de-lever once we execute the intended debt-for-equity exchange of our retained ownership of 19.4 million shares of BellRing. With that, I'd like to turn the call back to the operator for questions.

Thank you. Our first question will come from Andrew Lazar with Barclays.

The full-year EBITDA guidance is about, I think at the midpoint, $5 million or so above what the implied range for RemainCo was prior to the distribution of BellRing shares. And I was just hoping you could dig in a bit on what sort of areas in the business specifically gave you the most comfort in this range, particularly in light of all the unknowns still out there and the fact that at the time, I think consensus is also at the sort of very low end of the range that you put out there.

Yes. When looking at the different parts of our business, we are noticing some improvement in our supply chain effectiveness, although challenges still exist. We are pleased with the ongoing shift in consumer behavior towards our value-oriented products. Demand recovery and pricing stability in Foodservice also continue to look positive. Instead of focusing on a single factor, I would describe it as a general improvement in the business amidst ongoing challenges. I want to emphasize two points: first, the changes are relatively small, so this is more of a refinement than a significant shift. Second, even with the positive momentum and the slight increase in our guidance, we believe the business is still underperforming. I don’t want to imply that we are celebrating a victory simply by raising our guidance a little. We are just acknowledging the realities we are observing, despite the continuing difficulties regarding commodity pricing and supply chain throughput.

Got it. Thanks for that. Regarding the Food Group, how do you envision the ideal scenario in terms of inflation? Would it be preferable for inflation to moderate while costs remain high, considering that pricing is improving? Or would you rather see actual deflation, which comes with its own challenges to manage?

There seems to be a technical difficulty.

Okay. I got you. Okay. I appreciate it. Thanks very much.

Thank you. Our next question will come from David Palmer with Evercore ISI.

And we could do like a multiple-choice version of this call.

It would really make things easier if you don't mind. And they only have two choices. So, you can go to four.

Right, right. None of the above. One of the things I was wondering about is, as you're getting further into the year, you might have visibility into this as we experienced the second wave of inflation and look back at some of the friction costs you might have had with the employee outages. You talked about with foodservice, we get to the end of fiscal '22, how much of the friction costs do you think you will have had that might be easy comparisons for your gross margins? And then, in terms of pricing timing versus input inflation, we're hearing a lot about that. That could be another thing that you're looking back on as a favorability item. Some of that might actually be coming at because we've had another wave of inflation that had because of some pricing to catch up. But is there any way to quantify those two friction points or drag to gross margins for fiscal '22?

We're addressing all of these issues, and I would say there are both advantages and disadvantages. In reverse order, it's important to note that inflation has come in waves. We were in a relatively stable position before the Ukraine invasion, after which we experienced another inflation wave that necessitates further pricing adjustments. One interesting observation has been the fluctuating price levels over the past year. Additionally, you are correct that supply chains are improving as we move away from some COVID-related costs. However, in many ways, these have been replaced by other costs due to ingredient shortages, which have led us to reallocate our priorities among products, optimizing our mix to ensure we can move or ship products to where they're needed rather than their intended destinations. Overall, while things are getting better, they are not yet ideal. There are opportunities to enhance our margins, and we expect these to improve with greater efficiencies, although some of that improvement is being countered by challenges in the upstream supply chain.

How would you explain the mismatch between pricing and input costs sequentially, as well as the differences between forward expectations and what we experienced in the quarter?

Well, I don't want to add more quantification at that level beyond what we have embedded in our guidance. So what I would give you is directionally, we are continuing to see them improve where we can control it, and the problems seem to be moving upstream. So it just changes the way we manage them because what we are primarily doing is making sure we've got sourcing in the right position because I think we have managed well once the ingredients come into our factory and get them through our distribution center. So, it just changes our behavior a bit. But beyond giving you the guidance number we've given in the aggregate, I wouldn't want to get into trying to parse out what does the immediate future look like for ingredient shortages versus pricing or efficiencies.

Thank you. Our next question will come from Chris Growe with Stifel.

I wanted to ask about the foodservice division and its pricing. It seems you've been implementing more aggressive pricing, possibly even beyond grain-based pricing, especially concerning transportation logistics. I'm curious if this is starting to help you address some of the additional inflation in that business as we move into the third quarter, or if it's already being reflected. I’d like to understand how this is playing out throughout the year.

You're thinking about it correctly. We've experienced significant increases in costs and certain non-pass through elements of our cost structure, and transportation is one of the biggest areas. We began adjusting our pricing at the start of the year and throughout the first quarter, but the true impact will be felt in our fiscal third quarter.

Okay, thank you. I'm aware there's a timing factor regarding the debt-for-equity exchange with the remaining BellRing shares. Can you provide an approximate timeframe for when that is expected to occur later this year?

The only timing we provide is that it could be anytime within 12 months.

Thank you. Our next question will come from Michael Lavery with Piper Sandler.

Thank you. Good morning. I just wanted to touch on foodservice margins and make sure to understand how that unfolds. And I know you gave some comments in your prepared remarks, but just thinking maybe through the rest of this year and a little bit beyond partly wondering you've said before that you think a return to normal margins probably wouldn't come until fiscal '23. I guess it's a little further out, obviously, but anything can change? Would that maybe we can it still happen in fiscal '23, you have to get there and it was a little bit better in this quarter than we thought. Are you ahead of track in terms of how it may go? Just kind of an update on how that probably unfolds.

Yes. Let me make sure I'm clear on what I said or at least intended to say. We expect to get back to pre-pandemic levels of profitability on a run rate basis by Q4 of fiscal '22.

Okay. Great. It went a little fast, and I wanted to make sure I heard that correctly. That's great.

Yes. So, that is not a change; that's just reinforcing what we had said previously. We do see a bit of margin improvement as our mix shifts to the higher value add, specifically pre-cooked products, and we do anticipate that there will be some long-term volume impairment in some of our smaller categories around travel and perhaps office cafeterias representing 1% of the business, relatively small amount. So, we fully expect to have profitability levels back to the 2019 levels in Q4, and barring something surprising we go into '23 with that expectation to reflect as a run rate.

Sorry, I might have misheard you just now. Did you say the 2019 levels in Q2 or do you mean Q4?

Q4.

Yes. Okay. Great. And then just on the Weetabix business. Your organic growth there was good and it was pricing-driven, but just curious how the volumes have held up maybe in the last months into the third quarter. Just trying to understand how the U.K. and European consumer is holding up? Is that, are you seeing a slowdown there yet? Or how do we think about the rest of the year for modeling that segment?

We have not seen a meaningful slowdown in volumes yet. But what we are expecting is that there could be some shift from branded to private label, of which we have a good position in both. So, there could be some relatively modest margin dilution if that shift occurs with the consumer under some pressure from both energy and food costs.

Thank you. Our next question will come from Jason English with Goldman Sachs.

I want to explore further the impact of avian influenza on your current results. You're confirming the profitability run rate for Foodservice in the latter part of Q4 aligns with your previous expectations, but it appears you could be selling a significant portion at market-based prices. Previously, you were selling 15% of grain stock at marketplace prices before the avian influenza situation, and now it seems you are likely selling at least 10%. This situation could present a considerable opportunity. Why isn't your profit outlook for the latter part changing?

We are currently sourcing more of our eggs on a spot basis due to some losses in supply volume that have occurred so far. The overall impact from these losses has been minimal. There are clearly some advantages and disadvantages as pricing shifts in the second half, which could provide some additional support, but we also face risks if supply continues to decrease. Our goal has been to provide guidance that remains consistent with what we shared before the AI developments. The AI events we've experienced so far have had a minimal effect. However, if AI progresses in a way that significantly differs from our expectations or escalates prices, we could see varying implications as a result.

It's important to include some buffer, but to clarify my understanding, you were selling 15% of your grain, and with a 5% loss in supply, you should still be able to sell at least 10% of your grain stock at market price.

No. We've lost about 10% with the second farm.

Got it. Okay. So now that surplus has shrunk to 5%. Okay. Understood. And then real quick, you mentioned we're going on a year now of you've seen losses on the value tier from Malt-O-Meal and private label. You mentioned some MOM distribution gains. Can you expound upon that? And whether or not based on the sort of the sequential improvement you've seen plus the distribution gains, are we potentially at an inflection point for that consumer brands business in terms of the value tier moving higher?

We believe so. We have observed a significant increase in total distribution points in both mass and grocery channels. We anticipate that the inflation rate will start to prompt some shifts within the category towards a more value-oriented approach. However, so far, the changes have been modest. Referring back to your earlier point, around November and December, we noticed some movement, and since then, the trend has been a gradual upward trajectory.

Thank you. Our next question will come from Bill Chappell with Truist Securities.

Following up on Jason's questions, is there a sense that private label and value products are increasing or recovering? We're trying to understand if the recent positive signs indicate the beginning of a trend or if it's still too early to draw conclusions.

I think the answer is we're too early to tell, but it certainly has stopped getting worse, which is step one of improving. So, we do have some cause for optimism in both our ready-to-eat cereal portfolio as well as within 8th Avenue from a volume perspective. Within 8th Avenue, and I think broader private label, the challenge has been more of the cost inflation, but volumes have not been as big of a problem certainly of late.

The answer is a little bit of both; is that on a macro basis, it's much better. But we have some specific locations where we just have a real sticky problem, which I would offer becomes more an issue of geography and changing some of our hiring practices than it is a macro labor imbalance. I think the macro labor imbalance has improved. But we still do have some very specific local issues that we're working through.

Thank you. Our next question will come from Ken Zaslow with Bank of Montreal.

Two questions. One is we've been through this AI before, but when you think about your long-term model, does AI have any impact on your earnings power in 2024, '25? Or is this whatever happens, either positive or negative, it's simply just temporal? Or do you think there's something that changes your algorithm or longer-term thought process?

Well, I think if you consider the position that our business holds in its category, a disruption like this generally over time improves the quality of the business because I think it highlights the value of our scale and our reliability because if you go into our customer base right now, the people that we are most working to make sure they are not affected, our customers going into this supply disruption. So I think it really highlights the value of being in the fold as a customer of a scale provider who can manage a situation like this with the most degree of alacrity and effectiveness. So I think while it's a situation that we certainly don't wish upon ourselves or anyone else, it reinforces the value of being a customer of ours.

The second question I have is, can you talk about your service levels and as your labor comes back, have you seen improvements in your service levels where they relative to where you want to be? And can you think about where are they expected to be say in six months or nine months or how do you think the progress happens?

Yes. I would say that right now, we are fortunate that we're being graded on a curve, that our service levels are, from a historical perspective, quite dreadful, but from a relative perspective across the CPG landscape, pretty decent. And that one of the more significant opportunities ahead is to get that customer fill rate back to historical norms. And it frankly starts with making sure we have ingredients coming in the door when we need them and where we need them to be.

And I'm going to slip in one more, I'm sorry. How is your innovation? Are you able to ramp up your innovation? Or is the ingredients keeping you from doing that? To what extent is there a real shortage that is changing your business structure? Or is it just it's more of a pain? And I'll leave it there.

Yes, that's a great question. I would say it adds some complexity to our innovation cycle because innovation inherently brings additional challenges to our business, our customers' operations, and our procurement process. For example, we've experienced significant success with the demand for Premier Protein cereal, but we have faced challenges in securing enough product. Overall, it's a mixed situation. The supply chain conditions, which I am referring to in a broader national context rather than just our company, do make it slightly more challenging to effectively introduce new products. We have a solid pipeline and believe we are prepared to launch some good ideas, but we need to improve on the execution side to follow through.

Thank you, ladies and gentlemen, this concludes today's event. Thank you for joining us. You may now disconnect.