Post Holdings, Inc. (NYSE: POST) will now stand on its own, as a publicly-traded spinoff of Ralcorp Holdings, Inc. (NYSE: RAH), after receiving approval for listing its common stock on the NYSE on December 6, 2012.
Post’s products have been staples at the breakfast table for ions. We all know them - Honey Bunches of Oats®, Pebbles®, Grape-Nuts®, Honeycomb®, etc. - and have grown with them throughout the years. Though Ralcorp has quite a few other food and snack brands we may recognize on the grocery store shelves, Post’s just may be the standouts that strike our fancy – a plus for Post.
Standard and Poor’s Rating Services (S&P) allotted a ‘B+’ corporate credit rating to Post. Their ‘BB’ issue-level rating was given to Post’s $350 million in secured credit facilities and a ‘B+’ issue-level rating was given to their $775 million in unsecured notes. All of this is a good sign should Post ever default, though it’s not an indicator of credit quality or a guarantee against future risk.
What does this mean for the consumer?
Stiff competition exists from other leading brands, namely Kellogg’s (NYSE: K) and General Mills (NYSE: GIS), whose reported net earnings for 2011 were $1.2 billion and $1.8 billion respectively. They are somewhat out of Post’s league when it comes down to current sales figures as well, which may frustrate Post’s expected growth for the coming year. Should quarterly sales lose a bit of their luster, product prices will increase.
Additionally, rising commodity and freight costs will force pricing adjustments on their products. These extra costs will eventually pass on to the consumer, no matter how the company tries to offset them by saving energy and lowering manufacturing costs. All of this just means that Post could have an uphill climb for the foreseeable future; they’ll have to juggle weighty expenditure with consumer happiness.
What does this mean for the Ralcorp shareholder?
While the separation seems good for Post, how will Ralcorp’s stock fare in the months/years to come? Following the separation, Post’s sales will no longer be included in Ralcorp’s figures. To compensate, Ralcorp’s December 6, 2012press release stated, “Ralcorp shareholders of record, as of the close of business on January 30, 2012 (the "Record Date"), received one share of Post common stock for every two shares of Ralcorp common stock held on the Record Date.” This is intended to be a tax-free distribution to its shareholders.
Ralcorp also plans to grow and nourish its market position with its own private-brand foods. With the help of Sara Lee Corp.’s refrigerated dough business, which Ralcorp acquired on October 3, 2011, Ralcorp had a reported 18% growth in sales for the first quarter of their 2012 fiscal year. Clearly, Ralcorp is taking initiative to make up for any possible loss it may feel from releasing Post to its own devices.
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