Post Holdings, Inc.’s POST shares have soared 12.7% in the past three months, outperforming the industry and the S&P 500’s growth of 9.1% and 2.6%, respectively. After yesterday’s closing at $115.15, the stock is currently hovering close to its 52-week high of $118.96, touched on Sept. 5.
Given POST's strong performance on the bourses, investors are at a fix on whether they should cash in or stay invested.
Factors Supporting POST’s Growth
Post Holdings is being driven by strategic initiatives and a strong performance in its Post Consumer Brands (“PCB”) segment. The company has been benefiting from carryover pricing and operational efficiencies, particularly in the pet food and grocery divisions, supported by strong manufacturing capabilities. Strategic acquisitions have also played a key role in Post Holdings' growth.
The company’s net sales for the third quarter of fiscal 2024 were $1,947.7 million, marking an increase of 4.7% year over year. Net sales include $436.4 million from the acquisitions recently completed in the PCB and Weetabix segments.
The PCB segment delivered a solid third-quarter performance. In the quarter, net sales of PCB were $1,008.1 million, which increased 15.7% year over year. The figure includes $428.9 million from the acquisition of the pet food business from The J. M. Smucker Company (concluded in April 2023) and Perfection Pet Food, LLC (December 2023). This marked the third consecutive quarter of growth for the PCB segment.
Moving to Weetabix, net sales were $136.1 million in the third quarter, increasing 1.4% year over year. The figure includes $7.5 million attributable to the buyout of Deeside Cereals (December 2023).
On its third-quarter earnings call, POST raised its fiscal 2024 adjusted EBITDA guidance for the third straight quarter, taking it to $1,370-$1,390 million from $1,335-$1,375 million estimated earlier. Management’s raised guidance indicates its confidence in the company’s future potential.
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POST’s Shareholder-Friendly Moves
Post Holdings’ healthy cash flows allow it to undertake shareholder-friendly actions. Cash provided by operating activities was $272 million for the three months ended June 30, 2024. The company repurchased two million shares for $207.9 million in the third quarter of fiscal 2024. On July 30, the board authorized a new $500 million share repurchase program. These actions reflect the company’s confidence in future prospects as well as focus on rewarding its shareholders.
How are POST’s Estimates Trending?
Reflecting the positive sentiment around POST, the Zacks Consensus Estimate for earnings per share has seen upward revisions. In the past 60 days, analysts have increased their estimates for earnings per share by 6.1% to $5.95 for the current year and 1.4% to $6.30 for the next fiscal year. These estimates indicate year-over-year growth of 11.4% and 5.9%, respectively.
What's Hurting POST the Most?
Post Holdings witnessed softness in its Refrigerated Retail segment in the fiscal third quarter. Segment sales tumbled 7.1% to $214.4 million in the quarter due to a fall in volumes and average net prices stemming from increased trade promotions and a portfolio shift toward dinner sides. Lower net pricing and higher selling costs also led to a 37% decrease in segment-adjusted EBITDA.
Apart from this, Post Holdings is operating amid a challenging macroeconomic environment. The company is witnessing persistent inflationary pressures in areas like sugar prices and labor costs. Underlying inflationary pressure is straining consumer’s spending power. In addition, reduced benefit support among economically sensitive consumers is compelling shoppers to be selective with their purchases.
The company has also been grappling with the rapid increase in SG&A expenses for the last few quarters. In the third quarter of fiscal 2024, the figure increased 7.8% to $324.5 million year over year due to the inclusion of pet food and continued targeted market spending in retail operations.
The combination of inflationary pressures, declining consumer purchasing power and increased operational costs underscores the difficult landscape that Post Holdings must navigate in the near term.
Does POST Stock Look Attractive?
POST stock has been a strong performer, but its valuation remains a topic of debate. Currently, the stock trades at a premium relative to Post’s peers, with a price-to-earnings ratio indicating that its growth potential may already be factored into the price.
POST's forward 12-month price-to-earnings ratio stands at 18.32, higher than the industry’s ratio of 16.85. This suggests that investors are paying a premium compared to the company’s expected earnings growth.
How to Play POST Stock?
While Post Holdings’ strategic moves, solid financial performance, recent stock price performance and positive estimate revisions are encouraging, investors should weigh these factors against the risks posed by inflationary pressures and the elevated stock valuation. All said, existing shareholders should maintain their position in this Zacks Rank #3 (Hold) stock, while potential new investors might want to wait it out.
Stocks to Consider
Here, we have highlighted three better-ranked food stocks, namely The Chef's Warehouse CHEF, McCormick & Company, Incorporated MKC and Flowers Foods FLO.
The Chef’s Warehouse, a premier distributor of specialty food products in the United States, the Middle East, and Canada, currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
CHEF has a trailing four-quarter earnings surprise of 33.7%, on average. The Zacks Consensus Estimate for The Chef’s Warehouse’s current fiscal year’s sales and earnings indicates growth of 9.7% and 12.6%, respectively, from the year-ago reported numbers.
McCormick & Company, a global leader in manufacturing, marketing, and distributing herbs, spices, seasonings, condiments and other flavorful products to the food industry, carries a Zacks Rank #2 (Buy). MKC has a trailing four-quarter earnings surprise of 8.3%, on average.
The Zacks Consensus Estimate for McCormick & Company’s current financial year’s sales and earnings suggests a rise of 0.1% and 5.6%, respectively, from the year-earlier reported figures.
Flowers Foods, which produces and markets packaged bakery food products in the United States, currently carries a Zacks Rank #2. FLO has a trailing four-quarter earnings surprise of 1.9%, on average.
The Zacks Consensus Estimate for Flowers Foods’ current financial year’s sales and earnings implies growth of 1% and 5%, respectively, from the year-ago reported numbers.
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