Post said it continued declines in US cereal sales would prompt a "reaction" from companies on costs

Post said it continued declines in US cereal sales would prompt a "reaction" from companies on costs

Post Holdings, the owner of US breakfast cereal brands Grape Nuts and Honey Bunches of Oats, said today (25 November) it is preparing for sales in the sector to decline again over the next 12 months.

Recently-appointed CEO Rob Vitale said the US group expects the US ready-to-eat breakfast cereal category to decline 4%, continuing the slide seen in recent quarters.

Speaking to analysts after Post reported annual losses of US$358.6m - in part due to impairment charges on its cereals business - Vitale said the sector as a whole may have to reassess its cost structure if the decline in the sector continues.

"If the category rate of decline is in the 2-4% range then that will add excess capacity and require a reaction to that," Vitale said. "We're not prepared to say today what that reaction may be because we want to let some of that time develop and see that rate of decline and hopefully that rate of decline changes."

However, he added: "If the category continues to decline at that rate, it will require a reassessment of the cost structure, some of which may occur through consolidation and some of which may be self-directed."

Post is in the process of closing a plant in Modesto, savings from which Vitale said will contribute to its cereal division maintaining its profitability in its new financial year. In the 12 months to 30 September, adjusted segment EBITDA from the company's Post Foods cereal business was $238.3m. 

The group expects flat EBITDA from Post Foods despite some pressure on sales in the early months of the new fiscal period.

Alongside its annual results, Post provided some guidance for the first quarter of the new year and said its ready-to-eat cereal net sales are expected to be between $15-20m lower than the first quarter of 2013/14.

"I think there's probabaly some pull forward of inventory from October to September. Our consumption in October was very high and we are seeing some softness in the shipments. It does appear that there's some reductions in inventory at retail that should bode well for shipments going forward. Whether that's immediate or longer-term is hard to tell right now," Vitale said. "We have some levers to pull, we have some costs already baked into the plan that gives us reason to believe on an EBITDA level, even with some volume decline, we can maintain a constant position throughout the year."

Vitale said Post, which accounts for 11% of breakfast cereal sales in the US, some way behind Kellogg and General Mills, can gain market share, as, he said, the business did last year.

"We gained share and we expect to gain this year. We are not surrending the progress the team at Post Foods has made [but] we are looking at the category on a more cautious basis."

Check back tomorrow for an analysis of Post Holdings' overall performance and the prospects for business that has rapidly expanded through acquisitions in the last two years.