Executives at Ralcorp Holdings remain confident about the future of branded cereal business Post, despite company-wide annual losses of US$187m.

Ralcorp is in the process of forming two companies by the end of January, Ralcorp’s core private-label arm and Post.

In September food manufacturer ConAgra had its third and final $94-a-share bid for Ralcorp rejected. In a move questioned by many industry watchers, Ralcorp refused to hold talks and maintained the split was the best way forward for the company.

But Post’s performance in the company’s full-year was lacklustre: branded cereal products’ profits dropped 7% to $206m.

However, Dave Skarie, co-chief executive officer and president, speaking to analysts Wednesday (30 November), says Post will improve after the split.

Bill Stiritz will serve as CEO and Chairman of Post following the separation and Skarie pointed to Stiritz’s track record in spin-offs, as well as the pedigree of other key management appointments.

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In October, the new Post management team undertook a review of the business and determined that additional strategic steps are needed to “stabilise the business and improve the competitive positioning of the brands”. The review also warned of reduced sales growth and profitability of certain Post brands in the near-term.

However, Skarie added: “One of Post’s best assets is its great brand name and I know that the Post management team looks forward to leading the company in a creative and adaptive manner to enhance shareholder value.”

Skarie also reiterated the projected benefits of the split, which he says will maximise value, create greater management focus and also improve Ralcorp’s ability to attract and retain employees and allow optimal resource allocation and capital deployment.

However, an analyst note from Sanford Bernstein states that Post could be earmarked for divestment following the split as it cannot compete with the likes of PepsiCo and Kraft, highlighted by a 5% drop in volumes, even though advertising spend jumped 58%.

It said: “Post Cereal really needs a home within a larger company, where smaller cereal brands can enjoy the kind of protection that they used to get from Kraft.

“Going forward, we suspect that volumes will continue to decline as the tail of smaller brands loses distribution and shelf space because these products simply can’t afford the $30-$40m budget for a national advertising campaign that juggernaut cereal brands enjoy.”

BB&T Capital Markets Equity Research lowered its full-year earnings per share estimate to $6 from $6.10 on the back of the results, describing Post as “problematic”. It was, however, positive about the private-label operation’s performance, as was Barclays Capital, which singled out pasta, sauces, spreads and snacks as top performers.

Kevin Hunt, co-chief executive officer and president, says private-label will continue to thrive, even if the faltering economy begins to steady.

He said: “As the leader in private-brand foods, we continue to be excited about the opportunities that exist in the private-brand or store-brand market. We think it is clear that during periods of economic weakness, store-brands will do very well relative to national brands.

“However, we have found that store-brands hold their shares and continue to grow even during periods of economic growth. We view a weak economic period as a time when the trial of store brands increases and then translates into a new long-term consumer, based on improved product quality, packaging, product assortment and the overall consumption experience.”

Hunt also outlined Ralcorp’s private-label acquisition plans. It has identified more than 50 companies that meet its acquisition criteria and could generate approximately $10bn in additional annual sales.