US breakfast cereal firm Post Holdings has insisted its work to make its business more “reliable” are starting to show despite mixed first-half results.

Post Holdings yesterday (13 May) posted lower half-year profits but increased sales. In the wake of the results, Post’s shares fell more than 5%.

Speaking after the numbers were published, president and CEO Terry Block said Post’s “strategies” to “lay down the foundation for reliability, operating cash flow and growth” were “beginning to materialise”.

The company reported a 3.3% rise in net sales for the six months to the end of March as higher volumes offset a fall in average selling prices. Block, citing Nielsen data, said ready-to-eat cereal sales fell 1.6% in the period.

Post’s market share fell 0.1% year-on-year in the second quarter to 10.5% but increased by 0.1% percentage points compared to the first quarter, Block said, after product launches and increased in-store promotions.

The company’s higher net sales in the first half of the year compared to a fall in the second quarter. Post said sales in the second quarter were affected by retailers building up inventories in the first quarter on the back of the company’s new product launches. Second-quarter volumes were up 3% but that compared to a 5% increase in the first quarter of Post’s financial year.

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During the second quarter, Post said the volume performance of its brands were mixed. Volumes of Great Grains and Grape Nuts were up but Honey Bunches of Oats and Pebbles saw volumes fall. Post cited “increased competitive promotional activity” and distribution losses after “a weak line extension”.

Barclays Capital analyst Andrew Lazar said the company’s volumes in the second quarter “remind us that, perhaps not surprisingly, Post is still a work in progress”.

In a note to clients today, he wrote: “Seven per cent volume declines in the company’s largest brands are clearly not sustainable over the long-term.”

With the lower volumes from Post’s largest brands, Lazar said the company’s “less prominent” brands had been behind the increase in second-quarter volumes and added: “We believe incremental third party manufacturing contracts likely provided a substantial boost to volume in the quarter. We suspect investors will be a bit less enthused with this, particularly given the more volatile nature of co-manufactured sales relationships as well as a lower gross margin relative to Post’s branded offerings. And, given seasonality in the business, we would expect the contribution to be less impactful going forward.”

However, the Barclays Capital analyst said Post’s second quarter “was more about gaining incremental distribution behind the Honey Bunches of Oats Greek Yogurt line extension”, which he said could boost the company’s top line. An ad push, he said, also improved shipments of Honey Bunches of Oats. “As such, it would appear Post is carrying a bit of momentum into its fiscal 3Q, which could augur well for back -half results.”

Post reported a 3% fall in second-quarter gross margins amid lower selling prices, higher grain costs and the impact of increased co-packed sales. The company also incurred higher trade spending behind new products.

However, Lazar argued margins would be less affected by trade spending in the months ahead with Post’s “most significant innovation” occuring in the first half of the year.

He added: “While fiscal 2Q results were disappointing in an absolute sense, the good news, in our view, is that fiscal 2H results should more closely resemble fiscal 1H overall, rather than specifically the fiscal second quarter (and perhaps show a bit of improvement, all-in).”