Post Holdings Inc: How POST Slaughters Its Competition

Post Holdings Inc (POST) is a 119 year-old company that was started by C. W. Post in the late nineteenth-century. He has since been credited as the investor of ready to eat cereal. His first brand? Grape-Nuts.

Post Holdings Inc:  How POST Slaughters Its CompetitionSince then, the company has grown its original business as well as kept up with the changing breakfast times. To be a leading food company for over a century, given the changes in lifestyle and eating practices is very impressive.

But what’s more impressive is POST’s recent earnings numbers. They were huge.

Earnings beat estimates by roughly 100%. Gross profit was up 48% and net profits tripled. Revenue grew 20%.

Those are amazing numbers, given the sector it operates in and the tight margins in the food business. Remember, food of any kind has to be handled according to strict state and federal law and spoilage is a constant foe to sales.

Generally, you see solid, steady returns from a company like POST, not tech stock kind of returns.

And I’m not saying I expect this type of out-sized growth to be something Post Holdings can hit every quarter.

What’s in Store for POST?

What I am saying is that POST has turned the corner on finding the right mix of products for customers in the twenty-first century. Its MOM Brands division makes food for Weight Watchers International, Inc. (WTW), which means it has a solid customer base with very high margins on its products.

It has also moved into the organic and non-GMO space with its Golden Boy and Attune Foods groups.

And what is most attractive is the fact that this is a sustainable business model because while it has its cereal brands, it also has massive private label contracts for its business groups.

That means it doesn’t have a layer of sales and marketing people to keep every brand in front of the consumer, fighting for shelf space or having to move prices around to attract sales. It simply produces, say peanut butter that it sells to a grocery store or some other private label that then has to do the selling and marketing.

This is the kind of business you gravitate toward when you’ve been around a century and have seen plenty of ups and downs in the economy.

Also, because POST has rock-solid price points, it can continue to draw customers. In a weak economy, such as the one we’re in, people will gravitate toward private labels instead of paying a premium for name-brand goods. They also will gravitate toward comfort products, like the cereal they ate when they were kids.

This is the strength of POST’s integrated strategy.

And after several incarnations as a bigger player in the sector, its current market cap of $4 billion makes it almost 7x smaller than Kellogg Company (K) and 8x smaller than General Mills, Inc. (GIS). That has allowed it to stay nimble and manage its business much closer to the ground than its larger rivals.

Proof of that is the fact that it nearly quadrupled (or more) the returns of its rivals in the last 12 months: POST stock is up a whopping 70% compared to K’s 18% and GIS’ 13%.

And the best thing is, Post Holdings will be even stronger now that its acquisition of MOM Brands last year has worked its way through the earnings. This is already a top growth area at POST, and coming quarters should look even better.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip Growth, Emerging Growth, Ultimate Growth, Family Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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