Post Holdings Inc Chief Needs More Protein by Christopher Pavese, Broyhill Assset Management, The View from the Blue Ridge

Last week, we took a look at William Stiritz and how he produced a track record worthy of Outsiders fame. While many of the Outsiders are no longer among us or have been so successful as to be almost universally associated with investment acumen (we’re talking to you Warren Buffett), some continue to work their magic in relative obscurity.

Our Ralston Purina story, A Public LBO, concluded with the company’s sale to Nestle in 2001.  But the action didn’t stop there.  In 2007, Ralston Purina acquired Post Holdings from Kraft Foods and folded it into the Ralcorp division, which had a history in the branded cereal business. After Ralcorp itself was spun off from Ralston Purina in 2011, Post Foods was spun off by Ralcorp in early 2012. Enter Mr. Stiritz.

There is nothing sexy about breakfast cereal.  The business has been in secular decline for some time, although we believe the trend is more like a slow bleed than a death blow (it’s entirely possible that I am biased by recent experience watching Lucca pound a box of Cheerios per week).

Protein Post Holdings

Despite Lucca’s growing appetite, Stiritz took the reins at Post Holdings Inc (NYSE:POST) with an eye toward the new trends shaping modern breakfast and began a rapid transformation of the company, guided by Buffett’s timeless advice:

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

Stiritz identified changes taking place at the breakfast table. First and foremost is the shift towards higher protein diets (which coincidentally has been accompanied by new haircuts, popped collars, muscle milk and Jägerbombs).

The second factor transforming breakfast routines is increased mobility of families during the morning hours. Gone are the days where many families sit down for a quiet breakfast before skipping off to school. Families today are much more likely to grab a breakfast bar as they sprint out the door or slow down just enough to grab a McGriddle through the drive-through window on the way to the office.

Last but not least, a growing portion of consumers are moving to healthier options, including gluten-free, organic, and non-GMO foods.

Since the spin-off, Stiritz has moved quickly to position the company for these shifting dynamics through an aggressive acquisition program. Post Holdings Inc (NYSE:POST) has completed half a dozen deals in under two years, paying reasonable multiples of 8-10x cash flow and transforming the business from a stale cereal manufacturer to a diversified portfolio with a much improved organic growth profile.

Protein Post Holdings

……………………………………….

Protein Post Holdings

Full

The View from the Blue Ridge