Ralcorp Posts a Disappointing Quarter
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The food industry has been suffering from cost inflation of its ingredients. Thus, it was no surprise that packaged food provider Ralcorp Holdings (NYSE: RAH) came out with its disappointing results. The results failed to please Mr. Market and Ralcorp’s shares fell drastically after the news. Let’s take a deeper look inside the company and its recent performance.
Into the Numbers
Increases in selling prices of the products and higher volumes made revenue move up 16%, reaching $1.06 million over the prior year’s quarter. The acquisition of Sara Lee Corp’s (NYSE: SLE) refrigerated dough business this year gave a push to the volumes, thereby increasing revenues. Had it not been for the acquisition, Ralcorp’s volumes would have declined in the quarter. However, earnings in the quarter plunged 69% to 46 cents a share. The acquisition related costs of Sara Lee’s unit and amortization of intangible assets took a toll on earnings. Another negative factor which played a key role in bringing down the EPS was the cost related to plant closures. The closures in the Cereal products segment and the Snacks segment led to losses. Even if we exclude one time charges and consider only the adjusted EPS we find that it dropped 4% to 72 cents. The effort of passing the higher commodity costs to the customer in terms of higher prices proved to be unfavorable for the company since it led to a decrease in volumes, excluding the affect of acquisition of Sara Lee’s business.
The frozen bakery product segment witnessed a lot of restructuring and revenue from the segment increased by an impressive 43%. Factors such as additional sales from refrigerated dough and product launches played an important role here. Also, higher prices drove sales north. With the acquisition of Annoni, revenues from the pasta segment surged by 11%.
Some Shuffles in the Kitty
With so many acquisitions already in its kitty, Ralcorp has acquired yet another one in order to enhance its product offerings and to expand its customer base in cookies. The acquisition of Petri Baking Products was completed by the packaged food giant just a week ago so as to complement its cookies offerings which will be reported in the Snacks and Spreads segment of the company. This is expected to boost the sales of the segment.
Acquisitions are not the only strategy the company is pursuing. It has also spun off its cereal business under the brand name of Post so that it can concentrate more on its core business. The company plans to make Post operate independently without any support from Ralcorp.
Though the company did not perform very well, its efforts to restructure itself has increased its top line for the quarter. The company’s strategy of acquiring the refrigerated dough business helped results this time and is also expected to further enable the company to grow. Since the cost was expected to increase for the quarter which indirectly affected revenues, the company can manage to grow its bottom line in the quarters to come.
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