The agricultural revolution was a major turning point for the history of the human race. Developments in machines that helped harvesting, as well as large scale cultivation of crops meant that many more could be fed for the first time. In addition, prior to large-scale agriculture, many households were forced to engage in what was called “subsistence farming”. This meant that each household would have a small plot of land dedicated to raising crops or small amounts of livestock to help feed themselves.
Agriculture farming meant that food became cheaper, which meant it became more affordable. With this affordability came the option for subsistence farming to end, and the population could then work in other areas like transport, building and manufacturing.
But from the agricultural revolution to the early 2000s, food manufacturer businesses and companies stayed largely the same. The goal was to produce more goods for less, and sell them for as high a price as possible to the widest audience.
Post Holdings (POST) is one of the companies that has slightly changed this model, with an entry into the “value added” food sector. This point of difference has seen their share price rocket from below $35 late last year to $50 recently.
The question that options trading services have to answer is whether this is a high point or whether the stock can continue to trend upwards.
Understanding the Business
Post Holdings (POST) is a complex business in a relatively simple industry. The industry is one that researches, develops, tests and markets different food products for consumption in the consumer market.
Post Holdings is broader in its portfolio than most companies. For example, Kellogg’s focuses primarily on cereals and breakfast food. However, Post Holdings is involved in refrigerated dairy products, chilled fresh vegetables, egg products, cereals, snacks, dry pasta, snacks, spreads including peanut butter, nut and snacks, high protein shakes and powders as well as a range of nutritional supplements.
The company develops and sells these products through dozens of brands, including well-known ones like Crystal Farms, Musashi, PowerBar, Uncle Sam and Post Selects.
The company differentiates itself from its huge multinational competitors by investing heavily in value added foods and supplements. For example, their Musashi power bar range offers a convenient, portable and easy to store snack that is also high in protein.
This makes the bar popular among athletes and those looking to recover from intensive workouts. Similarly, other brands in the Post Holdings range add vitamins, minerals or “superfood” ingredients to help their products stand out on the shelves and create loyal customers.
Metrics and Measures
Post Holdings (POST) recently reported results for the quarter ended December 31 2014. The standout figures from that earnings release were net revenue of over $1 billion. The $1,073 billion revenue figure was a staggering 261% increase on the previous year.
Post reported their business results in three large business segments. Consumer brands which includes active nutrition as well as cereals, was responsible for over $347 million of quarterly sales, which was as strong 27% increase on the previous figure.
The Michael Foods Group incorporates the egg, potato and pasta businesses, as well as the retail cheese segment. In total, sales for this segment were largely steady at close to $600 million for the quarter. Cheese and dairy sales increased over 18%, which was a positive sign.
The private label division, which contains products including nut butters, and health snack foods was the smallest contributor to profit with $127 million in revenue, compared to $104 million previously.
For options trading services, a business like Post Holdings that has three large revenue generating “engines” is more attractive than a single division company, as the extra divisions are able to protect the company against a downturn in any one segment.
The Investment Case
The investment case for Post Holdings (POST) is interesting, as it is less like a food business and more like a research company with an important marketing segment. This is because the segment that Post needs to target is the premium mass-market segment.
Selling to this segment means that they still have to sell their products in high volumes, but only to those customers that are willing to pay more than the lowest price. In exchange for paying more than the lowest possible price, consumers who buy Post products expect better health benefits or other advantages.
For example, a regular muesli bar snack from another company might work out to $1 per bar. For a Post Musashi product, the cost might be closer to $1.50. To attract this price premium, Musashi protein bars advertise health, recovery and muscle gain benefits that attach to their product.
The goal for Post Holdings to grow their segment sales is identifying profitable niches that they can develop products for, then successfully market and promote them to capture a loyal customer base who will make repeat purchases.
Areas that they could consider could be liquid breakfast options, baby formula and smoothies and other chilled drinks. All of these options build upon the existing divisions of the company where Post has experience, and therefore reduces the risks that come from developing a new product.
Post Holdings (POST) is a food manufacturing company that has differentiated itself from large global competitors by targeting the value added food sector. If the company can maintain its customer base while at the same time expanding their portfolio of products to capture new customers in related areas of food and beverages their revenue and profits could continue to grow.
Acquisitions like the recent purchase of MOM Brands, will also drive revenue and profit growth. To find out about companies like Post Holdings who are leaders in their fields and trade them profitably, it is essential to have access to a high quality options advisory newsletter like Financial Markets Wizard.