Post Holdings' incoming CEO Nicolas Catoggio has outlined a cautious stance on pricing as the company navigates cost inflation stemming from the Middle East crisis. Catoggio, who takes over from Robert Vitale in October, spoke on the company's second-quarter earnings call about how Post will weigh its response to rising costs.
Low inflation may mean cost absorption
If inflation stays in the low-single-digits, Catoggio said Post and other consumer packaged-goods companies are more likely to absorb costs within their profit margins rather than raise prices. "If it is in the low single digits, I think we will see more of CPGs trying to absorb that within their P&L and that could be in the form of maybe lowering promotional intensity," he said. Post is currently seeing cost impacts mainly in fuel and packaging, according to CFO Matthew Mainer, who indicated the company's base assumption is that the crisis will persist through Post's fiscal year ending September.
Pricing risks illustrated by recent stumbles
Catoggio pointed to two recent examples of pricing missteps to illustrate the risks of raising prices too aggressively. On 9Lives, Post's pet-food brand, the company raised prices on a third of the portfolio and encountered higher price elasticity than expected, resulting in lost distribution at some retailers. In the second quarter, 9Lives' dry dog food segment, which makes up 60% of Post's pet portfolio, saw pound volumes drop 4%.
The company also struggled with a price increase on Grape-Nuts breakfast cereal less than a year ago. Post initially rolled back those price increases in the short term, then addressed the problem through price-pack architecture changes. The brand has since recovered, growing at 40% in pounds in one of Post's larger retailers.
Private label as a hedge
Post's Consumer Brands division holds a strong position in private-label cereals, granola, and peanut butter, which gives the company pricing flexibility. CFO Mainer noted that in the UK, where Post owns Weetabix, private label represents more than 40% of the company's cereal market. Having both branded and private-label offerings at different price points "gives us a competitive advantage and inroads with retailers," Mainer said.
Larger moves remain on the table
Mainer also signaled openness to portfolio separations, which some larger US peers have pursued. "We continue to see some of our larger competitors talk about maybe separating portions of their portfolio," he said. Post continues to evaluate all options but sees smaller, synergistic acquisitions as easier to pursue. Mainer added that the company's share price trading at a high implied multiple remains a barrier to larger moves.