Ralcorp Reports Profits Tripled in Fourth Quarter

Post, Wal-Mart Played Important Roles in Gains

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CHICAGO (AdAge.com) -- Cereal is looking like one hot commodity. Ralcorp Holdings, the private-label manufacturer that in August acquired Post Foods from Kraft, reported that fiscal fourth-quarter profits more than tripled, to $68 million, from $21 million a year ago. The company pointed to its new name brands for the business boom.
Ralcorp, which recently acquired Post Foods from Kraft, has taken up TV advertising work for its top-selling Honey Bunches of Oats.
Ralcorp, which recently acquired Post Foods from Kraft, has taken up TV advertising work for its top-selling Honey Bunches of Oats.

Ralcorp has become a darling among analysts because of its low-priced private-label business, as well as for the strength of the Post brand. "The company's language in its outlook sounds a lot more bullish than it has been in the past," Credit Suisse analyst Robert Moskow wrote in a research note.

Help from Wal-Mart
Mr. Moskow also noted that Wal-Mart must have played an important role in Ralcorp's gains, as AC Nielsen had reflected "weak results in mainstream grocery." Prior to earnings, he expressed concerns about the Nielsen sales data, which showed a 7% decline in Post sales. Wal-Mart sales, he said, seem to be offsetting the problem. (Package-food companies, Kellogg in particular, have expressed frustration about metrics being used at independent organizations such as IRI. One of the key problems with the data is that Wal-Mart sales are excluded.)

Ralcorp had no accompanying earnings call with its report.

Ralcorp also raised 2009 guidance, now to within the upper range of 44 cents to 68 cents. The company had originally forecast full-year earnings on the lower end.

"We continue to believe that the company's private-label business is well-positioned to capitalize on the trend in consumer spending toward lower-priced items," Mr. Moskow wrote in a separate research note. "We also have a high opinion of management, and we think the team will successfully integrate Post cereal business over time."

Cereal strong
Kellogg and General Mills, leaders in the name-brand cereal category, have also reported strong earnings this year. Both companies have stressed the recession-proof nature of their businesses and the importance of stepped-up marketing. As consumers eat more meals at home, they're enjoying the benefits of top-of-mind status. And cereal is gradually working its way into more mealtimes, thanks in part to programs such as the Special K Challenge, which encourages dieters to eat two meals of cereal each day for two weeks.

While many marketers mourned the Post brands' passing to Ralcorp a year ago, assuming that advertising would cease, the new owners have taken up TV advertising work for its top-selling Honey Bunches of Oats. The campaign is handled by Ogilvy & Mather, New York.
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