Welcome to Post Holdings Third Quarter 2019 Earnings Conference Call and Webcast. Hosting the call today from Post are Rob Vitale, President and Chief Executive Officer and Jeff Sadox, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 12 pm Eastern Time. The dial in number is 800-585-8367
and
It is now my pleasure to turn the floor over to Jennifer Meyer, Investor Relations of Post Holdings for introductions. You may begin.
Good morning, and thank you for joining us today for Host's Q3 2019 earnings call. With me today are Rob Vitale, our President and CEO and Jeff Stedix, our CFO. Rob and Jeff will begin with prepared remarks and afterwards, we'll have a brief question and answer session. The press release that supports these remarks is posted on our website in both the Investor Relations and the SEC filings at postholdings.com. In addition, the release is available on the SEC's website.
Before we continue, I would like to remind you that this call will contain forward looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. These forward looking statements are current as of the date of this call and management undertakes no obligation to update these statements. As a reminder, this call is being recorded and an audio replay will be available on our website. And finally, this call will discuss certain non GAAP measures. For a reconciliation of these non GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website.
With that, I will turn the call over to Rob.
Good morning. Thank you, Jennifer, and thank you all for joining us to review our quarter. We had a solid quarter and I will hit the key themes shortly. I want to begin with our outlook, which we now estimate to range between 1.205 $1,215,000,000 Using the midpoints of our guidance, we entered Q3 with a second half expectation of $629,000,000 with a cadence skewed to the 4th quarter. Our revised best estimate for the second half is a midpoint of $619,000,000 but the cadence flipped in favor of the 3rd quarter.
With respect to the cadence change, the vast majority resulted from a pull forward of large orders in our Active Nutrition segment This pulled forward about $5,000,000 in adjusted EBITDA. The $10,000,000 decline in the second half midpoint estimate is driven by a number of modest contributors. First, 2 of our smaller businesses are incurring commodity headwinds totaling $4,000,000 to $5,000,000 We expect this to be transitory, but it has persisted longer in 2019 than expected. 2nd, the weakening of the pound to dollar exchange rate has added $2,000,000 to $3,000,000 of pressure on excellent Weetabix results. And finally, across the segments, minor revenue misses and cost hits offset by some opportunity realization netted another $5,000,000 of EBITDA reduction.
These costs are not systemic, but require tighter execution, particularly around our refrigerated supply chain. Post consumer brands had a solid quarter. Consumption performance faced challenging comps as we lapped strong merchandising support and chose not to repeat certain low ROI promotions. Nonetheless, consumption dollars relatively flat in tracked channels and our branded market share reached 20.8%. Although moderating, shipments continued to lie consumption.
We had gross profit growth of nearly $8,000,000 but we chose to invest incremental gross profit in brand building and consulting expense oriented towards a comprehensive overhaul of our planning process. This is aimed at delivering a more profitable mix at the best cost. We expect the effort to produce modest benefits to 2020 and become more meaningful over time. Michael Foods had a terrific quarter with strong volume growth across products and channels. Synergy execution across foodservice and refrigerated retail businesses remain well on track.
We expect to exit fiscal 2019 achieving approximately 60% of the synergy target on a run rate basis. I want to go a bit deeper than usual in refrigerated retail. We think of this segment as side dishes, both Bob Evans and Simply Potatoes secondly, liquid eggs and finally, our more commoditized categories of cheese, sausage and shell eggs. Our side dish business continues with exceptional growth. We have lots of confidence in the potential for these brands.
Our liquid egg business needs renovation and innovation. We have developed a new R and D strategy to leverage Michael's technical prowess and Bob Evans' retail strength, and we expect this to bring new energy to the category. The balance of the segment, cheese, sausage and shell eggs, is approximately 1 third of the segment and is declining as a percentage of the segment. As I mentioned, we see $4,000,000 to $5,000,000 of transitory headwinds for this portion of the business during the second half of the year. Side dish manufacturing is currently underperforming as we transform it.
Essentially, we are converting Bob Evans from a made to order system to a made to forecast system. This involves an IT migration for legacy Bob Evans plants. There are growing pains, but it will improve our customer service, ability to support innovation and margin. We expect the benefit to develop in 2020 and be fully realized in 2021. Weetabix delivered great performance this quarter with meaningful growth in pound sterling sales and adjusted EBITDA.
However, currency impacted the top and bottom line growth rates by approximately 600 basis points. Brexit preparations are gearing up again during fiscal Q4. We expect to rebuild working capital ahead of the new deadline of October 31. This includes modest incremental cost around additional storage and inventory builds. The impact of Brexit on us is mostly reflected in currency translation.
We calculate adjusted EBITDA on an average spot basis. However, approximately 60% of the free cash flow we expect to repatriate over the next 2 years is hedged at a rate of 1.46 pounds sterling to U. S. Dollar, well above the current spot rate. Active Nutrition had an excellent quarter with strong shake consumption growth of 16%.
All flavors returned to the shelf and market share in tracked channels reached 18%. Total distribution points have recovered at nearly all major customers and reached 95% of their previous high. During the quarter, shake inventories and safety stock reached desired levels. We now have adequate capacity to meet our near to medium term growth forecasts. During this capacity transition, we have learned leaned into margin over sales growth.
With capacity now online, we can more aggressively reengage demand building efforts. Looking forward, recall I commented on $5,000,000 of EBITDA pulled forward from the 4th to the 3rd quarter. Coupled with the typical historical cadence of a lower 4th quarter, this will result in a sequential decline. I encourage you to evaluate the business based on a year to date performance rather than simply Q3 as a run rate. Regarding the upcoming IPO, we have submitted an amended S-one and remain on track for a fall execution.
We will provide updates as the process unfolds. You likely saw our press release that pending an FTC review, our acquisition of TreeHouse's private label cereal business has been delayed. While we are disappointed, we remain committed to the transaction and expect a reasonably timely resolution. To wrap up my comments, I would observe that 2019 looks to end very much in line with our long term value proposition at essentially the midpoint of our initial guidance. Our cash generators generated cash, our growing businesses grew and at the midpoint of our estimate, we will have grown adjusted EBITDA in excess of 5%.
That means a perfect year, we have plenty to improve upon, but I am generally quite pleased with the resilience of the business and we continue to be well positioned to execute against strategic opportunities as they develop. With that, I will turn the call over to Jeff.
Thanks, Rob, and good morning, everyone. Our adjusted EBITDA for the Q3 was $315,000,000 with consolidated net sales up nearly 3% year over year on a pro form a basis. Starting with Post consumer brands, net sales and volumes increased 1.7% and 0.4%, respectively. Average net pricing improved 1.3% by unfavorable mix primarily resulting from private label volume gains. Branded volumes were pressured as we lap significant promotional support and new product introductions last year.
Segment adjusted EBITDA was flat compared to prior year. Manufacturing performance improved as we lapped elevated cost in prior year. However, this was offset by higher investment in advertising and consumer spending and incremental consulting expenses. Pricing fully offset year over year systemic inflation in commodities, freight and wages this quarter. Gross profit margins improved compared to prior year and were flat compared to Q2 with conversion costs improving sequentially.
We expect conversion costs to continue to improve, albeit at a level higher than performance levels achieved last year due to wage inflation and mix changes across the manufacturing network. Weetifix net sales increased 1% over the prior year despite an approximate 600 basis point headwind from currency driven by the weaker British pound. Average net pricing increased 11% year over year as we continue to lap our promotional strategy reset. Although segment volumes declined 3.4%, core Weetabix branded volumes grew year over year for the first time since the Q2 of fiscal 2018. This growth as well as growth in private label biscuit volumes was offset by declines in exports and non biscuit products.
Adjusted EBITDA grew in line with sales as the favorable price volume impact was partially negated by greater investments in brand building. Net sales in the Foodservice segment increased 3% with volumes up 2.7%, driven by robust growth in both egg and potato products. Volume growth reverted to our long term algorithm following a slowdown in 2nd quarter growth stemming from weak QSR foot traffic in January February. A favorable price cost relationship, volume growth, a greater mix of foodservice versus ingredient volumes and synergy realization drove year over year adjusted EBITDA growth of 24% for this segment. Additionally, results benefited from lapping $3,500,000 of repair expense and margin on lost revenue resulting from precooked egg manufacturing disruptions in the prior year.
It's worth observing that our foodservice egg profit performance was strong despite low egg market prices. This reinforces our conviction in the reliability of the Michael Foods pricing model in various market conditions. Refrigerator retail net sales decreased 3%, an 8.4% increase in side dish volumes was more than offset by volume declines in other products and lower average net selling prices in eggs. Bob Evans branded side dishes had great growth this quarter with volumes up 17%, driven by strong velocities, distribution gains and a change in Easter timing. For the year to date period, Bob Evans branded side dish volumes grew 13%.
Segment adjusted EBITDA was pressured by unfavorable price cost relationships within the more commodity exposed product categories, including sausage, cheese and shell eggs. Additionally, higher side dish manufacturing costs weighed on results this quarter. Net sales in our Active Nutrition business increased nearly 10%. Ready to ring shake net sales grew 19% with volumes up 13%, driven by strong velocities and in part a pull forward of orders to the 3rd quarter from the 4th quarter. Adjusted EBITDA for the segment grew 32.5 percent benefiting from higher volumes, pricing and lower advertising and marketing expenses.
Recall the quarterly margins in this section in this segment fluctuate significantly depending on the timing of promotional activity and levels of marketing spending. For the Q4, we expect greater investment in our promotional activities and marketing programs when compared to the 1st 3 quarters of the year. As a result, we expect 4th quarter adjusted EBITDA margins for Active Nutrition to revert back to historical norms of high teens to low 20s. We open up the call for Q and A, I would like to make a few comments on cash flow and capital transactions. For the 9 month period in fiscal 2019, our cash flow from operations was approximately $505,000,000 with $300,000,000 generated in the 3rd quarter.
As we expected, this was a significant improvement from the Q2. The improvement resulted from the timing of interest payments, a slight decrease in working capital and sequential growth in performance across the business. Regarding capital markets transactions, during the Q3, we repurchased 200,000 shares at an average price of $103.83 per share for an aggregate of $23,000,000 This brings our total share repurchases year to date to approximately 900,000 shares for $89,000,000 Our remaining share repurchase authorization is approximately $219,000,000 Our net leverage at the end of the 3rd quarter as measured by our credit due December 2029. This was an opportunistic issuance with cash going to the balance sheet and had no impact to net leverage. With that, I would like to turn the call over to the operator for questions.
Operator?
Thank you. Our first question comes from the line of Andrew Lazar of Barclays.
Hi, good morning everybody.
Good morning, Andrew.
Hi. Two questions for me, if I could. First would be, thanks for the additional color on some of the full year guidance changes and things. And as I think about it, it's not unusual for Post to sort of clarify and tighten the range on its fiscal 3Q call. I guess what's a little different about this one is it kind of comes on the heels of having done something similar about a month ago.
So I guess I want to make sure I understand what might have changed since you tightened the range a couple of weeks back and were those things that you couldn't see at that time Or what changed in the interim? And what does that say or not about sort of the visibility that you've gotten into the business at this point? And then I've just got a follow-up.
Sure. The biggest single contributor would be the reduction in the pound sterling that's between $2,000,000 $3,000,000 We had a delay in a cheese opportunity from Q4 into fiscal 2021. We have a bit more persistent weakness in shale egg prices for the very small shale egg business we have, but in the course of a quarter contributes a couple of $3,000,000 And then we've had the lingering underperformance in the refrigerated supply chain that we frankly made some decisions to move more fundamentally, but slower to fix, I. E. Making more comprehensive IT transition just say is that roughly 40% of the period in time in question between when we gave guidance to year end has now passed.
And you look at the probabilistic assessment of a range. And we simply felt like given the amount of time that has passed and looking at some of the changes in commodities and upside, downside and realizations that the high end of that range was no more was not currently likely. So we wanted to bring a bit more conservative perspective on the outlook of the year.
All right. Thanks for that. And then I guess more important, I realize it's certainly too early to go into any specific guidance for fiscal 2020. But I guess I'm just trying to get a sense of some of the things that you mentioned just earlier. Are any of those or some expected to be issues as we think about fiscal 2020?
And I asked because obviously consensus is looking for another solid year in terms of EBITDA growth next year. And there's incremental Bob Evans synergies, you'll have the new value added EGGUS facility up and running, the likelihood the ready to eat, other ready to eat cereal deal with TreeHouse. And so there are a number of things that certainly we could see that sort of in theory break your way. I want to make sure I've got those right. But then are there any other things worth calling out even just directionally as we think ahead either more positive or on the other side that we need to keep in mind at this stage?
Thank you.
No, I would say it's largely steady as she goes and I will call out 2 things largely, well, entirely beyond our control. The Brexit uncertainty as it relates to EBITDA translation and I want to stress this is accounting over economics. We translate the current earnings on a spot basis. But as we actually repatriate them, we repatriate them under a cross currency swap at a much higher level than current spot rates. But we aren't going to even begin to try to guess what's going to happen in terms of the pound market.
Our long term thesis, of course, is that once we get past the noise, it will mean revert. But what is going to happen early in fiscal 2020 is anybody's guess. The second, of course, is resolution around the FTC review. We are actively engaged in responding to it, but we wouldn't want to try to guess exactly when that would be resolved.
Okay, great. Thank you.
Thank you.
Our next question comes from the line of Jason English of Goldman Sachs.
Hey, good morning folks.
Good morning.
Thank you for letting me ask a question. I guess I'm going to zoom into your Acton Nutrition business, if I could.
Could we start with just an update
on where you stand with the IPO plans? What the timeline looks like? What should we what we should expect in the next couple of months?
From a process and regulatory perspective, we're quite limited in what we can say around that. But what we can say has gone quite well. We expect to come to market, as we said previously, early in the fall, that's either right before or right after our fiscal year. And I think as the calendar is shaping up, it's more likely to be right after the fiscal year. And that, of course, is
pull forward? Can you quantify the sales pull forward from the Q4 to Q3? And then, in the press release, you highlight some challenges on the bar side of that business and we certainly see that in the consumption data. Can you remind us what the portfolio mix is there? And how we should think about net growth all in with those drags going forward?
Is this sort of year to date mid single digit run rate, which looks sort of fairly consistent what we see in the measured data, what we should expect? Or is there a glide path back to more robust growth?
So in terms of your first question, we don't have the exact number top of mind on revenue, but generally speaking, there's about a 25% flow through, so call it $20,000,000 broadly. In terms of your second question, the business is largely there's 3 businesses embedded within our Active Nutrition segment, Dymatize, which is on an annualized basis, roughly $120,000,000 of revenue, flattish to modestly growing, largely powders and bars, not so much in tracked channels, so probably not what you're picking up. The vast majority of the business is ready to drink shakes and I'm going to throw out a roughly 80% number. In terms of the revenue, that's where all of the growth is. We frankly competitive position.
We're pricing mostly in the value segment of the bars. We really think the future of the business is in beverages, and we continue to expect that sales growth will be double digit sales growth. And once we go through a period of reengaging our marketing spend, margins will follow in line with sales growth.
Thank you. Very helpful.
Thanks, Jason.
Our next question comes from the line of John Baumgartner of Wells Fargo.
Good morning. Thanks for the question. Good morning, John.
Rob, wanted to touch on the foodservice side. Last two quarters, you've seen some nice margin expansion there and maybe stronger than we would have thought given that pricing doesn't appear to
be all that meaningful and there's been
some cost headwinds as well. Can you dig into that a bit more in terms of supportive factors? Is it mix? Is it predominantly cost synergies from Bobby? What's driving the strength there?
Yes and yes. I would say Michael is a business really firing on all cylinders right now. The management team is doing an extraordinary job. Our cost is good. Our mix is good.
We've done an exceptional job of executing against the Bob Evans synergies. So I frankly don't have a whole lot to add to the way you answered the question you posed the question because I think you highlighted those issues.
Okay. And just thinking through Weetabix, pricing there is also pretty strong. Is that still geared largely towards that reprogramming effort with the consumer? Is it more kind of trying to recoup some of the FX impact there? I guess what's kind of driving that?
And how's the elasticity holding up going forward, do you think?
So the first part of your question, it's the former. It's the final lapping of the work we did on resetting the promotional strategy. The planning was begun in January of 'eighteen, This is all local currency pricing that we're communicating. So then we're translating it back and filtering out the impact of FX. And elasticities have been responded extremely well.
I would say I think it's the flip side of the problem that originally was created is that when promotional pricing got too aggressive, there wasn't a volume expansion and when it pulled back, there wasn't a significant volume retraction.
Great. Thanks for your time. Thank you.
Our next question comes from the line of Chris Growe of Stifel.
Hi, good morning.
Hi, Chris. Hi. If I just go back to just a point on active, if there was a $20,000,000 sales pull forward, it would suggest that sales were largely flat in the quarter. I know you were rebuilding distribution and that obviously even with the declines in bars has been good, at least measured channel growth overall. Just thought I'd get a little more color from you on the sales performance of Active, therefore, excluding that factor?
No, I think you're quite right. And with the capacity constraint, the focus in the media term has been making sure that we were able to fill the stable demand going into the We did see some declines outside of the shake business and now we would expect to and the flip side of that is that we had a better margin structure because we weren't doing much to drive demand. Now the flip side of that will be true and we expect to reaccelerate sales growth with some pressure on margins. So it's the other businesses within that, that's maybe dragging down what looks to be some pretty good shake growth, is that consumption growth that is? Correct.
The consumption in shakes has remained very strong at 16%. Okay. And then just a question for you on, I guess, Refrigerated Retail and some of the items you noted about the IT system and the processes and all that. Are we talking about incremental costs there? Or is this a weaker sales performance?
Or how does that manifest in the P and L, if you will, whether that's in the Q4 or in 2020? So it's not weaker sales performance. And let's take it piece by piece. The side dish business has grown exceptionally well double digits across the portfolio. The liquid egg business is relatively flat.
And then where we have had some volume weakness is predominantly in our cheese business. And as I egg business, that retail being very, very small. And I'm sorry, I should be more specific, retail shell egg. We have a strategic liquid egg business and a non strategic portion of that portfolio. The challenge essentially and we've talked about this in some of our meetings that we were going to make a determination as to how far to lean into integrating the supply chains between Michael and Bob Evans because they share a base product mix.
The Bob Evans planning architecture was more of a made to order structure. So they didn't have a sophisticated demand forecast that then implicated a production plan and built inventory. So it's much more complicated customized orientation. We've made the decision to invest in mostly in IT so that we can move the Bob Evans process to more of a made to forecast model. And in terms of your question about the P and L, it's mostly capital flowing through IT.
There will certainly be some consulting and there will be some execution costs, but that will then ultimately expand the, if you want to call it, synergy or cost reduction, I think that's largely semantics, opportunity on the refrigerated retail side as we get a better margin structure, better mix and better customer service. Is the EBITDA weakness this quarter then the capital? Is that or is that Throughput costs. The factory, particularly the potato factories, are doing a fine job keeping up with volume requirements, but the cost is higher than it should be.
Okay. Thank you.
Thank you.
Our next question comes from the line of Bill Chappell of SunTrust.
Thanks. Good morning.
3. 1. 1. 1. 1 1.
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I'm sorry, our next question comes from the line of Tim Ramey of Pivotal Research Group.
Thanks. Did the call just go offline for a few minutes or was that me? Hello? Hi, it's Tim. Can you hear me?
Hello? Yes, I can hear you, sir. Go ahead.
Okay. Let's see. Couple of questions. One, I'm holding in my hand a bottle of Premier Protein Clear and wondering about how widely that is rolled out and how successful that's been? And second, I certainly knew that shell eggs were not they were commodity, but I wasn't sure that they were non core.
Are you saying that they're non core at this point?
Bye. On 1. It. Okay. 1.
1. 1 Okay. Okay.
Hello, operator?
Is anyone still on the line?
I am. It's Tim. Tim.
I don't know if it's just us, Tim, but why don't you go ahead and ask a question and it will just maybe be you. Hopefully, there's more people and we apologize. We have no idea what happened, but it took quite a while
to fix.
So fire away.
Sounds good. I'll assume this is still a conference call and not a private conversation. So I'm a couple of things. 1, I'm holding in my hand an empty bottle of Premier Protein Clear that was quite tasty. And wondering number 1, how widely that's been rolled out, if that might have been part of the 20,000,000 dollars pull forward?
Anything specifically to say on that one? And then I have a follow-up too.
It has been rolled out to club. It is not part of the pull forward. The pull forward is entirely on the ready to drink shake business and we think the clear product is a great product, but it needs some work around packaging and price point to get the same degree of success we've seen in other parts of the portfolio.
Okay. And then, Bob, I think I heard you say that shell eggs are non core. I certainly knew that they were commodity items, but I didn't really understand them to be non core to the business. Did I understand that correctly? And why wouldn't it make sense to have a continuing presence in Shell eggs?
How do we now explain the Willamette acquisition, that type of thing?
Yes. So the core thesis of Michael Foods has been and remains value added egg products. So in that definition, Retail Shale Eggs is by definition off strategy. The Willamette egg acquisition was fundamentally about providing a hedge against price volatility in the Midwest in the event of another AI event. I think the need for that hedge has mitigated with time.
It's been a very good acquisition. There have been times where we've been significantly generating cash in that business relative to what we paid for it. But in those scenario, are we looking to invest behind retail shell eggs as a reason to be it is entirely at times a hedge. So when I say it's non core, it more relegates it to hedging status versus building status.
But not necessarily to be divested status?
Not necessarily. Okay.
Thank you.
Thank you.
Our next question comes from the line of Bill Chappell of SunTrust.
Thanks. Good morning again. Sorry about that, Bill. I'm not sure if it's something we said or you
said. Well, I'm sure you had an incredibly astute and concise answer to my egg grain pricing question, but could you give it to me again because I certainly didn't hear it and I'm not sure if anybody else did.
Can we repeat the question?
Sure. So with where grain prices are going in your grain based contracts, just trying to understand what pricing looks like for that business and kind of how it drives sales over the next 2, 3 quarters with what you see kind of post harvest?
Yes. So, it was a long and drawn out answer apparently. The methodology within the grain based contracts is essentially a 90 day lag from the market. So, there is some time to catch up on pricing with wherever commodities are going. So, we would expect that we'll experience that lag, but that will eventually catch up to wherever the markets land.
As you follow them, you saw that it spiked up and then it's come back down, a lot of speculation as to what the next government WASDE report will say about corn and wheat and soybean progression. But the model is designed to essentially follow the market on a 90 day lag.
Got it. So in fact more as we go to 2020. The other question is just on the, I guess, non core business, talking about eighth Avenue. Can you just give us a little more update of what's going on there? I understand it's still merging multiple businesses together and the kind of growing our integration pains of that, but obviously this is, I think, maybe the second cut on EBITDA for this year.
And so just trying to understand the outlook, especially as we go into next year.
Yes. The if you recall, 8th Avenue is 3 businesses that we're putting together as one delivery system, granola, nut butters and pasta. Granola and nut butters have essentially performed a plan throughout the year. We made an IT migration on pasta to the system that was driving the other businesses. We also lost some people.
So between some disruption around IT visibility and people visibility, we lost some bidding efficacy. And in some cases, bid too high, some cases, a bit too low. And as you probably know, it's entirely a bit business. So it caused us some volume issues. And at the same time, we had some weakness in plant operations in our Minnesota factory.
So the problems with eighth Avenue in fiscal 'nineteen, I would characterize conflicted and around execution. We have worked closely with THL and frankly THL has taken the laboring ore and working on process improvement. And I think the partnership is working very well to work with the management team and get these problems corrected as we enter into 'twenty. And I think we have very bright prospects both with respect to recovery, ongoing cost reduction and reasonably near term M and A that give us a lot of optimism for the long term prospects for the business.
Got it. Thank you.
Thank you.
Our next question comes from the line of Michael Lavery of Piper Jaffray.
Good morning.
Good morning, Michael.
You mentioned some of the declines or that the cereal business had some declines on the licensed cereals. Can you just give us a little more visibility on some of the puts and takes in that business? And how much were those in and outs or some of just what we should expect looking ahead in terms of what might be a little bit of a headwind or tailwind as more new items might be coming?
Well, I think if you go back and look at a little bit of the history of the category, we all know that pre sweetened has been the sub segment of the category that has performed best over the last decade or so. And about 2 years ago, there was a heavy move into licensed brands and we were very early in it and took a leadership position with our Oreo licensed product. We that into other products, most of which have done reasonably well. Oreo has done exceptionally well. And at the same time, some of our competitors took a similar approach to licensed product.
And frankly, I think the subcategory has become too crowded and what you're seeing now is churn among some of these new licensed more fun flavors. So I think what we're going to see is a winnowing of the winners and losers in that. We have a number of SKUs that we think will be very successful in the segment, but there will be some across the category that need to move out, otherwise we're just churning. And it will be a headwind with respect to growth in volume, but it's a new segment that we expect to have strong sustainability going forward.
That's helpful. And just back to Weetabix, you mentioned the, I think it was $1.46 hedges you'd had. Can you just give us a sense of how far out those go? And is it the easy math that if it stays at around 1.20 2 or 3 or something that you would have that translational hit rolling in at some point?
The first part of your question is they go out 3 years. The second part, and I just want to be real clear because this does get complicated. The way we it will have give and takes from whatever it is today, 122 and it will have give and takes from whatever it is today $122,000,000 and change. The economic reality is driven by the duration of that hedge. So as we repatriate cash, it comes in at a higher level, but the optic EBITDA number is at a spot basis.
Is that clear?
That's actually really helpful. But so just to make sure to confirm this, the actual cash is protected by the hedge, but what you report for earnings would be at any current spot rates?
Correct.
And the 3 years, do you have rolling ones in terms of is it the 146 all through 3 years or is there sort of layers of that, that it would vary?
So I'm going from recollection and would have to get into a little bit of our treasury. But as I recall, there's 2 different swaps with different tenors. But we would I would need to get more detail to answer that.
Okay. That's helpful. Thank you very much.
And we've reached the allotted time for questions. We do have time for one more.
Could we do the one more question?
Our final question will come from the line of Ken Zaslow of BMO Capital.
Hey, good morning everybody. Thanks for squeezing me in.
I thought we were going to lose you Ken. Sorry about that.
No, I appreciate it. I'll keep it short. Did you say there's a R and D effort that has to go into the liquid eggs? Can you talk a little bit about that? And also, I think you also said that you're overhauling the planning process in your opening comments.
Just wanted to know what those two meant and implications? Sure.
I actually I think I made 2 comments about planning. In my prepared remarks, I made a comment about our planning process in cereal. If you go back to having brought Post Foods and Mound Brands together, we first focused on cost reduction and bringing the teams together. Now we're trying to take that next level of sophistication to really improve our demand forecasting because that then has implications around production planning. And the closer that is to demand forecast, obviously, the better cost we get to.
The same phenomenon is true in Bob Evans, but for a bit of a different reason, that reason being coming out of a restaurant orientation and having built the business out of a sausage shop. It was more of a job shop made to order business. And what we're trying to do is get both of those platforms up to state of the art demand forecast through production planning. So neither of those are new. The new information is that we are going further towards an integrated supply chain within our overall refrigerated retail and foodservice platform so that there will be one delivery system with best execution.
The R and D comment I made was we have terrific, well, really unparalleled knowledge of converting commodities into interesting value added products. And what we wanted to do was catalyze that at retail. So we've taken people who have been predominantly oriented towards developing foodservice products and expanded that domain so that there's a retail component to it.
Great. Thank you very much. Thank you. And thank you.
At this time, I'd like to turn the call back over to Rob Vitale for any additional or closing remarks.
Well, thank you for hanging with us this morning. We're going to have a postmortem to decide whether this is going to be something we just do once or develop it as part of our conference strategies for tough questions. But again, thank you and we'll talk to you next quarter.
Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.