Welcome to Post Holdings 4th Quarter and Fiscal Year 2018 Earnings Conference Call and Webcast. Hosting the call today from Post are Rob Vitale, President and Chief Executive Officer and Jeff Shattuck, 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 the passcode is 5,686,449. At this time, all participants have been placed in a listen only mode.
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 Proposed's Q4 2018 earnings call. With me today are Rob Vitale, our President and CEO and Jeff Zadeck, 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 section 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, particularly statements regarding the IPO of our Active Nutrition business. These forward looking statements 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.
Thanks, Jennifer, and thank you all for joining us. This morning, I'll briefly comment on the quarter and on fiscal 2018. I will spend more time on our outlook for 2019 and the plan we announced last evening with respect to an IPO of our Active Nutrition business. The quarter came in as expected across the business. Each unit performed reasonably well, and we saw the first step towards gross margin rebuild of post consumer brands.
Recall last quarter, we told you gross margin had declined because of systemic inflation that had not been priced and unusual costs that would moderate over the next several
years.
This is developing as anticipated with a sequential increase of 60 basis points. The increase was indeed driven by lower manufacturing costs, but was dampened by incremental freight costs. I will speak more on the impact of pricing and inflation when I comment on 2019 outlook. In terms of the full year, we are pleased with our consolidated results. Despite a challenging cost environment, we finished the year near the high end of our initial targets, and we took strategic actions with the acquisition of Bob Evans Farms and the recapitalization of 8th Avenue Food and Provisions.
Along the way, we generated nearly $500,000,000 in free cash flow, repurchased 2,800,000 shares of common stock and including the proceeds from eighth Avenue, significantly reduced leverage. Our outlook for fiscal 2019 calls for adjusted EBITDA of $1,190,000,000 to 1,240,000,000 dollars excluding eighth Avenue. On a pro form a basis, the midpoint of our guidance reflects a healthy 6% growth rate in adjusted EBITDA. Our approach to guidance has been and remains to hedge the start of the year for unknowns that can materialize over any 12 month period. For the first time in several years, our plan includes meaningful inflation and pricing actions.
The variability in our range of estimates in large part depends on how these assumptions, including as they may be impacted by Brexit, develop during the year. Our plan for 2019 is back end loaded relative to 2018. The timing change results from 3 factors. 1st, the inflation pricing relationship I just mentioned favors the second half of twenty nineteen. 2nd, the first half of twenty eighteen benefited from approximately $25,000,000 in excess profit, resulting from an imbalance in Michael Foods' egg pricing model.
That imbalance is now eliminated, and we are finally back to net neutral with respect to the impact of market egg prices on our foodservice business. Finally, the timing of changes in our manufacturing capacity changes forces the second excuse me, favors the second half P and L. Let me explain in more detail, starting with our Ready to Drink shake capacity. Despite adding capacity in fiscal 2018, the contract manufacturers that support our shake business are operating at full capacity. In fact, shake sales in the back half of fiscal twenty eighteen outstripped our capacity.
This depleted our inventory and created challenges in maintaining our high service levels. We entered fiscal 'nineteen with insufficient inventory. Although we are bringing on additional capacity in the first half of fiscal twenty nineteen, we've had to make choices to navigate the short term supply constraint. To minimize line downtime and maximize output, we've elected temporarily limit production to our 2 most popular flavors, chocolate and vanilla, and rebuild our 7 flavor portfolio during the Q2. While we expect meaningful year over year sales growth in 2019, this constraint will cause the Q1 to be relatively flat.
We anticipate shake growth to significantly accelerate the balance of the year as this bottleneck lessens. In contrast, we are shrinking serial capacity by closing 2 factories acquired with Weetabix, 1 in the U. S. And 1 in the UK. We do not expect to reflect any of the cost reduction from the plant closures until the Q4.
In these two ways, changes in our manufacturing capacity favor profitability in the second half of the year. Our current estimate of the impact of all these factors
suggest a cadence in which
the Q1 will most heavily under index the year with an expectation of increases in each sequential quarter. Before turning to our announcement about Active Nutrition, I want to comment on how we expect to discuss eighth Avenue with you. This is our first guidance estimate following the eighth Avenue transaction. Recall, we retained 60.5% of the common equity of eighth Avenue, but our post guidance does not include any contribution. As I mentioned, we expect eighth Avenue to generate adjusted EBITDA of $110,000,000 to $120,000,000 in fiscal 2019.
The business was capitalized on October 1 with $648,000,000 in senior debt and $250,000,000 in preferred equity. I anticipate that we will continue to report adjusted EBITDA and capital structure data to enable you to incorporate eighth Avenue value into your models. Turning to our announcement last evening regarding Active Nutrition, I want to share with you our rationale and current plans. Our business is dominated by ready to drink shakes sold under the Premier Protein brand. This segment includes the Premier Protein, Dymatize, PowerBar, Supreme Protein and Joint Juice brands.
The business has consistently demonstrated near best in class growth rates and cash flow conversion dynamics. Since 2014, the segment has grown adjusted EBITDA by a 68% compound annual growth rate. We believe we are in the early stages of category and brand development. We intend to offer the business directly to the public market by an IPO, representing approximately 20% of the ownership of the new company. We expect to capitalize it in a manner that enables it to serve as an acquisition vehicle.
Our Active Nutrition President, Darcy Horn Davenport, will lead the newly formed business as CEO, and I will serve as Executive Chairman. We anticipate that there will be incremental stand alone costs, but that to the extent possible, we will leverage post infrastructure to mitigate the increase.
We expect to locate the corporate functions in St.
Louis with the operating center in the Bay Area. We expect this transition to occur during fiscal 2019 depending on market conditions. We will provide you with additional information in upcoming quarters with respect to capital structure, management, Board of Directors and the ultimate structure of the IPO sale itself. We expect this transaction to be approximately leverage neutral to the remaining Post business. We are quite excited about the prospects for this transaction and for creating additional value through organic growth and M and A.
What the Active Nutrition team has accomplished is quite extraordinary, and we look forward to sharing the story with you. With that, let me again thank you for your support, and I will turn the call over to Jeff.
Thanks, Rob, and good morning, everyone. As Rob mentioned, on a consolidated basis, our performance this quarter met our expectations. Adjusted EBITDA for the Q4 fiscal year were $320,600,000 $1,230,000,000 respectively. Notably, 4th quarter pro form a net sales grew 4.4% year over year with each of our North America businesses growing. Post consumer brands net sales grew 1.6% while volumes grew 2.2%.
Pebbles and other licensed products and Honey Bunches of Oats drove growth, while multi meal bags and private label experienced declines. Average net pricing declined slightly, resulting from increased trade spending and slotting, only partially offset by favorable mix. Post consumer brands adjusted EBITDA declined 7% compared to prior year. As in prior quarters, systemic inflation in freight, commodities and wages drove much of the year over year decline and was only partially offset by volume gains and reduced SG and A. We continue to see progress in our Weetabix segment promotional reset.
Average net selling prices improved 4%, and as anticipated, we saw a reduction in volume. However, margins improved and adjusted EBITDA was approximately $37,000,000 flat compared to prior year. Net sales in our Refrigerated Food segment increased 4.5% on a pro form a basis. Foodservice pro form a net sales increased 7% with egg volumes increasing 5% and potato volumes increasing 1.5%. On the retail side, pro form a net sales and volumes were flat as volume growth in our retail side dishes of 6.6% was offset by declines in ag and sausage retail products.
More specifically, we saw continued strength in our growing Bob Evans side dish business, but our Simply Potatoes brand was flat. Adjusted EBITDA for this segment was $113,000,000 Bob Evans performed in line with our expectations, while the legacy Michael Foods business had good year over year growth, benefiting from higher volumes, which were somewhat offset by mild freight rate inflation. Net sales in our ac and nutrition business grew 14% and adjusted EBITDA grew 56%. Strong net sales growth in shakes of 25% was driven by organic growth and distribution gains. Volume growth and lower raw material input costs and marketing expenses more than offset inflation in freight rates.
Our Private Brands segment, now the 8th Avenue Food and Provisions business, grew net sales 7.5%. Volumes increased 1% behind increases in fruit and nut and organic peanut butter. Private Brands adjusted EBITDA was $30,500,000 a 3% increase compared to prior year, driven primarily by volume growth. Effective October 1, results of 8th Avenue will be deconsolidated in our GAAP financial statements and excluded from our calculation of adjusted EBITDA. We will account for our retained interest in 8th Avenue's common stock using equity method accounting.
Before we open up the call for Q and A, I would like to make a few comments on freight, leverage and cash flow. 4th quarter freight costs increased approximately $12,000,000 which was higher than our expectation. For the full year, the increase was approximately $37,000,000 Our adjusted EBITDA guidance for 2019 assumes a headwind of between $30,000,000 $35,000,000 when compared to the full year 2018, with the largest impact in the Q1 declining sequentially thereafter. Turning to leverage. Following the closing of the eighth Avenue transaction on October 1, we paid down our term loan by $863,000,000 As a result, our pro form a net leverage, as measured by our credit facility, is approximately 5.4x.
For 2018, we had strong cash flow performance, generating $790,000,000 of cash flow from operations. When compared to prior year, we benefited from incremental cash generation from the Bob Evans and Weetabix acquisitions as well as strong organic growth at Michael Foods and Active Nutrition. Regarding capital expenditures, our fiscal 2018 spend was $225,000,000 In fiscal 2019, we plan to invest between $300,000,000 $310,000,000 While this is a step up from historical spending levels, the increase primarily relates to growth in our egg business and capital for network consolidation and optimization in our North American and U. K. Cereal businesses.
Finally, we estimate cash taxes for fiscal 2019 will be approximately $115,000,000 based on the midpoint of our guidance range, and we expect cash interest expense to be approximately $335,000,000 With that, I'd 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.
Good morning, everybody. Good morning, Andrew. Hi. Couple of things. I'd start off with the private brands business, I guess post sort of dual track the process between an IPO, private placement or a sale, I guess it's more of a triple track actually.
But with Active Nutrition, obviously, you just mentioned the IPO. So I'm curious if there are other ways you're considering potentially monetizing the asset that are under consideration. And I guess, if not, why would that be?
Well, I think if you
compare private brands to our Active Nutrition business, it's a more obvious public company that Active Nutrition is a more obvious public company than Private Brands would be Private Brands given the growth rate comparability to Active Nutrition favored looking at a number of different alternatives, whereas with respect to Active Nutrition, it was more self evident that there was a roll forward in the public market. We obviously have an obligation to explore all different types of opportunities, but we have first gone to the one that we thought made more sense and then to the extent other ideas come up would be responsive rather than proactive. Got it. Regarding what will be the ongoing business or the one that's not obviously IPO ed, as you become somewhat more focused over time and delever, is the aim to still gain more scale within consumer and refrigerated, the latter of which where Post has quite a bit of scale and competitive moats? Or will Post also consider new verticals, so to speak?
I think the best answer is yes and yes. But as you know, we've used this line quite a bit on the spectrum of strategic to opportunistic. We tend to be more opportunistic A within our verticals and secondarily respond to where we are positioned well from a business process perspective to M and A within our verticals and secondarily respond to where we see market opportunities to add to our verticals. So we want to do M and A in additional verticals when it makes sense, and we want to be positioned to do by nature more accretive in portfolio M and A by being very good at process and enabling us to very quickly synergize. Got it.
And last one would be, certainly many in the industry are taking pricing at this stage. It's been a while as you mentioned though since I guess post it's had to take any meaningful pricing. I guess where across the business is most of this pricing coming through? Or is it in one specific segment more than the others or pretty broad based? And then I guess what's Post's experience with this sort of pricing in the past in terms of the muscle to be able to execute it and obviously elasticity around volume and such?
Yes. So I'm going to be somewhat circumspect on pricing conversations, but I would share with you that it's broad given the breadth of inflation across the portfolio and across the geographies that we feel confident in the case that we have made for pricing and feel like the guidance appropriately reflects the risk of pricing, the opportunities of pricing and the elasticities embedded in it.
Our next question comes from the line of John Baumgartner of Wells Fargo.
Good morning. Thanks for the question. Rob, why don't you touch on what you're seeing at Weetabix. I mean, of the 8% volume drop, how much of that was related to just not having a lap to change in promo programming relative to to incrementally weaker underlying volume? The vast majority was lapping the decision to make a fairly significant change in our promotional strategy.
So in contrast to some of the feedback we saw, we looked at that as largely expected and in line with where we plan to be. We feel fairly comfortable in the rebasing of our promotional strategy and the amount of volume decline that has come out of it. Okay. And then the outlook for the business, just in terms of the write down. I guess this was never really positioned as a growth asset, but it sounds as though you're not even looking for it to be a stable asset as much.
I mean, are volume declines kind of the norm going forward? And how are you thinking about normalized growth for sales and EBITDA at this point? No, we do not view this as an asset in decline. I think that if you being completely transparent about valuation, we looked at it on a mark to market basis, you would have to say that we overpaid by about $100,000,000 but that we have a lot of confidence in the long term and we are playing a long game with respect to all of our assets, but Weetabix specifically, and we view it as not just a consistent generator of cash flow with some short term choppiness, but we look at it as an opportunity to do other things. What those other things may be is yet to be determined, but we look at the option value embedded within Weetabix is quite significant.
Okay, great. And then just on Nutrition briefly, really nice margin expansion in the quarter. Is it possible to break down how much of that was driven by reduced promo relative to beneficial commodities or any other factors? I don't have the data at our fingertips, but there was benefit from pulling back the promotional spending for obvious reasons. The commodity impact was fairly modest.
We would have to circle back with you on some of the actual promotional spending pullback. But margins were strong irrespective of those 2, but they were certainly modestly benefited from both of them. So I mean, if we think about situations where promos reduced, I'd look for much weaker growth in 14% off of 20% comp, including capacity constraints. So I mean, as those constraints are alleviated, is this still a 20% growth business? And I guess, guess, how do you think about framing the growth algorithm for that business as a standalone in terms of revenue and EBITDA going forward?
Yes. So I have to be careful in answering questions around the forward looking commentary with respect to being on the cusp of filing an S-one. So I'm going to refer you more to looking at some of the external comps and some of the category data, which I think if you look at category data comps in history, you can get a fairly comfortable perspective on growth rates here. Okay. Thanks for your time.
Thanks, John.
Our next question comes from the line of Cornell Burnett of Citi Research.
Thank you and good morning. Just wanted to know when you look at the Active Nutrition business in terms of growth potential and perhaps its cash generation capabilities, do you believe that it can support a leverage ratio maybe similar to that which we see at eighth Avenue of, I believe, something in the 5.5 times range?
Can and should are, I think, are different in this scenario. I think when you look at a business that has the growth potential of one like this, it warrants a greater percentage of equity in the overall capital structure. So I would tell you that given the relatively high cash flow conversion dynamics, it's a leverage capable business. But given the growth characteristics, I'm not sure it says ultimately warranted. So we will look at that and come back to you with more specific capital structure data as it becomes available.
Okay.
And then when you move when you I guess, when you remove Active Nutrition from the equation, how do you see the growth algorithm, say, for consolidated Pulse for the rest of the business?
Well, if you look
at the remaining business as 2 significant engines, one is our refrigerated food business that as we've shared with you in the past, rose mid single digits and the balance being ready to eat cereal, that is essentially a flat business with high cash flow, that algorithm relationship maintains.
Okay. And then I guess in the Q3, if I can recall correctly, there were about $14,000,000 of unusual costs in cereal. I think you had some production inefficiencies and some co packing issues. And then of course there was about $3,500,000 of transitory costs in eggs. Just wondering, did any of that slip into 4Q?
And is there the possibility that there's a drag again maybe in the early part of next year related to that?
Yes. It's largely consistent with what we said in Q3. And the number was $14,000,000 and we bucketed them approximately equally in these 4 categories. And now you're stretching my memory to go back into what we said last quarter. But they were we had some physical issues at Battle Creek related to a gas leak that obviously did not reoccur.
We had some startup learning curve issues related to a fairly high degree of new product launches, those did not reoccur. But the other 2 that we commented on are more persistent. They are the outsourcing of our peanut butter based products to a co manufacturer and increased level of post production assembly costs related to promoting some of our new introductions. Those continue to persist into the Q4 and will linger into 'nineteen. We repatriate the peanut butter manufacturing in 'nineteen.
Memory serves it, Q2 'nineteen is coming back on into our Battle Creek facility, and the postproduction assembly cost will start to mitigate as we enter fiscal 'nineteen.
Okay. And then the last one for me is, I think you gave a number on kind of some of the freight pressures that you're expecting next year. But can you kind of quantify just in total what the input cost basket is going to be up by kind of as a whole next year? And then beyond pricing, can you talk about maybe some of the offsets that you have at your disposal? Obviously, there's going to be some cost savings associated with synergies from Weetabix and Bob Evans.
So you kind of try to marry those up so we kind of get an idea of how things look for next year?
Let me take them segment by segment, Cornell. The 2 cereal businesses are going to see the most inflation because the commodity basket for those businesses are really, I would say, there's no major increases, but virtually every input cost is going up a little bit for them, low single digits. Our egg business, as you know, mitigates the commodity cost with its pricing model, so we wouldn't expect any major commodity issues there. And then in the active nutrition business, dairy commodities are more benign. So we're not expecting any significant headwinds for that business.
And then freight is, as we said in our prepared remarks, which crosses all the businesses.
Okay. Thank you. Very helpful. To answer your question, Cornell, I think embedded in our guidance is, as always at this point of year, is a number of levers to manage in order to mitigate changes in that commentary and how it could develop throughout the year and those levers are exactly what you would expect, incremental investment into brands, incentive plans, all the normal levers that we have early in the year.
Our next question comes from the line of Chris Growe of Stifel.
Hi, good morning. Hi, Chris. Hi. If I could just ask you one more follow-up on Active Nutrition. And just in terms of the timing of the announcement of this IPO, is there any other motive behind any other acquisition opportunities you see that maybe this could help your balance sheet?
I know you mentioned this being mostly balance sheet neutral. Just trying to understand other the timing, I guess, is what I'm trying to get to, of the IPO of this business. No. It was more driven by the fact that this kind of activity, the filing of an S-one and the process of undertaking the IPO is draws from a number of resources across the organization. It's a relatively long lead time activity.
So we needed to be proactive in getting it out there now so that we could be in a position to execute it at the appropriate time in 2019 rather than rush into 2019. We think it's the right next strategic step. But meanwhile, we continue to develop a fairly strong M and A pipeline getting ready for what could come next beyond that. But it's more about resource allocation and being able to do it in the public market or having the public market aware of it. So we're able to discuss it internally without fear of it becoming public outside of our normal process.
Okay. And when would you expect to file an S-one, would that become relatively quickly? The first step is to do the standalone audits. That's probably a couple of 3 month process and then it's another couple of 3 month process after that to get an S-one on file. So broadly speaking, let's say 3 to 6 months.
Okay. Thank you. And then just a question for you going back to Cornell's question around pricing and inflation. So we've seen some pricing coming through in the cereal category. Most of the large food companies are talking about pricing right now.
Have you announced any price increases? And I just also like to understand like how you're using sort of revenue management, we use that term, but mix and lower promotional spending on top of actual list price increases coming through to aid us to overcome this inflation? Yes. Again, I'm going to be a bit circumspect on where we are with customers on pricing, but I think it's fair to say that because we called it out in our prepared comments that it's something that we feel confident in our ability to effectuate. I just don't want to speak in terms of timing and specifics.
Okay. And then just within would you use different metrics or I'm sorry, different tools, if you will, to achieve that pricing list prices as well as promotional reductions and wait outs and that kind of thing? Yes. We review all of those as levers that are able to be pulled both list and freight. Okay.
Thank you. Thanks, Chris.
Our next question comes from the line of Bill Chappell of SunTrust.
Thanks. Good morning. Hey, two questions. First on Active Nutrition, just remind us why you couldn't do this on your own? I mean, in terms of what's the benefit from a standalone in terms of M and A and stuff like that where it wouldn't have your balance sheet and your know how and corporate resources to kind of build it even bigger?
Or is the thought at $150,000,000 in EBITDA that it's big enough to push it out of the nest?
Well, there's an element of that, but it's by no means our biggest line of business. I think when you look at the character of cash flow across our portfolio, and I'm going to specifically try to avoid talking about multiples, but that when we have a M and A strategy that is in a segment that has a multiple characteristic that is different from the balance of the business, it can be challenging to pursue M and A in that category. And then I think by isolating the business into a distinct separately traded entity, it allows it to pursue M and A of like minded or not like minded, but similarly structured businesses in a manner that would be challenging to pursue in a blended multiple.
Okay. The first one. And then resources
that are available, I would and I mean the human resources, we expect those to continue to be available.
Okay. And then I guess switching a little bit back to Weetabix. How does the announcement of the plant closures tie into your original kind of synergy number of $50,000,000 It seems like that would take you above and beyond that original estimate.
No, it's embedded in it. It was part of a 3 year plan, and that's part of the overall cost reduction that we had anticipated.
Okay. And again, you're not expecting really to see those until that's really more of a fiscal 2020 event? Correct. Okay. And then last one for me.
Can you give us any update on the Bob Evans side? It seems like some of the retail sales for the kind of refrigerated items have slowed a little bit in terms of Nielsen. So any kind of update if you look to next year?
We feel very confident that the rate of growth will follow historical trends on the Bob Evans brand. The Simply brand has struggled a bit. Some of that struggling is self induced because we've had more interactions between Bob Evans and Simply. So if you look at our aggregate numbers of what we are now reporting as retail side dishes, it might look like it slowed, but that's because we are comparing a very fast bob Evans, which is continuing to simply which is closer to flat and is bringing the average down. Got it.
Thank you. Thank you, Bill.
Our next question comes from the line of Ken Zaslow of Bank of Montreal. Everyone.
Hey, good morning, Ken.
Can you talk about your capital spending projects and what is the timing and what is the returns on which you expect to get them?
We
currently have 2 significant expansion projects, both of which are in our refrigerated foods platform. 1 is a expansion of our capacity in precooked eggs, which is our highest value added product within the Michael portfolio and has a very attractive return profile. I prefer not to give specifics, but we tend to think of these things as north of 20 percent IRR projects. The other major expansion or excuse me, capital expenditure project is ongoing development of our cage free facilities in our owned layer hen operations. These 2 are attractive, not as attractive as our higher value added products, but attractive in 2¢.
1, they have a good return, but they also increase the barriers to entry to the category because it extends our leadership in the cage free segment of overall value added eggs. Beyond that, it's mostly maintenance and some plant closure related capital requirements.
And what is the timing to which you'll get the returns on these? Like how do you think about it?
The value added eggplant does not come online until early 2020 and would start to commence then. The cage free expansion is in modular stages already operating, but becomes fully operational by the end of 2019.
And then my second question is, as you see the industry, there's a lot of large cap packaged food companies that are looking to divest assets, a wide range of them. This seems to be a core competency of yours. As you see the environment developing, have you started to see a greater pipeline and are you kind of chomping at the bit a little bit more, particularly as you deleverage the balance sheet? Can you talk about that and the opportunities that are coming through the pipeline?
I think the answer is yes. The pipeline is becoming richer as more divestiture candidates become available, become even specifically announced. But that we, by design, do not, I'm going to use your words, chop at the bit because we try to be more we try to take a more detached perspective on looking at these assets and try to take a much more cool approach to valuation. So I think that there are assets that make sense and there are assets that would be attractive to add to our portfolio, but each and every one of them is price sensitive.
Would you have I know over time, your valuation metric to buying assets, would you hold yourself to the same discipline? Would you expand it? How do you think about that? And I'll leave it there, if you don't mind.
Well, I think the answer is bespoke to the asset. So we have been value buyers and we have been more growth buyers. I think in one of our previous calls, I characterized this as more of a GARP buyer, which was I think it was probably the Bob Evans call because we paid the highest multiple that we have paid in support of the growth profile that, that company was demonstrating. So we would we are not opposed to paying for growth and we are not opposed to looking at value, but we hopefully, we get that mix right.
Thank you.
Thank you, Tim.
Ladies and gentlemen, we have time for one more question. Our final question comes from the line of Tim Ramey of Pivotal Research.
Squeaking in under the wire. So, Jeff, I wanted to circle back on one of the comments that you made that you, I think, said that RTEs would see the most inflation because eggs are mitigated by the contracts. But we'll see more inflation in eggs than RTEs, I assume. It's more grain dense.
Yes. I was just trying to comment on the impact on margin dollars.
Not necessarily
the point you're making.
Okay. And is there there's no CapEx on your side for the Tetra Pak expansion? It pretty much all is on your 3rd party co packs?
To date, that's correct. It's 100% outsourced business.
Okay.
And the you made the comment that leverage ratios would not be disturbed much by the IPO of Active Nutrition. But you also made the comment that you expect it to be less leveraged than post. Is that just because that the sort of the relatively small size of the IPO relative to the corporation that it isn't going to move the needle very much?
Tim, that's exactly right. Yes.
Okay. And finally, on innovation in eggs, I guess I had been hoping we'd see more capacity available for precooked innovation in 2019, but I think I just heard you say 2020 is really when that comes. Am I right on that?
You are. The Norwalk plant doesn't come online until just after year end fiscal 2019. Okay. Thanks so much. Thank you.
And ladies and gentlemen, that was our final question. I'd like to turn the floor back over to Mr. Vitale for any additional or closing remarks.
Thank you all for joining us for your continued support. We're really excited about this announcement this morning and we really when we're able to look forward to sharing what is a quite remarkable story with you. So thank you and we will talk again in what is this, this is in February. January. January.
Take care.
Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.