Welcome to Post Holdings' Fourth 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 Zadoks, Chief Financial Officer. Today's call is being recorded and will be available for replay beginning at 12:00 P.M. Eastern Time. The dial-in number is 800-585-8367, and the passcode is 5686449. 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. Thank you for joining us today for Post's fourth quarter 2018 earnings call. With me today are Rob Vitale, our President and CEO, and Jeff Zadoks, our CFO. Rob and Jeff will begin with prepared remarks. 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 sections 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. Management undertakes no obligation to update these statements. As a reminder, this call is being recorded. An audio replay will be available on our website. 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. Thank you all for joining us. This morning, I will 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. We saw the first step towards gross margin rebuild at Post Consumer Brands. If you 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-
No, I lost my level.
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 & Provisions. Along the way, we generated nearly $500 million in free cash flow, repurchased 2.8 million shares of common stock, and, including the proceeds from 8th Avenue, significantly reduced leverage. Our outlook for fiscal 2019 calls for adjusted EBITDA of $1.19 billion-$1.24 billion, excluding 8th Avenue.
On a pro forma 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 three factors. First, the inflation pricing relationship I just mentioned favors the second half of 2019. Second, the first half of 2018 benefited from approximately $25 million in excess profit resulting from an imbalance in Michael Foods' egg pricing model.
That imbalance is now eliminated. We are finally back to net neutral with respect to the impact of market egg prices on our food service business. Finally, the timing of changes in our manufacturing capacity changes favors the second half P&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 2018 outstripped our capacity. This depleted our inventory and created challenges in maintaining our high service levels. We entered fiscal 2019 with insufficient inventory. Although we are bringing on additional capacity in the first half of fiscal 2019, we've had to make choices to navigate the short-term supply constraint.
To minimize line downtime and maximize output, we have elected to temporarily limit production to our two most popular flavors, chocolate and vanilla, and rebuild our seven-flavor portfolio during the second quarter. While we expect meaningful year-over-year sales growth in 2019, this constraint will cause the first quarter 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 cereal capacity by closing two factories acquired with Weetabix, one in the U.S. and one in the U.K. We do not expect to reflect any of the cost reduction from the plant closures until the fourth quarter. 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 suggests a cadence in which the first quarter 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 8th Avenue with you. This is our first guidance estimate following the 8th Avenue transaction. Recall, we retained 60.5% of the common equity of 8th Avenue, but our Post guidance does not include any contribution. As I mentioned, we expect 8th Avenue to generate adjusted EBITDA of $110 million-$120 million in fiscal 2019. The business was capitalized on October 1st with $648 million in senior debt and $250 million in preferred equity. I anticipate that we will continue to report adjusted EBITDA and capital structure data to enable you to incorporate 8th 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. The 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 standalone 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&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. As Rob mentioned, on a consolidated basis, our performance this quarter met our expectations. Adjusted EBITDA for the fourth quarter and fiscal year were $320.6 million and $1.23 billion, respectively. Notably, fourth quarter pro forma net sales grew 4.4% year-over-year, with each of our North American 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&A.
We continue to see progress in our Weetabix segment promotional reset. Average net selling prices improved 4%. As anticipated, we saw a reduction in volume. However, margins improved and Adjusted EBITDA was approximately $37 million flat compared to prior year. Net sales in our Refrigerated Food segment increased 4.5% on a pro forma basis. Foodservice pro forma net sales increased 7%, with egg volumes increasing 5% and potato volumes increasing 1.5%. On the retail side, pro forma net sales and volumes were flat as volume growth in our retail side dishes of 6.6% was offset by declines in egg 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 million.
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 Active Nutrition business grew 14%. 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 & 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 $30.5 million, a 3% increase compared to prior year, driven primarily by volume growth. Effective October 1st, 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&A, I would like to make a few comments on freight, leverage, and cash flow. Fourth quarter freight costs increased approximately $12 million, which was higher than our expectation. For the full year, the increase was approximately $37 million. Our adjusted EBITDA guidance for 2019 assumes a headwind of between $30 million and $35 million when compared to the full year 2018, with the largest impact in the first quarter, declining sequentially thereafter. Turning to leverage, following the closing of the Eighth Avenue transaction on October 1st, we paid down our term loan by $863 million. As a result, our pro forma net leverage as measured by our credit facility is approximately 5.4x .
For 2018, we had strong cash flow performance, generating $719 million 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 million. In fiscal 2019, we plan to invest between $300 million and $310 million. 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 million based on the midpoint of our guidance range, and we expect cash interest expense to be approximately $335 million. With that, I'd like to turn the call over to the operator for questions. Operator?
Thank you. The floor is now open for questions. If you wish to ask a question, simply press star, then the number one on your telephone keypad. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. Our first question comes from the line of Andrew Lazar of Barclays.
Good morning, everybody.
Good morning, Andrew.
Hi. Couple things. I start off with the Private Brands business. I guess Post sort of dual-tracked the process between an IPO, a private placement, or a sale. I guess that's more of a triple track, actually. With Active Nutrition, obviously, you just mentioned the IPO. I'm curious if there are other ways you're considering of 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 role for it in the public market. We obviously have an obligation to explore all different types of opportunities. 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'd, as you become somewhat more focused over time and de-lever, 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. As you know, we've used this line quite a bit on the spectrum of strategic to opportunistic. We tend to be more opportunistic that we look first in the short term to making sure that we are positioned well from a business process perspective to act on M&A within our verticals, and secondarily, respond to where we see market opportunities to add to our verticals. We want to do M&A in additional verticals when it makes sense, and we want to be positioned to do the, by nature, more accretive in portfolio M&A by being very good at process and enabling us to very quickly synergize.
Got it. 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 has 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? 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?
Yeah. 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.
Okay. Thanks very much.
Thank you.
Our next question comes from the line of John Baumgartner of Wells Fargo.
Good morning. Thanks for the question. Rob, why not touch on what you're seeing at Weetabix? Of the 8% volume drop, how much of that was related to just not having lapped the change in promo programming relative to incrementally weaker underlying volume?
The vast majority was lapping the decision to make a fairly significant change in our promotional strategy. 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. The outlook for the business, just in terms of the write-down. 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. Are volume declines kind of the norm going forward, and how are you thinking about normalized growth for sales and EBIT at this point?
No, we do not view this as a asset in decline. I think that if you, being completely transparent about valuation, if we looked at it on a mark-to-market basis, you would have to say that we overpaid by about $100 million, but that we have a lot of confidence in the long term, and we are playing the 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. We look at the option value embedded within Weetabix as quite significant.
Okay, great. 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?
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. Margins were strong irrespective of those two, but they were certainly modestly benefited from both of them.
If we think about situations where a promo is reduced, I'd look for much weaker growth in 14% off of 20% comp, including capacity constraints. As those constraints are alleviated, is this still a 20% growth business? I guess, how do you think about framing the growth algorithm for that business as a standalone in terms of revenue and EBITDA going forward?
Yeah. I have to be careful in answering questions around the forward-looking commentary with respect to being on the cusp of filing an S-1. 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 and 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 Burnette of Citi Research.
Thank you. Good morning.
Yeah.
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 8th Avenue of, I believe, something in the five and a half times range?
"Can" and "should" are, I think, 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. I would tell you that given the relatively high cash flow conversion dynamics, it's a leverage-capable business. Given the growth characteristics, I'm not sure it's as ultimately warranted. We will look at that and come back to you with more specific capital structure data as it becomes available.
Okay, when you remove Active Nutrition from the equation, how do you see the growth algorithm, let's say, for consolidated Post for the rest of the business?
Well, if you look at the remaining business as two significant engines, one is our Refrigerated Food business. That, as we've shared with you in the past, grows mid-single digits, the balance being ready-to-eat cereal, that is essentially a flat business with high cash flow. That algorithm relationship maintains.
Okay. I guess in the third quarter, if I can recall correctly, there were about $14 million of unusual costs in cereal. I think you had some production inefficiencies and some co-packing issues. Of course, there was about $3.5 Million dollars of transitory costs in eggs. Just wondering, did any of that slip into 4Q, 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. The number was $14 million. We bucketed them approximately equally in these four categories. Now you're stretching my memory to go back into what we said last quarter. 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. The other two that we commented on are more persistent.
They are the outsourcing of our peanut butter-based products to a co-manufacturer and an increased level of post-production assembly costs related to promoting some of our new introductions. Those continue to persist into the fourth quarter and will linger into 2019. We repaid for the peanut butter manufacturing in 2019, if memory serves, its second quarter 2019 is coming back into our Battle Creek facility. The post-production assembly cost will start to mitigate as we enter fiscal 2019.
Okay. The last one for me is, I think you gave a number on some of the freight prices that you're expecting next year. Can you quantify just in total what the input cost basket is going to be up by, as a whole, next year? 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. Can you try to marry those up so we get an idea of how things look for next year?
Let me take it segment by segment, Cornell. The two cereal businesses are going to see the most inflation because the commodity basket for those businesses is really, I would say, there's no major increases, 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, we wouldn't expect any major commodity issues there. In the Active Nutrition business, dairy commodities are more benign, we're not expecting any significant headwinds for that business. 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 guidances, 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. 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.
Hey, Chris.
Hi. If I could just ask you one more follow-up on Active Nutrition, just in terms of the timing of the announcement of this IPO, is there any other motive behind it? Are there 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 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-1 and the process of undertaking the IPO, draws from a number of resources across the organization. It's a relatively long lead time activity, 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 it into 2019. We think it's the right next strategic step. Meanwhile, we continue to develop a fairly strong M&A pipeline, getting ready for what could come next beyond that. It's more about resource allocation and being able to do it in the public market or having a 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. When would you expect to file an S-1? Will that be coming relatively quickly?
The first step is to do the standalone audits. That's probably a couple-to-three-month process, then it's another couple-to-three-month process after that to get an S-1 on file. Broadly speaking, let's say three to six months.
Okay. Thank you. Just a question for you, going back to Cornell's question around pricing and inflation. 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? I'd also like to understand how you're using revenue management. We use that term, but mix and lower promotional spending, on top of actual list price increases coming through to overcome this inflation.
Again, I'm going to be a bit circumspect on where we are with customers on pricing, 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, 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 weight outs and that kind of thing?
Yes. We would view all of those as levers that are able to be pulled, both list and trade.
Okay. Thank you.
Thanks, Chris.
Our next question comes from the line of Bill Chappell of SunTrust.
Thanks. Good morning.
Good morning.
Hey, two questions. First, on Active Nutrition, just remind us why you couldn't do this on your own. In terms of what's the benefit from a standalone in terms of M&A and stuff like that, where it wouldn't have your balance sheet and your know-how and corporate resources to build it even bigger? Or is the thought at $150 million 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. When we have a M&A strategy that is in a segment that has a multiple characteristics that is different from the balance of the business, it can be challenging to pursue M&A in that category. I think by isolating the business into a distinct, separately traded entity, it allows it to pursue M&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.
With respect to the resources that are available, I mean the human resources, we expect those to continue to be available.
Okay. Then, I guess, switching a little bit back to Weetabix. How does the announcement of the plant closures tie into your original synergy number of $50 million? It seems like that would take you above and beyond that original estimate.
No, it's embedded in it. It was part of a three-year plan, and that's part of the overall cost reduction that we had anticipated.
Okay. Again, you're not expecting really to see those until that's really more of a fiscal 2020 event?
Correct.
Okay. Last one from me. Any update on the Bob Evans side? It seems like some of the retail sales for the refrigerated items have slowed a little bit in terms of Nielsen. Any kind of update as 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 Potatoes brand has struggled a bit. Some of that struggling is self-induced because we've had more interactions between Bob Evans and Simply Potatoes. 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 Potatoes, 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 two significant expansion projects, both of which are in our Refrigerated Food platform. One is a expansion of our capacity in pre-cooked eggs, which is our highest value-added product within the Michael Foods 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% 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 two are attractive, not as attractive as the higher value-added products, but attractive in two sense. One, they have a good return, but they also increase the barrier 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.
What is the timing to which you'll get the returns on these? How do you think about it?
The value-added egg plant 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.
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. That we, by design, do not, I'm going to use your words, chomp at the bit because we try to take a more detached perspective on looking at these assets and try to take a much more cool approach to valuation. 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.
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? I'll leave it there, if you don't mind.
Well, I think the answer is bespoke to the asset. We have been value buyers, we have been more growth buyers. I think in one of our previous calls, I characterized us as more of a GARP buyer. 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. We are not opposed to paying for growth, we are not opposed to looking at value, hopefully we get that mix right.
Great. Thank you.
Thank you, Ken.
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. 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. We'll see more inflation in eggs than RTEs, I assume. It's more grain-dense .
Yeah, I was just trying to comment on the impact on margin dollars.
Yeah.
Not necessarily the point you're making.
Okay. There's no CapEx on your side for the Tetra Pak expansion? It's pretty much all is on your third-party co-packs?
To date, that's correct.
Okay.
It's 100% outsourced business.
Okay. You made the comment that leverage ratios would not be disturbed much by the IPO of Active Nutrition. You also made the comment that you expect it to be less leveraged than Post. Is that just because 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.
Finally, on innovation in eggs, I guess I had been hoping we'd see more capacity available for pre-cooked innovation in 2019, 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.
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, look forward to sharing what is a quite remarkable story with you. 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.