Welcome to Post Holdings first quarter 2023 earnings conference call and webcast. Hosting the call today from Post are Rob Vitale, President and Chief Executive Officer, and Matt Mainer, Chief Financial Officer and Treasurer. 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 800-839-6136. No passcode is required. 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 Post first quarter fiscal 2023 earnings call. With me today are Rob Vitale, our President and CEO, and Matt Mainer, our CFO and Treasurer. Rob and Matt 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 Investors 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 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. Finally, this call will discuss certain non-GAAP measures. For 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. Post had quite a solid quarter. While all segments performed well, food service performance exceeded expectations and contributed to our outlook revision for the balance of fiscal 2023. Most encouragingly, we are confident that the sustainable EBITDA level for food service has reset to approximately $350 million prior to considering the contribution from our ready-to-drink shake plant that comes online late this year. Last quarter, we talked about margin restoration. Compared to last year, we expanded gross margin by 170 basis points. We expect some give and take throughout the balance of the year, including a dip in the second quarter. This quarter's expansion is expected to largely mirror our full year results. Key drivers of margin expansion include pricing and supply chain execution, offset by mix.
The pricing environment remains inflationary, but at a slower rate. Data-driven price increases remain achievable and elasticities in most categories remain relatively low. Supply chains are demonstrably better, but fill rates continue to be below pre-pandemic levels. As I have mentioned, we view supply chain recovery as more of an ongoing process than a singular event we once expected it to be. The shift towards more value price points is a margin headwind, but in most of our categories, dollar accretive. To give you some more detail and perspective on the individual businesses, Post Consumer Brands maintained a branded dollar share position of 19.1%. Our private label business grew 13.6%. Interestingly, we have seen a stepped up level of competitor advertising intensity, which we believe is constructive for the overall category.
As I mentioned, food service remains strong both in volume and pricing. For some time, we have signaled our expectation that this business would emerge from the challenges of COVID and avian influenza in an improved position. We believe that is rapidly becoming clearer and informs the estimate I gave surrounding sustainable EBITDA. Notably, we expect to operate at approximately that level in the second half of this fiscal year. Refrigerated retail continues to show mixed results. Our supply chain has markedly improved versus this time last year. That recovery supported 12% volume growth in our core side dish category. We do see some expansion of private label distribution. In this category, we do not make private label. We are leaning into heavier brand investment to support both expanded distribution and velocities.
Liquid eggs remain under pressure as Highly Pathogenic Avian Influenza costs have driven up pricing and resulted in elasticities among the highest in grocery. Weetabix continues to be well managed in a challenging environment. The margin pressure from elevated energy prices, which we highlighted last year, developed as expected and will persist throughout the year. In addition to higher incremental costs, the impact on consumers drives mix towards private label.
Our small acquisition of the UFIT brands has gone exceptionally well, with sales up over 30% when compared to the prior pre-acquisition period. As we mentioned last quarter, we continue to believe the current challenges in the capital markets, especially the debt markets, create opportunities for Post and M&A. We remain interested in opportunities, both large and small, that could complement an existing business or provide entry to a new category.
This quarter, our capital allocation skewed towards bond rather than share repurchases, as that same debt market volatility created unusually attractive prices. This quarter, we sold our remaining stake in BellRing Brands. All told, our investment of a little over $700 million generated after-tax proceeds of $2 billion and resulted in a distribution to shareholders of an additional $2 billion. Their future is bright, and I'm excited to see the BellRing story continue to develop. Last but not least, we revised our guidance yesterday evening. We increased our outlook to an Adjusted EBITDA range of $1.025 billion-$1.065 billion to reflect year-to-date results and an increased optimism in the condition of the business.
While we have yet to plan fiscal 2024, our initial thinking is that despite some non-repeatable current year benefit, we expect to maintain or grow overall EBITDA in fiscal 2024. With that, let me turn the call over to Matt, who will go into more detail on the quarter.
Thanks, Rob, good morning, everyone. First quarter consolidated net sales were $1.6 billion and Adjusted EBITDA was $270 million. Net sales increased 17% driven by pricing actions in each segment as overall volumes were relatively flat. Certain pockets of our business saw a modest shift to private label. We continue to see incremental improvement in supply chain performance and customer order fill rates, however, both remain below optimal levels. While significant inflation continued in the quarter, there do appear to be signs of moderation. Turning to our segments and starting with Post Consumer Brands, net sales increased 9% and volumes decreased 1%. Average net pricing increased 11%, driven by pricing actions, partially offset by unfavorable product mix and incremental promotions. We saw strong growth in Peter Pan and private label cereal.
These gains were offset by declines in Honey Bunches of Oats, government bid business, and Malt-O-Meal bags. Adjusted EBITDA increased 5% versus prior year as our pricing actions outweighed significant cost inflation and higher manufacturing expenses. Weetabix net sales were flat year-over-year. Local currency, however, sales were up approximately 14%. Significantly weaker British pound caused a foreign currency translation headwind of approximately 1,400 basis points.
Net sales benefited from significant list price increases and contribution from last April's acquisition of the UFIT brand. These benefits were partially offset by unfavorable mix, reflecting growth in private label products. Excluding the benefit from UFIT, sales declined 6% and volumes declined 1%. Growth in private label was not enough to offset decline in branded products, which were largely driven by supply chain constraints and related shortfalls in order fulfillment.
Segment Adjusted EBITDA was 18% lower than prior year, primarily because of foreign currency translation headwinds. Additionally, our Adjusted EBITDA margin stepped down as supply constraints were compounded by higher input and warehousing costs. Given the challenging macro environment in the U.K., our overall outlook assumes margins are compressed throughout 2023. During the food service, net sales and volume grew 37% and 4% respectively.
Revenue growth continued to outpace volume growth as revenue reflects the impact of inflation-driven pricing actions, the effect of our commodity pass-through pricing model, and avian influenza-driven pricing actions to offset higher costs to procure eggs on the spot market. Segmented Adjusted EBITDA grew to $109 million, benefiting from improved average net pricing and volume growth, which combined mitigated the impact of higher costs to produce. Refrigerated retail net sales increased 7%, while volumes decreased 5%.
Note that excluding the divested Willamette Egg Farms business, net sales increased 10% and volumes increased 1%. Pricing actions drove increases in average net selling, I'm sorry, average net pricing across all products. Side dish volumes increased 12%, reflecting improved inventory levels that allow us to meet demand for the holiday season. Egg volumes declined as elevated egg costs and limited cage-free availability from avian influenza hurt both volume and margins.
Segmented Adjusted EBITDA increased 12%, primarily benefiting from actions to offset significant cost inflation. Higher volumes also drove improved manufacturing leverage. The reinstatement of advertising and promotion was an offset to these benefits. Turning to cash flow, in the first quarter, we generated $98 million from continuing operations and was driven by profitability offset by, excuse me, higher profitability year-over-year versus higher working capital.
Our net leverage decreased half a turn this quarter to 5.1x, driven by growth and Adjusted EBITDA. Moving on to capital allocation, in the first quarter, we repurchased 300,000 of our shares at an average price of approximately $85 per share and $71 million of our debt at an average discount of 15%. We have $276 million remaining under our share repurchase authorization. With that, I would like to turn the call back over to the operator for questions.
At this time, if you would like to ask a question, please press the star and one on your touch-tone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue. We'll take our first question from Andrew Lazar with Barclays.
Morning, everybody.
Good morning, Andrew.
Morning.
Hey there. I guess to start, Rob, I think in fiscal 4Q, you talked about the food service segment EBITDA, obviously, was well ahead of what you see as a normalized run rate. I think for 1Q, you said, you know, you didn't expect it to be as strong as 4Q, but still elevated. Obviously, the first quarter did come in similarly strong as 4Q. I'm trying to get a sense of a little bit more color on what drove that outperformance. Was it the same drivers as in 4Q or different? I guess what would keep that business from delivering this level of EBITDA into fiscal 2Q or beyond?
The drivers were virtually identical fourth Q to first Q. I think the reality is that some of the avian influenza impact has persisted longer than we expected. There's been some occurrences that are outside the normal seasonal patterns that have caused that to linger a bit longer. That could persist a bit longer. We have tried to strip that out and give you a perspective on what we think is non-related to that and giving you a sustainable EBITDA number. The conditions that are driving the business really have not changed between four Q and one.
All right. Those conditions, Rob, I think last quarter you said part of it was just being able to take advantage of, let's say, competitors that weren't in as advantaged a supply position as you were. That's one of the things, I guess, that's driving it. The other piece is just the pricing part. I was hoping you can get into just a little bit of detail on the pricing versus what you need to pay in the spot market for procurement and how that helps drive the profitability higher, at least for a shorter-term period of time.
Well, prices continue to remain elevated. There's been some decline in the cost of breaking stock. You know, what we have tried to do is separate that, so that you can get visibility into the small piece of it that is affecting the quarter. I don't wanna get more detailed around pricing dynamics.
Last, just, I thought it was interesting that Malt-O-Meal bag cereal brands volume was down, even though you've talked obviously previously about trading down and incremental shelf distribution. Is that purely a function of just pricing and elasticity, or is there something else there? Because it still sounds like you're seeing trade down, just given some of the trends you pointed out in private label.
I think we had some price gaps between private label and Mom brands that needed to be fixed. Those have since been fixed, you should expect to see some correction of that dynamic going forward. The other dynamic is simply, you know, the Mom bag, while on a per ounce price point is quite attractive, is a steeper pure entry price. We're seeing a bit of a migration towards opening price point levels. I would expect as we go through the balance of the year, you see some of that dynamic with Mom brands start to reverse.
Yeah. Thank you.
Thank you, Andrew.
We'll take our next question from Chris Growe with Stifel.
Hi. Good morning.
Morning, Chris.
Hi. Obviously, you had a nice EBITDA guidance here and increase early in the year, and obviously projects a lot of confidence in the business. Rob, you had mentioned that food service is obviously performing ahead of expectations, which clearly is in our model as well. I think you indicated that was probably the main driver of the higher guidance for the year. I just wanna get a sense of any other businesses that you would cite, whether it be PCB or even refrigerated retail, where you're seeing the potential for a little stronger EBITDA performance for the year than what you initially expected.
Well, I would say there's three items. One is the Q1 beat. We wanna make sure to reflect that, but then we also increased our expectation for the remaining three quarters. The second is that, you know, we have revised our estimate for currency translation given the fairly significant move in the pound sterling in the first quarter. The last would be, we have still taken a meaningful amount of pricing that has yet to hit the P&L. The uncertainty, of course, is ongoing elasticities, but I think the potential upside outside of the outside of Weetabix and food service, Weetabix specifically in US dollars, would be the relationship between incremental pricing and elasticities. Chris?
We'll.
All right. Go ahead, go ahead, operator.
We'll take our next question from Jason English with Goldman Sachs.
Hey, good morning, folks. Thanks for letting me in.
Good morning.
A couple quick questions. Thank you so much, by the way, for the color on food service. Very helpful. Sticking with food service, you mentioned the incremental source of growth coming from the shake capacity. Can you bring us up to speed on how that's progressing? When do you expect it to be up and running? How long will it take to get to run rate levels? Most importantly, like how much profit do you expect that business to throw off for you?
In reverse order, we've talked about it being $15 million-$20 million of incremental EBITDA. The expectation currently is that we are going to be online right around the very end of the year, so September 30th-ish or so. You know, we are building a factory in times that are challenging. We've met every milestone so far. I'm gonna hedge that a little bit and say that, you know, give it till the end of the calendar year, and that we'll be up and running and at full capacity by early 2024, early calendar 2024.
Makes sense.
Hopefully, we'll do a little bit better than that, but I wanna hedge that a bit.
Yeah. Yeah, I appreciate why you would. and the private label launches into refrigerated side dishes, it sounds like that's sort of a new and mounting threat to your business. can you put more context around that and talk about how you're looking to defend, what we should expect from a P&L impact and whether or not there's gonna be some price giveback, more promotional intensity, et cetera. Thank you.
Well, our first levers would be more traditional, continued innovation, continued revisions of pack sizes and expanded advertising, all of which we think the brand would warrant irrespective of the presence of private label. Private label has been tried a number of times in the category and not worked. We've been quite successful in managing that. We are highlighting it because we're in a bit of a different environment than we've ever been in this category with inflation as widespread as it is. You know, we would expect to be successful in managing that incremental competition, but we wanted to highlight it because it is relatively new.
Cool. Last question on the cereal side. I think a lot of us are looking at U.S.-centric food, and we see the baiting cost curve, and we see residual pricing, and we're expecting decent margin recovery. Are those expectations founded in cereal, or should we be a bit concerned about maybe the rising cost to compete? Which I think you sort of alluded to when you mentioned you're seeing more advertising coming in.
I don't necessarily think that incremental advertising coming from category leaders is a bad thing for our position in the category. I think, you know, we need that kind of support in order to maintain interest in the overall category, and we will compete in with different forms, you know, in terms of packaging and on in-store marketing. I don't necessarily view that in any way as a negative. you know, we're far more sensitive to promotional intensity than advertising intensity, and I think that's, you know, within the normal range.
Makes sense. Thank you.
Thanks, Jason.
We'll take our next question from Michael Lavery with Piper Sandler.
Michael.
Thank you. Thank you. Good morning.
Morning.
Just a helpful color on fiscal 2024, even though it's obviously super early, but just a quick clarification on that, where you said even with some of the one-time lifts in this year, you would think it'd be flat to up next year. Would that be sort of like for like excluding the shake capacity or with that, driving a little bit of a lift?
You know, we're not to that level of granularity that I can say within 10 or you know, $15 million-$20 million, particularly when you factor in that it's not going to be for the full year 2024, whether that will matter. What we were trying to communicate is that, you know, to the extent that there are some uncertainty around sustainability of the overall EBITDA level, we don't share that concern, as we sit here today. You know, whether that incorporates the in-year effect of the incremental capacity, that's the level of precision we haven't yet achieved.
No, fair enough. But yeah, good color still. When you talk about the pressure on Weetabix margins, obviously, we see that in this quarter. Is the magnitude likely to moderate at all? How do we just think about kind of the run rate over the rest of the year? Is one Q indicative of what to expect, or might that get a little bit better?
At the EBITDA level, I think it's indicative of where we will be. At the gross margin level, it may fluctuate a bit, with inventory levels, but I think we can maintain, that EBITDA margin, you know, plus or minus. Longer term, we think it'll be restored, but, you know, we face a choppy year there.
Okay. No, that's helpful. Just one last quick one. You mentioned some pricing that hasn't hit the P&L yet. I may have missed it if this was clear, but is that which segment or segments would that apply to?
BCB and refrigerated retail.
Can you give any sense of the magnitude?
No, I'd rather not get into that level of pricing discussion in this forum.
Okay. Thanks so much.
Thank you.
We'll take our next question from David Palmer with Evercore ISI.
Hey, David.
Thanks. Good morning, Rob. I'm curious about the way this year is shaping up in the way that it provides insights about your earnings power as you look ahead to fiscal 2024. I know we're not gonna get into guidance for an out year, but I would imagine that supply chain improvements will be something that's continuing to happen, particularly in refrigerated, and that there's gonna be some price net of commodities catch up progressing in Consumer Brands, but perhaps some give back in food service. Those are all hunches. I'm just wondering if you could maybe give a sense of the way this year is going and ways it could leave an imprint for 2024. Thanks.
I don't think I could answer the question any better than you asked it. The cadence and variables you just went through are spot on.
Well, that was, that was quick. As far as the timing goes on the pricing of the commodities front for cereal, you don't have to be down to a quarter, but when do you think that that will start to get better? Is that.
Current. [crosstalk]
How soon? [crosstalk]
Current quarter. That starts now and builds throughout the year.
Okay. Thank you very much.
Thank you, David.
We have reached the allotted time for Q&A. I will now turn the program back over to our presenters for any additional or closing remarks.
Thank you all for joining us, and we'll speak with you soon. Bye.
That concludes today's teleconference. Thank you for your participation. You may now disconnect.