A mix of news has come from Ralcorp. Holdings during the past several hours. The company announced fourth-quarter earnings of $12.2 million, or 46 cents [er share, while sales came in at $608.2 million. The packaged-foods maker warned that significant increases in raw-material costs reduced profit margins. Excluding the impact of noncash losses taken on forward-sale contracts regarding its shares of Vail Resorts, earnings could have come in at 59 cents per share. The consensus estimate on the Street was for a profit of 62 cents per share on revenue of nearly $588.6 million.
Furthermore, RAH announced that it expects that the significant increases in costs of raw materials that hurt the company's fourth-quarter results will remain at elevated levels in fiscal 2008 compared to fiscal 2007 levels. Specifically, Ralcorp now expects to incur a net year-over-year increase in unit costs for ingredients, packaging and transportation of more than $75 million. In addition, RAH stated that the effects of any efforts to offset the impact of higher costs, such as pricing changes and spending reductions, could be delayed, citing the nature of its private-label business. Accordingly, results of operations could be negatively affected, especially in the short run.
RAH forecasts earnings per share for fiscal 2008 will be 5% or so above the $3.27 per share reported for fiscal 2007.
Finally, RAH will acquire the Post cereals business of Kraft Foods , paying about $1.6 billion in stock for the business. Kraft will distribute ownership of Post to its shareholders in either a split-off or spin-off transaction, to be determined upon closing of the deal, which is expected in mid-2008. Either way, Kraft shareholders will own about 54% of Ralcorp, with current Ralcorp shareholders owning the rest. The deal also includes the assumption of nearly $950 million in debt.
The sale is expected to cut Kraft's annual earnings by 13 cents per share.
The Post cereals business, which includes Raisin Bran, Grape-Nuts and a variety of Pebbles children's cereals, is the number-3 U.S. cereal maker by sales with net revenue of about $1.1 billion in 2006. Kellogg , which includes Frosted Flakes, Apple Jacks, Froot Loops, and Special K, takes the number-1 spot. General Mills , which includes Lucky Charms, Cheerios, Trix, and Wheaties, is the number-2 maker.