Post Holdings Inc

NYSE:POST

Earnings Call Analysis

Strong Quarter for Post Holdings with Increased Guidance

Post Holdings reported solid Q3 results with net sales of $1.9 billion, up 5% due to recent acquisitions. Excluding these, sales fell 5%, largely from lower retail volumes. Adjusted EBITDA rose 28% year-over-year, driven by pet food contributions and improved grocery performance. The company's supply chain remained strong, and commodity inflation was neutral. Capital expenditures were $110 million, focusing on pet food capacity. With strong cash flow, Post repurchased 2.3 million shares and approved a new $500 million repurchase program. Full-year guidance was increased to $1.37-$1.39 billion, projecting favorable volume trends in FY2025 .

Strong Overall Performance with Notable Acquisitions

In the third quarter, consolidated net sales reached $1.9 billion, up 5% year-over-year, largely driven by recent acquisitions. Excluding these acquisitions, net sales declined 5%, primarily due to lower volumes in retail businesses and the effects of foodservice pricing models. Adjusted EBITDA was robust at $350 million, setting a solid foundation for future growth.

Post Consumer Brands Face Mixed Outcomes

While net sales of Post consumer brands, excluding pet food, declined by 3% and volumes fell by 6%, average net pricing saw a 3% uptick. The segment's adjusted EBITDA rose by 28%, thanks to strong contributions from the pet food sector and improved performance in grocery products. Despite facing volume challenges in cereal, the company slightly increased its market share both in dollars and pounds in the grocery segment.

Weetabix: Modest Growth Amidst Challenges

Weetabix experienced a 1% year-over-year increase in net sales. The Deeside acquisition contributed positively, and there was a slight foreign currency benefit due to a stronger British pound. When adjusting for currency and acquisitions, net sales declined 5%, and volumes were down 6%, primarily in non-biscuit products. Segment adjusted EBITDA grew by 24%, aided by easing commodity pressures and improved manufacturing leverage.

Foodservice Sector: Mixed Results

Foodservice net sales dropped by 5%, although volumes grew by 2%, driven by higher sales of egg and potato products. Lower commodity costs and the wind-down of avian influenza price premiums affected pricing. While the segment's adjusted EBITDA decreased by 17% compared to last year, the decline was partially offset by favorable shifts toward higher-margin pre-cooked egg products.

Refrigerated Retail Struggles but Shows Potential

The Refrigerated retail segment saw a 7% drop in net sales with flat volume. Average net prices fell due to increased trade in dinner sides, though side dish volumes were favorable. However, higher sales costs resulted in a 37% decline in segment adjusted EBITDA year-over-year.

Strong Cash Flow and Investment

The company generated $272 million in cash from operations in Q3, reflecting strong profits and improved working capital. Capital expenditures were $110 million, largely for expanding pet food capacity and the Norwalk pre-cooked egg facility. Over the past 12 months, cash flow from operations totaled $966 million, with $391 million in capital expenditures, leading to $575 million in free cash flow.

Share Repurchase and Increased Guidance

Given the robust cash flow, Post Holdings maintained a net leverage of 4.3x and repurchased 2 million shares at an average price of $104 per share. An additional 300,000 shares were repurchased in July at $105 per share. The Board also approved a new $500 million share repurchase authorization. These actions allowed the company to revise its guidance upwards to a new range of $1,370 million to $1,390 million.

Future Outlook and Strategic Actions

Looking ahead to fiscal 2025, the company anticipates a more stable consumer environment, which should support favorable volume trends. The capital and M&A markets are conducive to further strategic actions. With leverage at historically low levels, Post Holdings plans to remain agile in capital allocation. The company is also recalibrating its trade spending to optimize returns, particularly in the Bob Evans brand and side dishes.

Earnings Call Transcript 2024-Q3

[Operator]

Welcome to the Post Holdings Third Quarter 2024 Earnings Conference Call and Webcast. [Operator Instructions]

I would now like to turn the call over to Daniel O'Rourke, Investor Relations for Post.

[Daniel O'Rourke, executive]

Good morning. Thank you for joining us today for Post's Third Quarter fiscal 2024 Earnings Call. I'm joined this morning by Rob Vitale, our President and CEO; Jeff Zadoks, our COO; and Matt Mainer, our CFO and Treasurer. Rob, Jeff and Matt will make prepared remarks, and afterwards, we'll answer your questions. The press release that supports these remarks is posted on both the investors and the SEC filings sections of our website and is also available on the SEC's website.

As a reminder, this call is being recorded. An audio replay will be available on our website at postholdings.com. 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.

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.

[Robert Vitale, executive]

Thank you, Daniel. In Q3, we delivered another quite solid that enabled us to increase our full year guidance. While never fully satisfied, we are quite pleased with the business performance, including recent acquisitions. I'm certain you noticed we have been aggressive in purchasing our own shares. This solid performance is against a challenging and transitioning consumer environment.

Inflation is cooling but so are labor markets. Meanwhile, rapid cumulative change in pricing over the last couple of years has impacted consumer behavior across channels. We expect to work through this reference price phenomenon in both retail and foodservice channels over the next year. Key highlights of the quarter include strong consumption of both our branded and private label cereal products, ongoing outperformance in our pet business versus our underwriting case, significant mix improvement in value-added eggs. We expect these highlights to be sustained in FY '25. On the other side of the ledger, our refrigerator retail segment underperformed as trade investment cannibalized base volume without sufficient incremental lift.

We are addressing the appropriate level of trade spending. Looking ahead to '25, we expect a more stable consumer environment, which, along with lapping '24, will support more favorable volume trends. The capital markets and the M&A market support further strategic action. Our leverage is at historically low levels, and we will tend to be reactive with capital allocation. Our business model and our diversification enable us to adapt to changing conditions. And we will remain clear eyed as we consider the allocation of your capital.

Now Jeff will provide more context on the quarter.

[Jeff Zadoks, executive]

Thanks, Rob, and good morning, everyone. Starting with PCB, both our grocery and pet food products contributed to another strong quarter of profit performance. Within grocery, cereal volumes were challenged, although we performed better than the category as we slightly increased branded share in both dollars and pounds. Carryover pricing combined with excellent operating and supply chain performance continued to be the main profit drivers within grocery.

Cereal category volume finished the quarter down 4.1%, despite not seeing an immediate recovery as we lap snap this quarter, we continue to expect category volumes will normalize to the historical CAGR of down approximately 1% to 2%. For the pet food business, our category share remained fairly flat in total and across our brands. Recall, however, in the last half of the prior fiscal year, our pet food sales revenues and volumes benefited from a onetime replenishment of customer inventories as we improved customer fill rates from the low 70s to the low 90s.

Strong manufacturing performance continued to drive our results. The closure of our Lancaster, Ohio cereal plant and our pet integration continue to remain on track with a planned exit from the Smucker's TSA in the first half fiscal year 2025.

Moving to Foodservice. We had a good quarter with very strong product mix. In addition, we benefited from the final runout of avian influenza pricing related to the November 2023 outbreak, as well as elevated customer promotions in the quarter. Overall egg volumes were flat despite slowing restaurant foot traffic. However, our mix continued to improve with 15% volume growth in our highest-margin precooked egg products.

Lastly, we continue to encounter some delays in achieving our full RTD shake manufacturing right. The ramp-up has been slower than we anticipated, but we made significant progress during the quarter. Recognizing that it is hard to track the impact of avian influenza quarter-to-quarter, we will share that our expectation for Foodservice adjusted EBITDA in the fourth quarter is approximately $100 million. Our refrigerated retail business had a significant pullback in profitability.

While we were encouraged to see dinner and breakfast side volumes up 4% and 6%, respectively, this growth came with significantly higher than expected trade costs. We are recalibrating these investments and anticipate sequential segment profit improvement in the fourth quarter. From a commodity standpoint, sale prices were a significant headwind versus prior year further pressuring Q3 adjusted EBITDA for the segment. On the positive side, we continue to see strong manufacturing and cost management performance across the network.

Turning to Weetabix. U.K. cereal category volumes moderated to a decline of 1%, and we saw flat volumes within our branded and private label biscuits. Continued improvement with supply chain and service levels, combined with incremental pricing on some private label products drove sequential margin improvement from Q2. In addition, the business successfully completed Phase 1 of its ERP conversion and is on track for the second larger Phase 2 in the fall.

With that, I'll turn the call over to Matt.

[Matt Mainer, executive]

Thanks, Jeff, and good morning. Third quarter consolidated net sales were $1.9 billion and adjusted EBITDA was $350 million. Net sales increased 5% driven by recent acquisitions. Excluding acquisitions, sales declined 5% driven by lower overall volumes in our retail businesses and the impact of foodservice pricing of our foodservice pricing pass-through model. Supply chain performance and fill rates remained strong, while commodity inflation on balance was neutral. Finally, SG&A increased as we continued targeted marketing investments in our retail businesses. Excluding the benefit of pet food acquisitions from both the current and prior year quarters, Post consumer brands net sales decreased 3% and volumes decreased 6%.

Average net pricing, excluding pet food, increased 3%. Volumes declined primarily in nonretail and branded cereal. Segment adjusted EBITDA increased 28% versus prior year as we benefited from the strong contribution of pet food and improved grocery performance. Weetabix net sales increased 1% year-over-year. Sales benefited from the Deeside acquisition and a nominal foreign currency tailwind of 80 basis points from a stronger British pound. On a currency and acquisition neutral basis, net sales decreased 5% and volumes decreased 6%, driven by a decline in non-biscuit products.

Segment adjusted EBITDA increased 24% versus prior year led by the easing of commodity pressures and improved manufacturing leverage as we build inventory in the quarter ahead of our ERP go-live. Foodservice net sales decreased 5%, while volumes increased 2%, revenue reflects the pass-through of lower grain costs and a net reduction in pricing due to the wind down of avian influenza price setters from last year. Volumes reflect increases in both egg products and potato products. Adjusted EBITDA decreased 17% as we lap the benefit of egg market imbalances and elevated avian influenza price setters in the prior year. These headwinds were partially offset by a favorable mix shift to higher margin pre-cooked eggs.

Refrigerated retail net sales decreased 7%, while volumes were flat. Average net prices declined as a result increased trade -- as a result of increased trade in the portfolio primarily for dinner sides. Favorable side dish volumes were offset by distribution losses in egg products. Segment adjusted EBITDA decreased 37%, reflecting lower net pricing and a significantly higher sale costs compared to prior year.

Turning to cash flow. In the third quarter, we generated $272 million from operations driven by strong profit performance and sequential improvements to working capital. Capital expenditures in the quarter were approximately $110 million, driven by continued investments in pet food capacity and the expansion of our Norwalk, Iowa pre-cooked egg facility. For the last 12 months, cash flow from operations was $966 million, and capital expenditures were $391 million, netting to $575 million of free cash flow.

Given the strong cash flow, we maintained our net leverage at 4.3x in the quarter while repurchasing 2 million shares at an average price of approximately $104 per share. In the month of July, we repurchased an additional 300,000 shares at an average price of approximately $105 per share. In addition, our Board approved a new $500 million share repurchase authorization that begins next week. Finally, given the strong performance in the quarter, we again raised our guidance to a new range of $1,370 million to $1,390 million. With that, I will turn the call over to the operator for Q&A.

[Operator]

[Operator Instructions] And our first question will come from Andrew Lazar with Barclays.

[Andrew Lazar, analyst]

On Foodservice, I'm curious, you spoke to the ongoing run rate in EBITDA in that segment, I think last quarter of around $95 million. But sort of acknowledge that it has kind of been running above that but didn't sort of formally change it at that point. I'm curious where you see the ongoing run rate for Foodservice EBITDA now? And partly, I ask that because as we think ahead to fiscal '25, trying to get a sense of whether that could be a year-over-year headwind, right, lapping with strong year in Foodservice next year? Or if you think the ongoing run rate is somewhat higher or more consistent with what we've seen this year?

[Matt Mainer, executive]

Sure. Andrew, we think the run rate is around $105 million. And again, the difference between that and the $100 million is pressure we're going to see in Q4 related to avian influenza costs we're going to incur ahead of pricing kicking in.

[Andrew Lazar, analyst]

Yes. Got it. And then in measured channel data for PET, which certainly does not tell the whole story, it looked like consumption decelerated pretty meaningfully on a sequential basis in the quarter. And I guess I'm trying to get a sense of whether something sort of changed in terms of maybe not seeing as much trade down to mainstream in pet as you had been seeing. And if the planned reinvestment has sort of started to kick in yet or if that's still to come?

[Matt Mainer, executive]

Andrew, really 2 drivers there. One, there's actually seasonality in the pet food category. So you do see a pullback between Q2 and Q3 over-year. The other piece for us, though, specifically was we had new distribution gains in Q2. So there was a pipeline fill in particular from new lives. So those are the 2 components of this sequential decline. Other than that, we're kind of in line with where we'd expect to be.

[Andrew Lazar, analyst]

Got it. And lastly, just last quarter, I think, Rob, you mentioned having seen a meaningful increase in sort of the M&A pipeline. You mentioned private equity-owned assets have sort of aged and such. And trying to get a sense, obviously, your leverage is now lower than it's been in a while and you've been taking advantage of that around share repo. But any change to sort of that M&A landscape one way or the other that you've seen since last quarter?

[Robert Vitale, executive]

No. If anything, it's accelerated in terms of the amount of opportunities we've been considering. Obviously, we take our time in considering those and the pipeline may take a long time to mature to a deal, but market feels very active right now.

[Operator]

Next question will come from David Palmer with Evercore ISI.

[David Palmer, analyst]

I'm just only going to continue on that line of questioning about how you're feeling heading into fiscal '25. I'm wondering how you're feeling about pet synergies, productivity, visibility? Anything that kind of gives you dry powder for what seems to be a starting point where you're going to want to stabilize volume in pets. Post consumer brand volume is down 6%. I would imagine that you'll want to dial up promotion spending to address that. So I'm just thinking about things that could be incremental, you mentioned the TSA sunsetting the Smucker, any thoughts about how the gives and takes for '25 would be help.

[Matt Mainer, executive]

Yes. So on the cereal side, obviously, we've got the Lancaster closing that's on track to be a contribution to the positive. Obviously, that's rightsizing some capacity or overcapacity we have now. And then, I would say, beyond that, in Post consumer brands, just your comment about down 6%. There were a couple of factors in the quarter around cereal volumes. We were really in line with the category. Beyond that, we saw a discontinuation on our side with some SKU rationalization in Canada and then also we've seen just a general pullback in KCCO or government volumes in terms of bid business across the board, but those are really the 2 outliers relative to category performance and our own. But I would say Lancaster is the positive to offset some of what you talked about in potential volume pressures.

[David Palmer, analyst]

Any -- do you want to give us an estimate of what that could mean to EBITDA and the timing of that in fiscal '25?

[Matt Mainer, executive]

We talked about Lancaster as being a $25 million contribution for the full year, and we're on track to be there. So again, to your point, there's volume -- volume pressures if they persist there could be promotional, although we're pretty rational in terms of our promotional outlook.

[Operator]

Our next question will come from Ken Goldman with JPMorgan.

[Kenneth Goldman, analyst]

Two quick ones to start, if I may. One, I didn't quite hear you on the TSA timing. Is that shifting the exit into 2025 now? I think it was previously scheduled for the fourth quarter of this year. Please correct me if that's not right. And then I also was hoping for an update on the timing of the Michael plant. I wasn't sure if we had heard that.

[Robert Vitale, executive]

So the TSA was Smucker, there's no change in the timing. There's a part of the co-pack arrangement that lingers into the first part of fiscal '25. But we're on target to exit the back-office TSA at the end of our fiscal year. And then the question about foodservice, could you say that again?

[Kenneth Goldman, analyst]

I just didn't understand if there was any change in the guidance on the timing of the Michael plant opening?

[Robert Vitale, executive]

No, we didn't -- our prepared remarks didn't comment about that, but the timing of Norwalk, if that's what you're talking about, the expansion of that?

[Kenneth Goldman, analyst]

I'm not saying it clearly, but yes thank you.

[Robert Vitale, executive]

Yes. No, the plant is open. It's just our ramp-up has been slower than we expected. So I guess the way to put it is, yes, the profitability from that or expected profitability from that has been delayed beyond what we had previously communicated.

[Kenneth Goldman, analyst]

And then one more, if I can, just on SG&A. Broadly, over the last 12 months, your SG&A has grown much more rapidly than your sales. And I know you've talked about increasing marketing. But it brings now your SG&A as a percentage of sales over the last 12 months back up to kind of the range it was for many years around that kind of mid-18% until it dipped the last couple of years. I'm just curious, is it fair to kind of think about this percentage is a good number to model ahead, understanding it will never stay exactly there? Are there reasons to kind of think that SG&A dollars will continue to rise at a meaningfully faster pace than revenue?

[Matt Mainer, executive]

Yes. I think a couple of things. You mentioned A&C. We definitely have some targeted additional investments there that we may recalibrate. Also, given the overperformance in the portfolio, there's some definitely some elevated step or bonus within some of our segments as well that would reset next year.

[Operator]

Our next question will come from Matt Smith with Stifel.

[Matthew Smith, analyst]

I wanted to go back to the Foodservice business. You have the expanded capacity coming online at Norwalk. Could you remind us when that capacity comes online and your visibility in the pipeline of filling that capacity and what it could mean for further distribution opportunities?

[Matt Mainer, executive]

Yes. We still have another year of construction or so on Norwalk. So that would really be fiscal '26 when that would come online and then there'll be a ramp period that's typically could be as long as 12 months in terms of filling that plant.

[Matthew Smith, analyst]

And if we could move to the Refrigerated Retail business, you invested in some promotional activity to bring consumers back into -- or to induce trial and get consumers to trade back up into your brands. Can you talk about the -- why the lift wasn't as strong as you had anticipated? And where you go from here to improve your volume trajectory?

[Matt Mainer, executive]

Sure. So again, as we mentioned, we're recalibrating that. Honestly, we just -- we overshot. There's a bit of a look back on that as well. It's kind of a 6-month tail. So some of this is Q2 related as well. But we'll get the full tally of the spend there. We just didn't see the lifts in Q2 and Q3 to support the amount we spent in terms of promo. Again, we're recalibrating that. But what happened essentially is this quarter is an example, was a 4% increase in sides. I think to support that level of spend, we would have expected something north of 10. And instead, we subsidized some base sales that were on promotion, which deteriorated profitability.

[Matthew Smith, analyst]

And you mentioned a longer look back period for those promotional events. Are you able to recalibrate that fairly quickly? Or does that take a couple of quarters to pull planned promotions out of the market?

[Matt Mainer, executive]

Yes, we are. I mean I think with the knowledge of that. Again, I think as a reminder, just as a comparison to cereal, I think, is a good analogy as cereal is a very mature category with a lot of history behind promotions. As a reminder, we haven't been able to promote in refrigerated retail a much different category than cereal. We just don't have that history. So definitely underestimated the level of promotional activity that happened. But we have recalibrated the accrual and our expectations in the quarter. So we feel like we have a ring-fenced and adjusting that going forward. So we feel like we've got a good handle on it.

[Operator]

Our next question will come from Michael Lavery with Piper Sandler.

[Michael Lavery, analyst]

You mentioned how branded cereal is outperforming private label, but we keep you also hearing so much about how the consumer is stretched. How do you maybe just reconcile the cereal dynamics? And I think you also said you expect a little bit more stable. The consumer to be in maybe stable at least or a little bit better placed in fiscal '25 is little bit of read-through from cereal or -- how do we think about where the consumer is there?

[Robert Vitale, executive]

Let me start with the initial comment. Private label outperformed branded in the quarter. So...

[Michael Lavery, analyst]

Sorry. Okay. I misheard that.

[Robert Vitale, executive]

And I think the comment around the consumer behavior going forward is more about the acceptance of the pricing environment that has moved so rapidly and it's taken some time to grow accustomed to. So it feels like we intentionally use the word that the consumer is in a transitional mode in that we are now going from a super-hot labor market to a cooling labor market, cooling inflation. So I think that it should be generally constructive for volumes to get past the reference price adjustment, and it should be constructive for more value products as we see a bit of a cooling in the labor markets. So we tend to think that the consumer environment will be more constructive next year on balance, but there's certainly some puts and takes.

[Michael Lavery, analyst]

And would you characterize that as likely across all your categories? Or do you have some where you would call out maybe more likely to see extended pressure?

[Robert Vitale, executive]

Certainly in cereal, given its maturity, we continue to believe within the Bob Evans brand. There are opportunities to do considerably better. Again, as Matt mentioned, we let our trade skills get a bit rusty having been through a period of which we didn't really try to create demand. Value-added eggs continues to outperform the overall volume trends broadly across food, both away from home and in home. So I think the comments would be most applicable to cereal with varying degrees of application to the other categories.

[Michael Lavery, analyst]

That's helpful. And just on pet, can you give an update on kind of the spending trajectory and how to think about just timing and where that's directed in terms of kind of which brands and how that's playing out?

[Robert Vitale, executive]

And when you say spending trajectory, you mean of incremental investment in things like advertising?

[Michael Lavery, analyst]

Exactly, yes.

[Robert Vitale, executive]

It's mostly around our more premium brands that are larger. So I don't want to get into details around particular cadence and spend. But I mean, you can look at the portfolio and into it where we would choose to invest.

[Operator]

Our next question comes from John Baumgartner with Mizuho Securities.

[John Baumgartner, analyst]

Maybe first off, coming back to refrigerated retail and the trade promo, just to clarify on that, if I remember correctly last quarter, I think there were some customer funded promotions that I think seem promising in terms of the consumer response. And you mentioned the dust is still settling here on Q3, but were there any material changes in terms of type of outlet, type of program or even geography relative to the customer-funded approach in Q2?

[Matt Mainer, executive]

No. I mean the comment on customer was really around Q1, and that was during the holiday season. So that would be maybe the different dynamic is that's the peak season where we're seeing really good volumes and then a little bit of seasonality in Q2, and then there is no seasonality benefit in Q3. But I would say that's really the difference, which is Q1 is a very, very strong quarter.

[John Baumgartner, analyst]

And then -- okay. And then, Rob, why don't we come back to foodservice and the volume growth there. Are there certain segments within away from Home where your distribution growth is skewing in particular. And then for your existing business, the exposure to breakfast, are you seeing any sort of shift within that daypart where pre-cooked eggs are particularly resilient or there's more trading down to less expensive items. You mentioned eggs are outperforming, but I'm not sure if that's just due to a smaller base effect relative to other offerings that are out there. Maybe it's too granular, but just curious if you have any observations on sell-through more broadly at retail.

[Robert Vitale, executive]

Yes. The precooked business, which is the highest value add and highest-margin business is continuing to perform very well, in fact, grew 15% volumetrically over the quarter. We are seeing changes in some of the foot traffic patterns across restaurants and QSRs, which I'm sure you've seen reported by some of the larger ones that have been within the last couple of weeks. So there is some offset in terms of where that business could be going. But the value proposition of that particular product is such that it's a great way to take labor out of back-of-house operations, and we think it will continue a long-term trend irrespective of the short-term vagaries of some of the foot traffic issues.

[Operator]

Our next question comes from Rob Dickerson with Jefferies.

[Robert Dickerson, analyst]

Rob, just around the commodity complex as you kind of think through next year, are there any potential kind of offsetting benefits maybe in some of the grain -- the more grain-based categories in which you play that could help support profitability kind of despite some of this volume pressure you want to correct immediately on top of, let's say, from the rightsizing of capacity?

[Robert Vitale, executive]

As we look at it right now, there's a fairly balanced benefits, as you mentioned, from grains, then there's some offsetting inflationary items such as packaging and sugar as a couple of examples. So I don't think we see it as a huge benefit. At the same time, we're not currently expecting it to be a huge detriment either. So fairly balanced as we head into the next fiscal year.

[Robert Dickerson, analyst]

All right, cool. And then just quickly on Weetabix. You called out in the release and comments just a margin uptick of some, I guess, pricing. It sounds like maybe part of that portfolio, the margin uptick was impressive, right, on a sequential, but then also on a year-over-year basis. And I'm just curious, again, as we think through, let's say, Q4, even next year, is that step up like somewhat sustained? Like is that kind of more of a kind of a new margin kind of base for that business? Or could there be some other flow-through impacts that would kind of bring that back down?

[Robert Vitale, executive]

Yes. A couple of things. As Matt said in his prepared remarks, there is a benefit this quarter because of inventory build. So we have an ERP conversion that is going to hit at the beginning of next fiscal year. And in preparation for that, we're building inventory to manage through any bumps in the road that might occur. And because of that, we had an absorption benefit in the third quarter that you wouldn't expect on an ongoing basis.

With that said, we certainly expect that Q2 and Q1 of this year were more of the trough and that our expectation is that we'll begin migrating towards the more historical margin profile of that business. But to be fair, Q3 was a step up. That's more step than we would expect on the trajectory that we eventually get to. So maybe a clear way to say expect a little bit of a step down, but still the trend line will be better than where it was at the beginning of this fiscal year.

[Operator]

Our next question comes from Marc Torrente with Wells Fargo Securities.

[Marc Torrente, analyst]

First on pet, you talked through some of the drivers of the sequential slowdown in sales from Q2. Just doing some simple math implies some further expansion on margins even as you're stepping up advertising around the premium brands. So maybe just a little more color on the margin progress there.

[Matt Mainer, executive]

Yes. So I mean, I think a lot of our margin progress has been more around just the flow-through of the manufacturing efficiencies that we've had and the stabilization there is the bigger driver. We've taken some of those dollars and reinvested behind the brands and ramped A&C, but I'd say manufacturing performance and costs are really the keys for the margin improvement.

[Marc Torrente, analyst]

Okay. And then CapEx stepped up this year with pet investments as well as the shake manufacturing ramp. How much of these projects carry into next year? You spoke to the egg facility timing. Just any context there and how we should think about CapEx levels for '25, I guess thinking through free cash flow conversion ahead.

[Matt Mainer, executive]

These are definitely multiyear projects, certainly Norwalk and Bloomfield. And I think the way we've talked about it is we expect '25 to be very similar to '24 in terms of the CapEx range we have in spend.

[Operator]

And we will take our final question from Carla Casella with JPMorgan.

[Carla Casella, analyst]

A couple of follow-ups. Just you talked about the environment both in foodservice and retail, but is your expectation that we should see trade spending pick up as we go into the back half of this year, and is it consistent across categories, are you seeing more need for trade spend in one versus another? And then I have one question on M&A.

[Robert Vitale, executive]

I think we will likely see a little bit of an uptick in trade spend, but it will be targeted and not knee-jerk reactive. I think the best example being the way we spent in our Bob Evans brand, we need to make sure we get the lift that is intended with the trade spend. And I'm sorry, what was your other question?

[Carla Casella, analyst]

Well is it more targeted in one category versus other? Or one category is more exposed?

[Robert Vitale, executive]

No, we'll -- where we think there are pricing opportunities to benefit from trade spend across the portfolio will execute there as we go in. The primary focus is on potatoes, side dishes.

[Carla Casella, analyst]

Okay. And then the other question was on the M&A environment. If you could just talk to the deal flow and if there are any -- if the opportunities are getting more interesting or levels coming into more fair, I think in the past, you just talked about irrational type levels of -- for the sellers.

[Robert Vitale, executive]

Yes. I'm sorry, Carla, you're a bit echoing, so I'm not sure I got all of the question, but I'll do my best. I think we've seen a period of time in which there have been lower than average PE exits. So we're seeing more opportunities from PE owners of consumer assets. We always are of the opinion that corporate owners should do portfolio pruning. So there are some opportunities in that area. So I would say same thing in my prior comments that the quantum of opportunities has increased significantly year-over-year and even sequentially.

That doesn't mean anything will happen because we want to be very disciplined with respect to how we allocate capital. And as long as we're trading beneath the average of the multiples at which we can acquire on a post-synergy basis, we will just stay the course and allocate capital into our shares. So good environment -- well, a plentiful environment from an opportunity perspective, whether that converts to anything or not too early to say.

[Operator]

And we have now reached the conclusion of the question-and-answer session. This will conclude today's Post Holdings Third Quarter 2024 Earnings Conference Call and Webcast. Please disconnect your line at this time, and have a wonderful day.