Ralcorp (RAH) is going upmarket. The maker of store-brand cereals, crackers and snacks is purchasing Post cereals from Kraft Foods (KFT...
Ralcorp (RAH) is going upmarket. The maker of store-brand cereals, crackers and snacks is purchasing Post cereals from Kraft Foods (KFT) for $1.65 billion.
Post is the nation’s third-largest ready-to-eat cereal company.
Its Honey Bunches of Oats, Grape-Nuts and Post Raisin Bran brands command higher prices than Ralcorp’s generic cereals.
This will translate into healthier margins for Ralcorp, helping to cushion the blow of high prices for corn and other ingredients.
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The company will likely benefit from stronger sales volumes as consumers trade down to store brands amid a slowing economy, says Lehman Brothers analyst Andrew Lazar.
For now, though, the stock has been hurt by the Post deal. Because of the deal, Ralcorp’s share count will grow to 57 million from 27 million, says Credit Suisse analyst Robert Moskow. Worries about increased supply are pushing down the price.
But Moskow rates Ralcorp “outperform,” saying it has a strong management team that should be able to cut costs in the Post unit.