Ralcorp buying pasta maker, offers glum outlook

Monday, June 21, 2010 | 3:58 p.m. CDT; updated 5:21 p.m. CDT, Monday, June 21, 2010

ST. LOUIS — Food maker Ralcorp Holdings Inc. said Monday it has agreed to buy American Italian Pasta Co. for about $1.2 billion and has acquired two cracker makers.

The acquisition of American Italian, which primarily makes store-brand pasta for grocers, strengthens Ralcorp in a category that did well in the recession as consumers ate at home more and traded down to cheaper options.

But Ralcorp also offered guidance for its fiscal third quarter below Wall Street expectations because of tough competition in cereal. Ralcorp owns Post Foods and also makes a variety of store-brand cereals.

Its shares fell $4.42, or 7 percent, to $57.80 during midday trading. The stock has traded between $52.66 and $69.86 over the past year.

Ralcorp said it will pay $53 per share for American Italian Pasta Co. That is a 27 percent premium over the Kansas City pasta maker's closing price of $41.73 on Friday.

American Italian Pasta shares rose $10.92, or 26.2 percent, to $52.65 on premarket trading.

The St. Louis food maker also said it acquired North American Baking Ltd., a Canadian maker of private-label specialty crackers, and J.T. Bakeries, which also makes crackers, for undisclosed terms.

Ralcorp expects the cracker deals to be "slightly" beneficial to earnings for the rest of the year.

Meanwhile, Ralcorp forecast a drop in its fiscal third-quarter net income to $1 a share, down $1.31 per share in the prior year. Analysts expect earnings of $1.29 per share, according to a survey by Thomson Reuters. They typically exclude one-time items from their estimates.

The company said lower returns on markdowns at Post Foods and branded competition for its private-label cereal hurt results at its Ralston Foods segment.

Ralcorp said it doesn't plan to give guidance again except in unique circumstances.

The deal for American Italian Pasta is expected to close during Ralcorp's fiscal fourth-quarter ending Sept. 30.

Ralcorp will fund the deal through a cash on hand, existing credit facilities and a bridge facility that it has received a commitment letter for or other debt or equity arrangements.

Ralcorp said it expects the deal to help earnings by at least 50 cents per share, excluding one-time items, in 2010.

Like what you see here? Become a member.

Show Me the Errors (What's this?)

Report corrections or additions here. Leave comments below here.

You must be logged in to participate in the Show Me the Errors contest.


Leave a comment

Speak up and join the conversation! Make sure to follow the guidelines outlined below and register with our site. You must be logged in to comment. (Our full comment policy is here.)

  • Don't use obscene, profane or vulgar language.
  • Don't use language that makes personal attacks on fellow commenters or discriminates based on race, religion, gender or ethnicity.
  • Use your real first and last name when registering on the website. It will be published with every comment. (Read why we ask for that here.)
  • Don’t solicit or promote businesses.

We are not able to monitor every comment that comes through. If you see something objectionable, please click the "Report comment" link.

You must be logged in to comment.

Forget your password?

Don't have an account? Register here.