No ‘twinkle’ in Hostess Brands’ Q3 2017 results

By Gill Hyslop

- Last updated on GMT

Twinkie maker Hostess Brands reported lower-than-expected results for Q3 2017. Pic: Hostess Brands
Twinkie maker Hostess Brands reported lower-than-expected results for Q3 2017. Pic: Hostess Brands

Related tags Sweet baked goods Revenue Twinkie

Twinkie maker Hostess Brands reported lower-than-expected third quarter results, as revenue from 2016 innovations slipped and hurricanes Harvey and Irma wrought havoc.

The manufacturer’s third-quarter earnings came in at $16.1m, a considerable difference from the $26.3m it earned in the same period a year ago.

Revenue declined 2% year-over-year to $192.3m, far lower than analyst consensus forecasted at $199.1m.

A year of challenges

The Kansas City-based company said it had had a difficult year in generating revenue from its 2016 product innovations.

It also cited product supply issues from a co-manufacturer costing $3.2m, and point of sale and shipment disruption from hurricanes Harvey and Irma.

The company reported its Sweet Baked Goods segment – which comprises a large portion of the company’s offerings – declined by 0.5% to bring in $173.6m for Q3, compared to $174.5m the year prior.

Its Other segment – including bread, buns and in-store bakery – also plummeted, by 13.8% to $18.7m, compared to the same period in 2016, due to drop in popularity of Deep Fried Twinkies among consumers.

Growth across brands

However, Bill Toler, president and CEO of Hostess, maintained the company had solid underlying growth across major brands in the third quarter.

Point of sale revenue for the top seven brands – which represent 73% of the company’s net revenue – increased by 7.7%.

“We have entered the fourth quarter with strong top-line momentum, an improving category in sweet baked goods and robust product innovation,” ​said Toler.

In-store bakery revenue grew 5.8% compared to 3.2% in the first half, and the company was generating sales from new product initiatives, including Chocolate Cake Twinkies, White Fudge Ding Dongs and Golden CupCakes.

Hostess Bakery Petites
Category building

Market share

The company’s market share was up 67 basis points from prior year, putting it in the second spot within the Sweet Baked Goods (SBC) category in the US.

According to Nielsen, Hostess commanded 17.2% of the category for the 52 weeks ending October 7, 2017.

However, the company led the category in both the Donut and Snack Cake segments, together accounting for 49.6% of SBG’s total dollar sales.

The company also recently launched Hostess Bakery Petites, a premium snacking platform – including Cake Delight, Brownie Delights and Crispi Thins – made with no artificial flavors or colors, and no high fructose corn syrup.

“We think [the Hostess Bakery Petites line is] category elevating and really fits into the trend of permissible indulgence, fits into Millennials eating these kind of products, doing more of the snacking and grazing-type things … And we have very good margins on this and expect to be able to market, drive trial and do all the things we want to do to build our brand and to elevate a category like this,”​ said Toler.

Positive outlook

“The sequence of the year has developed as we anticipated and for the full year we expect 6.5% to 7.3% of revenue growth, market share growth and 7.0% to 8.4% of adjusted EBITDA growth,”​ added Toler.

The adjusted outlook for fiscal 2017 anticipates a net revenue range of $775m to $781m from its previous outlook of $781m, and an adjusted EBITDA of $230m to $233m, or growth of 7% to 8.4% for the year ended December 31, 2015.

For the year-to-date, Hostess reported a 5.7% increase in net revenue to $580m from $548m, and net income at $68.5m, compared to $60.5m from the year prior.

William Toler
Toler retires

Earlier this month, Hostess Brands announced that Bill Toler, 57, will be retiring​ as president and CEO, effective March 1, 2018.

He will remain on the company’s Board of Directors.

“Under Bill’s leadership, the Company successfully re-established the iconic Hostess brand as a leader within the sweet baked goods category and transitioned from a private to public company,”​ said Dean Metropoulos, executive chairman of the Board.

The Board has created a subcommittee to identify candidates to fill the position.

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