Hostess Brands Q1 sales boosted by acquisition of Cloverhill bakery

By Douglas Yu contact

- Last updated on GMT

Hostess said more innovations will be introduced in 2018. Pic: Hostess Brands
Hostess said more innovations will be introduced in 2018. Pic: Hostess Brands
Cloverhill bakery - acquired from Aryzta in February this year - has helped Hostess Brands' Q1 2018 net revenue increase by 13.1%, reaching $208.7m.

Cloverhill bakery contributed $14.5m of Hostess’ quarterly net revenue growth and is expected to generate between $60m-$70m for the Twinkies maker by the end of the year, according to Thomas Peterson, chief financial officer of Hostess.

“[The Cloverhill bakery] acquisition included two well-positioned brands, Big Texas and Cloverhill, and good operational capabilities that strongly augment our breakfast vending and food service business,”​ Peterson said.

However, the Chicago-based bakery was struggling financially when Hostess bought it for $25m, decreasing the company’s margin by 478 basis points and producing a negative gross profit for the quarter of $4.3m. However, Peterson noted "it will be profitable by fall and accretive into the future.”

He added Hostess plans to transition some of its donut production to Cloverhill later this year and will increase their price points to boost Hostess’ overall sales without expanding production capacity.

Record market share since relaunch

Peterson also reported the company had gained market shares in some of the key channels during the first quarter.

“Hostess point-of-sale at retail increased 6.3%... and our market share was 17.9% [in the US sweet baked goods category],”​ he said, noting that is the highest market share recorded since the Hostess relaunch in 2013.

For example, Hostess’ shares were up 106 and 275 basis points in US c-stores and Walmart respectively, he added.

Innovations in sweet baked goods

According to the company, innovations in sweet baked goods is its biggest growth driver, posting a 5.3% revenue increase from its new product launches in 2017, excluding the Cloverhill business.

The company’s sweet baked goods segment generated $199.3m during the period, a 14% increase compared to Q1 2017, while its in-store bakery segment increased 3% in sales year-over-year, reaching $9.4m.

Further innovation is expected throughout 2018 to follow the recent launch of cake delights, brown delights and crispi thins under the Bakery Petites brand - all made without artificial ingredients.

Peterson expects Hostess revenue to grow “well above the sweet baked goods category average”​ for 2018.

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