Hostess Brands grabs further gains of indulgent snack category

By Gill Hyslop

- Last updated on GMT

Hostess Brands posted a better-than-expected results. Pic: Hostess Brands
Hostess Brands posted a better-than-expected results. Pic: Hostess Brands

Related tags Hostess brands Twinkies Ding Dongs Npd Earnings Call Voortman Cookies

The Twinkies and Ding Dongs maker posted better-than-expected results for the third quarter, with higher volume, a favourable product mix, pricing and productivity and a higher volume offsetting rising inflation.

President and CEO Andrew Callahan said, “Hostess’ high-quality branded snack portfolio, broad-based and agile distribution model and executional excellence is propelling us to consistent share gains within the large suite indulgent snack category.

“At the same time, we are successfully navigating the operating environment to sustain our attractive margin structure while investing in our branded portfolio to deliver top-tier shareholder returns.”

New product innovations

Hostess’ share of the Sweet Baked Goods category grew to 21.6%, driven by strong contribution from new product innovation, including Baby Bundts, Crispy Minis and Muff’n Stix.

In fact, Lemon Baby Bundts and Cinnamon Baby Bundts were the first and fourth top-growing SKUs, respectively, in the Sweet Baked Goods category during the quarter.

“Snacking categories continued to grow faster than overall food and our portfolio is clearly in the consumer sweet spot as we posted 179 basis points of market share gains during the quarter, demonstrating our advantage branded portfolio, outstanding execution and increasing advertising and marketing investments.”

Its Voortman cookie brand also posted a strong quarter of point-of-sale growth, increasing 20.5% – well ahead of overall category growth – coming from expanded distribution and robust consumer demand.

Raised guidance

Callahan added, “We are raising our full-year net revenue guidance while maintaining our EBITDA and EPS outlook as we continue to invest in our capabilities, advertising and marketing to generate top-tier growth and shareholder value over the long-term.”

Hostess raised its sales guidance for the year to 9%-10%, having previously set a range of 7.5%-9%.

For the three and nine months ended 30 September 2021, the company posted a 10.4% net revenue increase to $288m. Callahan said this continued “the streak of at least 9% growth in every quarter since the onset of the COVID pandemic. That is seven straight quarters of above 9% sales growth.”

He added some pandemic-driven changes in consumer behaviour appear ‘to be sticky’, with working from home maintaining growth in at-home snacking occasions. A case in point was the 12.4% growth during the quarter and 22.5% increase within the past two years of the company’s multipack and bagged donut business.

Gross profit increased 8.6% to $99m. On an adjusted basis, gross profit increased 8.9% to $99.3m, or 34.5% of net revenues. Net income was $26.2m or $0.19 per diluted share.

Adjusted EBITDA increased 7.6% to $64.8 million, or 22.5% of net revenue.

“I am proud of the way in which our team is performing in a dynamic and challenging operating environment,”​ said Callahan.

“We remain confident of achieving sustained top-tier growth through the remainder of 2021 and beyond.”

CFO resigns

Although he was not prepared to go into detail – “as a policy, I do not discuss personnel matters on the open call”​ – Callahan announced that chief financial officer Brian Purcell had resigned. Chief accounting officer Mike Gernigin was stepping up as interim while the company searches for a permanent replacement.

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