Hostess perks up with caffeinated snacks and a boosted bottom line

By Gill Hyslop

- Last updated on GMT

The jumbo Donettes are three times larger than the company’s original mini doughnuts (launched in the 1940s) and contain 300 calories. Pic: Hostess Brands
The jumbo Donettes are three times larger than the company’s original mini doughnuts (launched in the 1940s) and contain 300 calories. Pic: Hostess Brands

Related tags Hostess brands Twinkies Donettes Caffeine Sweet baked goods Cookies Voortman Cookies earnings report Investor Day

Similar to the energy boost from its newly-released caffeinated donuts, surging profits in the company’s fourth quarter helped generate double-digit earnings gains in 2021 at Hostess Brands.

The Twinkies maker’s new Caffeinated Hostess Boost Jumbo Donettes contain 50mg-70gm of caffeine from a coffee bean extract, which roughly packs the same punch as a cup of coffee.

Likewise, Hostess’ earnings are also expected to enjoy that ‘buzzy’ feeling in 2022, projected to grow between 6% to 11%.

At its Investor Day presentation, president and CEO Andy Callahan drilled down into the Kansas bakery manufacturer’s continued growth momentum.

Record quarterly results

“The Hostess team once again showcased its resilience and tenacity by delivering record high quarterly sales and adjusted EBITDA, well-ahead of expectations,”​ said Callahan.

“Our double-digit top-line growth and stable margins in the fourth quarter, and for the full year, reflect higher volumes, multiple pricing actions, increasingly impactful innovation, omni-channel presence and outstanding execution. We continue to perform at best-in-class levels while navigating inflation and supply chain challenges.”

Net income for the year ended 31 December 2021 was $119.3m, or 91c per share, up 10% from $104.68m in 2020. Net revenue for the year was $1.14bn, up 12% from $1.02bn.

This gain was enabled by a dramatic improvement in the company’s fourth-quarter – up 16% from a year earlier.

For the first three quarters of 2021, Hostess Brands net income was down 22% from January-September 2020. In the fourth quarter alone, income was $36.5m versus a loss a year earlier of $1.43m. Sales were $297.2m, up from $256m a year earlier.

Hostess said point-of-sale (POS) increased 24.1% for the quarter, while its share of the Sweet Baked Goods category stepped up to 21.5%, specifically driven by new innovations like Baby Bundts, Muff'n Stix and Strawberry Cheesecake Donettes. Voortman branded POS grew 19.7% in the quarter, twice as fast as the overall Cookie category.

During the quarter, Hostess said it successfully implemented further price increases to ‘maintain its industry-leading margin structure’.

The company also installed a new cake production line in 2021 and purchased a facility in Arkansas earlier this year to build a state-of-the-art $80m bakery to support growing consumer demand.

Gross profit increased 15.2% from the year-ago period to $110.4m, or 37.1% of net revenue. On an adjusted basis, gross profit increased 15.4% and gross margin was relatively flat at 37.2% as higher price, volume leverage and productivity initiatives offset significant inflation.

Adjusted EBITDA increased 14.9% to $73.2m.

Confidence for 2022

“Our strong 2022 financial guidance reflects our confidence in maintaining our ongoing profitable growth momentum,”​ said Callahan, projecting:

  • Adjusted net revenue growth of 5% to 8%;
  • Adjusted EBITDA of $280m to $290m, an increase of 4% to 8% from 2021;
  • Adjusted EPS of $0.93 to $0.98, an increase of 6% to 11% from 2021;
  • Weighted average diluted shares outstanding of 137m to 138m;
  • Capital expenditures of approximately $120m to $140m, including nearly $80m for the new bakery;
  • Income tax rate of approximately 27%.

During its Investor Day presentation, Hostess announced its Board of Directors has approved a stock repurchase authorisation of up to $150m shares, which will replace its previous programme and provide additional flexibility to generate greater shareholder returns.

Java boost

Hostess Boost Jumbo Donettes are individually-packaged and available in two variants – Chocolate Mocha and Caramel Cacchiato – rolling out in convenience stores across the US for an RRP of $2.49.

“For adults who are increasingly looking for alternative sources of caffeine, our new Hostess Boost Jumbo Donettes offer a tasty, energy-boosting, grab-and-go way to jumpstart the day,”​ said Christopher Balach, GM of Hostess Brand, at the launch.

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