Exceptional results from Hostess ‘underscores favourable snacking behaviour’

By Gill Hyslop

- Last updated on GMT

Hostess claims its 'successful and differentiated innovation remains a key driver of our impressive top-line trends'. Pic: Hostess Brands
Hostess claims its 'successful and differentiated innovation remains a key driver of our impressive top-line trends'. Pic: Hostess Brands

Related tags Hostess brands Inflation Price increases Cookies Sweet baked goods earnings report Innovation Twinkies Donettes Voortman Cookies

Hostess Brands has posted ‘outstanding’ Q1 2022 results, driven by accelerated innovation and marketing capabilities to drive greater engagement with consumers.

For the three months ended 31 March 2022, net revenue increased 25.1% to $332.1m versus the same period a year ago. According to Hostess, strong, broad-based consumer demand contributed 15% of the volume growth, with the remaining growth coming from planned pricing actions and favourable product mix.

Net income was $34.6m or $0.25 per diluted share, while adjusted net income increased 41.3% to $38m.

“Our exceptional top-line and bottom-line growth in the first quarter highlighted our access to growing occasions, best-in-class business model, and accelerating innovation and marketing capabilities as outlined in our recent Investor Day presentations,”​ said Any Callahan, president and CEO.

“Our strong volume growth during the quarter, even as we successfully implemented pricing actions to offset high inflation, underscores favourable snacking behaviours as well as our superior innovation and supply-chain execution.”

The growing demand for sugar-free

Drilling down, Hostess Brands’ Sweet Baked Goods point-of-sale (POS) increased 24.7%, while its share of the category increased by 135 basis points to 22.0%.

“Our focus on large, growing snacking occasions and investments in the innovation and marketing continue to drive the category and enable us to capture a greater market share,”​ said Callahan.

This was Hostess’ sixth consecutive quarter of market share expansion in the Sweet Baked Goods category, adding to its consistent three year pattern.

Within the category, Voortman-branded POS grew 29% in the quarter, “well above the 9.5% growth of the overall Cookie category”​, while its share of the Cookie category increased 342 basis points.

According to Callahan, this was “fuelled by increasing brand awareness and the positive impact of innovation, particularly focused on the fast-growing sugar-free subsegment.

“Our portfolio continues to be very well-positioned for evolving snacking behaviours as consumers adjust to the post -COVID world,”​ he added, noting the company’s single-serve and multipack POS ramp up by more than 20% during the quarter, compounding the two year growth of 32% and 34%, respectively.

Impactful innovation

Hostess prides itself on its deep understanding of key snacking occasions “to create more impactful breakthrough innovation.”

To highlight this, Callahan noted the company’s Lemon and Cinnamon Baby Bundts, which clinched #1 and #3 spot across all multipacks in terms of innovation sales over the past 52 weeks; and Jumbo Donettes – with the caffeine equivalent of one cup of coffee in each doughnut – which garnered over 1 billion consumer impressions in just a few weeks.

Expected to roll out in late summer, Bouncers are smaller, single-serving versions of the company’s iconic Twinkies, Ding Dongs and Donettes.

“Bouncers is designed specifically to bring incremental consumers to our brands, particularly millennial parents, by targeting the lunchbox occasion, and making it easier for kids to enjoy our iconic snacks,”​ explained Callahan.

Expect price rises

On a less exuberant note, the president and CEO turned to the runaway inflation that is hitting all sectors of society.

“We’re revising our inflation outlook, which is now expected to be in the high teens for the full-year versus our previous double-digit outlook as we experience broad-based cost increases,”​ said Callahan.

He said the company is planning additional pricing actions across most of its portfolio, along with a combination of revenue management and productivity activities to offset higher inflation.

“We continue to work closely with our retail partners on these pricing actions to ensure that we maintain Hostess and the overall category momentum.”

Callahan added the company remains ‘highly confident in long-term growth’ and raised its “full year guidance to reflect our strong momentum even as we take actions to mitigate escalating inflationary headwinds due to the recent macro events.

“Over the next few years, we expect to deliver mid-single digit organic revenue growth, 5% to 7% EBITDA growth, and 7% to 9% EPS growth that we believe will establish us as a best-in-class snacking company that generates top-tier total shareholder returns.”

During the quarter

  • Hostess completed the purchase of the Arkadelphia, Arkansas, facility, which will be converted into a new bakery to support growing consumer demand.
  • It repurchased $9.7 million of shares under its previously announced $150m share repurchase programme.
  • Travis Leonard has been appointed as chief financial officer of Hostess, succeeding interim CFO Mike Gernigin, who will remain as chief accounting officer.

Q1 2022 highlights

  • 25.1% increase of net revenue of $332.1m.
  • 21% increase of gross profit to $115.6m.
  • On an adjusted basis, gross profit increased 21.3% to $115.8m, or 34.9% of net revenues.
  • Net income of $34.6m or $0.25 per diluted share.
  • Adjusted EBITDA increased 23.8% to $77.4m.
  • Cash and cash equivalents were $238.4m, reflecting a net leverage ratio of 3x.
  • Capital expenditures increased to $24.9m from $10.9m, with expected $120-$140m in 2022.
  • Raising full year 2022 guidance for net revenue growth to at least 12%, adjusted EBITDA towards the higher end of its initial $280-$290m, while maintaining its adjusted EPS guidance of $0.93-$0.98.

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