Kansas City / MO. (twnk) Hostess Brands Inc., one of the largest manufacturers and marketers of sweet baked goods in the United States including «Twinkies», «Ding Dongs», «Ho Hos», «Donettes» and a variety of new and classic treats, reported its financial results for the three months ended June, 2021.
«We had another excellent quarter marked by double-digit net revenue growth as our investments for growth are paying off. Our top-line remains strong while lapping the Voortman pipeline fill from 2020. Our category-leading point-of-sale growth and market share gains within the breakfast, all-day snacking and cookies consumer segments are driven by robust new product innovation and strong execution as we leverage our broad-based distribution strength across channels,» commented Andy Callahan, the Company’s President and Chief Executive Officer.
He continued, «Our outstanding results and the ongoing growth momentum in both at-home and on-the-go snacking occasions makes us optimistic for the balance of the year, enabling us to raise our full year financial outlook and delever to 3x by the end of the year. With our price realization, other revenue management activities and additional productivity initiatives we are well positioned to offset rising inflation. We are confident in our ability to continue to manage second half margins while building on our solid foundation for future growth through investments in capabilities, advertising and marketing to drive shareholder value.»
Second Quarter 2021 Financial Highlights
- Net revenue of USD 291.5 million increased 13.8 percent. Adjusted net revenue was USD 291.5 million, an increase of 10.8 percent from the same period last year, reflecting strong Hostess® branded products performance in the convenience, grocery, and dollar channels.
- Gross profit was USD 105.1 million, an increase of 17.6 percent. On an adjusted basis, gross profit increased 7.3 percent overcoming rising inflation and a difficult year on year comparison as we lapped the Voortman pipeline fill.
- Net income was USD 29.8 million or USD 0.21 per diluted share. Adjusted net income increased 10.3 percent to USD 32.2 million and adjusted EPS of USD 0.23 compared to USD 0.22 in the prior year period.
- Adjusted Ebitda increased 5.1 percent to USD 68.4 million, or 23.5 percent of adjusted net revenue. The increase was driven primarily by higher Hostess® branded sales, favorable product mix and operating efficiencies more than offsetting inflation and investments made for future growth.
- Cash and cash equivalents were USD 218.8 million as of June 30, 2021. Net leverage ratio declined to 3.4x driven by improved operating cash flow.
- Raising full year 2021 guidance for revenue growth to 7.5 percent – 9.0 percent and adjusted Ebitda to USD 260 million – USD 268 million.
- Hostess manufacturer point-of-sale («POS») increased 11.4 percent and its share of the Sweet Baked Goods category increased by 207 basis points to 21.8 percent.
- Hostess® branded POS grew 12.4 percent driven by solid core performance and strong contribution from our new product innovation, including great consumer response to our new Baby Bundt products.
- Voortman® branded POS grew 23.7 percent reflecting robust consumer demand and execution of the Company’s growth initiatives.
- Executed pricing initiatives with realization to begin in the second half of year.
- Launched new «Live Your Mostess»® national advertising campaign in June 2021 across multiple retail and consumer digital platforms.
- Published first Hostess Brands Corporate Responsibility report in June 2021 demonstrating our commitment to enhancing transparency into our ongoing ESG initiatives.
- Advanced the installation of new cake line investment to expand our capacity with ramp up expected in the second half of 2021.
- Company repurchased approximately 1.5 million shares for USD 25 million under its previously authorized USD 100 million share repurchase authorization.
Guidance and Outlook
The Company is raising its full year 2021 guidance as follows:
|Updated Guidance||Initial Guidance|
|Adjusted net revenue growth||7.5 percent – 9.0 percent||3.0 percent – 4.5 percent|
|Adjusted Ebitda||USD 260 – USD 268 million||USD 255 – USD 265 million|
|Adjusted EPS (diluted)||USD 0.83 – USD 0.87*||USD 0.80 – USD 0.85|
|Capital expenditures||USD 60 – USD 65 million||USD 60 – USD 65 million|
|Effective tax rate||27.5 percent||27.0 percent|
*Based on weighted average shares outstanding of 139 million, which includes approximately 8 million shares of dilution due to the warrants.
The Company provides guidance only on a non-generally accepted accounting principles (non-GAAP) basis and does not provide a reconciliation of the Company’s forward-looking financial expectations to the most directly comparable GAAP financial measure because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliation, including adjustments that could be made for deferred taxes, remeasurement of the Tax Receivable Agreement, transformation expenses and other non-operating gains or losses reflected in the Company’s reconciliation of historic non-GAAP financial measures, the amount of which could be material. Please refer to the Reconciliation of Non-GAAP Financial Measures included in this press release for further information about the use of these measures.
Second Quarter 2021 Compared to Second Quarter 2020
Net revenue was USD 291.5 million, an increase of 13.8 percent, or USD 35.3 million, compared to USD 256.2 million. Adjusted net revenue was USD 291.5 million, an increase of 10.8 percent, compared to USD 263.0 million in the prior year period. Adjusted net revenue growth was primarily driven by sweet baked goods net revenue, which increased USD 29.9 million or 12.9 percent. This growth was driven by double-digit POS growth in grocery, dollar and convenience channels with continued momentum of single-serve products and innovation. Voortman adjusted net revenue of USD 29.0 million was down USD 1.4 million or 4.6 percent due to lapping of last year’s inventory pipeline fill to support Voortman’s transition to the warehouse distribution model. Voortman POS trends remained strong with 23.7 percent growth in the quarter.
Gross profit was USD 105.1 million, or 36.1 percent of net revenue compared to 34.9 percent in the same period last year. Adjusted gross profit margin of 36.1 percent declined from 37.3 percent in the same period last year as the year-ago period benefited from a temporary margin lift due to Voortman’s pipeline fill. Adjusted gross profit increased 7.3 percent as higher volumes, favorable product mix and productivity initiatives offset commodity, labor and transportation costs inflation.
Operating income was USD 53.1 million. Adjusted operating income of USD 54.2 million increased 10.6 percent from the same period last year as higher gross profit was partially offset by higher general and administrative investments as well as advertising and marketing spending to support top-line growth.
Adjusted Ebitda of USD 68.4 million, or 23.5 percent of adjusted net revenue, increased 5.1 percent from the same period last year driven by strong Hostess® branded volume and favorable product mix. Depreciation and amortization expense declined USD 1.2 million to USD 12.5 million and share-based compensation expense declined USD 0.8 million to USD 1.6 million in the quarter.
The Company’s effective tax rate was 28.2 percent compared to 84.8 percent in the prior year, which reflected a non-taxable USD 16.4 million change in fair value of warrant liabilities and the benefit from non-controlling interest in the prior year period. The effective tax rate, excluding discrete items was 27.3 percent in the current quarter.
Net income was USD 29.8 million compared to USD 1.0 million. Adjusted net income of USD 32.2 million increased 10.3 percent from the same period last year. GAAP diluted EPS was USD 0.21. Adjusted EPS was USD 0.23 compared to USD 0.22 in the prior year period as higher income was partially offset by higher share dilution from the warrants.
Cash from operations for the six months ended June 30, 2021 was USD 87.3 million compared to USD 60.7 million for the same period last year. Operating cash flow benefited from current year improvement in profitability as well as lapping prior-year costs related to the integration and conversion of Voortman’s operations, partially offset by an increase in working capital.