Hostess Brands: Reports Third Quarter 2023 Results

Lenexa / KS. (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 and nine months ended September 30, 2023. «I am extremely proud of the entire Hostess Brands team for building a premier snacking company focused on attractive snacking occasions, a portfolio of iconic brands, and outstanding execution to deliver long-term, sustainable profitable growth,» said President and Chief Executive Officer Andy Callahan.

Recent Merger Announcement

On September 10, 2023, Hostess Brands entered into a definitive merger agreement with The J. M. Smucker Company to acquire Hostess Brands for USD 34.25 per share in a cash and stock transaction representing a total enterprise value of approximately USD 5.6 billion, including assumption of debt. As such, the Company will not provide its outlook for 2023 or longer-term targets and will not hold a conference call to discuss the Company’s financial results for the third quarter and year-to-date ended September 30, 2023.

Third Quarter 2023 Financial Highlights versus Q3-2022

Investor Call and Guidance Update

Due to the pending transactions with Smucker, Hostess Brands will not host an investor call to discuss quarterly and y-t-d results and will not provide further updates to forward-looking guidance for 2023.

Third Quarter 2023 Compared to Third Quarter 2022

Net revenue was USD 352.8 million, an increase of 1.9 percent, or USD 6.6 million, from the prior-year period. Favorable price/mix provided 1.2 percent of the net revenue growth, while volume contributed to 0.7 percent of the growth. Sweet baked goods net revenue increased USD 8.1 million, or 2.6 percent, while cookies net revenue decreased USD 1.5 million, or 3.9 percent.

Gross profit increased 3.8 percent and was 34.0 percent of net revenue, an increase of 63 basis points from a gross margin of 33.3 percent for the same period last year. The increase in gross profit was due to productivity benefits and favorable net price realization, which more than offset inflation. Adjusted gross profit increased 3.5 percent and adjusted gross margin increased 53 basis points.

Operating income was USD 43.5 million, a decrease of 20.0 percent from the prior-year period, primarily due to USD 11.3 million of transaction costs related to the pending merger with Smucker, as well as higher advertising investments, partially offset by lower general and administrative costs. Adjusted operating income of USD 54.7 million decreased 0.9 percent from the same period last year.

Adjusted Ebitda of USD 72.7 million, or 20.6 percent of net revenue, was flat as compared to the same period last year.

Our effective tax rate for the three months ended September 30, 2023 was 30.6 percent compared to 12.8 percent for the three months ended September 30, 2022. The current year effective tax rate was impacted by non-deductible merger transaction costs, while the prior year was impacted by the non-taxable gain related to receipt of insurance proceeds in connection with the Voortman acquisition. The current period effective tax rate, excluding discrete items, was 26.8 percent compared to 26.7 percent in the prior-year period.

Net income was USD 22.8 million, a decrease of 65.6 percent from USD 66.3 million in the prior-year period due to the USD 33.0 million gain from receipt of the Voortman insurance proceeds recognized during three months ended September 30, 2022. Adjusted net income of USD 32.4 million increased USD 0.2 million, as compared to the same period last year. Diluted EPS was USD 0.17 compared to USD 0.48 in the prior-year period. Adjusted EPS of USD 0.24 increased from USD 0.23 in the prior period largely due to lower shares outstanding.

Operating cash flows for the nine months ended September 30, 2023 were USD 143.2 million, as compared to USD 164.2 million for the same period last year. Operating cash flows were lower primarily due to the Voortman insurance proceeds received in the prior year, higher transaction costs and payment of accrued interest, partially offset by higher Ebitda and lower working capital.