Continues to Deliver Sustained Profitable
Growth
Reaffirms Full-Year Guidance
Hostess Brands, Inc. (NASDAQ: TWNK) (the “Company”, “we”, “our”)
today reported its financial results for the three months ended
March 31, 2023.
“The strength of Hostess Brands’ business model and power of our
brands enabled us to deliver another quarter of revenue and profit
growth, while lapping very strong year-ago comparisons. As we
continue to build a premier snacking company, Hostess Brands is
focused on growing snacking occasions, and we believe that we have
the right consumer insights, the right innovation pipeline and the
right brand-building strategy in place to deliver long-term
sustainable growth and shareholder value,” said Andy Callahan,
President and Chief Executive Officer, Hostess Brands.
Callahan added, “We are maintaining its full-year net revenue,
adjusted EBITDA, and adjusted EPS guidance, delivering
above-algorithm profitable growth in 2023.”
First Quarter 2023 Financial Highlights as Compared to the
Prior Year Period1
- Net revenue of $345.4 million increased 4.0% from the same
period last year as 14.6% contribution from price/mix more than
offset lower volume in the quarter.
- Gross profit increased 4.4% to $120.7 million, or 34.9% of net
revenue, while on an adjusted basis, gross profit increased 4.6% to
$121.1 million, or 35.1% of net revenue. Gross margin increased by
13 basis points, 20 basis points on an adjusted basis, from
year-ago levels as favorable price/mix and productivity offset
13.7% inflation.
- Net income was $38.3 million, or $0.28 per diluted share,
compared to $34.6 million, or $0.25 per diluted share, in the same
period last year. Adjusted net income increased slightly to $38.2
million, resulting in $0.28 adjusted EPS as compared to $0.27 in
the prior period.
- Adjusted EBITDA increased 3.9% to $80.4 million. Adjusted
EBITDA margin remained flat at 23.3%.
- Cash and cash equivalents were $101.7 million as of March 31,
2023, resulting in a net leverage ratio of 3.0x.
- Capital expenditures were $24.4 million, including the build
out of the new bakery in Arkadelphia, Arkansas.
Other Highlights
- Launched a variety of new innovation items during the quarter
including Hostess® Kazbars™, Old Fashioned Donettes® and Chocolate
Baby Bundts and Voortman® Zero Sugar Mini Wafer.
- The Company’s Sweet Baked Goods point-of-sale (“POS”) increased
0.5% for the quarter, 25.2% on a two-year stacked basis. Its share
of the category decreased approximately 170 basis points to
20.3%.
- Voortman® branded POS grew 10.1%, 39.1%, on a two-year stacked
basis. Its share of the Cookie category declined approximately 10
basis points to 2.2% for the quarter.
- Repurchased $13.7 million shares year-to-date through March 31,
2023. The Hostess Brands Board approved a new $150 million share
repurchase authorization.
Guidance and Outlook
The Company reaffirms the following expected consolidated
financial results for the full year 2023:
- Net revenue growth of 4% to 6%
- Adjusted EBITDA of $315 million to $325 million, an increase of
7% to 10% from 2022
- Adjusted EPS of $1.08 to $1.13, an increase of 10% to 15% from
2022
- Weighted average diluted shares outstanding of approximately
135 million
- Capital expenditures of approximately $150 million to $170
million
- Income tax rate of approximately 27%
1This press release contains certain
non-GAAP financial measures, including adjusted gross profit,
adjusted gross profit margin, adjusted operating income, adjusted
EBITDA, adjusted EBITDA margin, adjusted net income and adjusted
earnings per share (“EPS”). Please refer to the schedules in the
press release for reconciliations of non-GAAP financial measures to
the comparable GAAP measure. Unless otherwise stated, all
comparisons of financial measures in this press release are to the
first quarter of 2022. All measures of market performance contained
in this press release, including point of sale and market share
include all Company branded products within the U.S. SBG or Cookie
categories as reported by Nielsen but do not include other products
sold outside of those categories. All market data in this press
release refers to the thirteen-week period ended April 1, 2023. The
Company’s leverage ratio is net debt (total long-term debt less
cash and short-term investments) divided by the trailing twelve
months adjusted EBITDA.
The Company provides guidance 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, 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.
First Quarter 2023 Compared to First Quarter 2022
Net revenue was $345.4 million, an increase of 4.0%, or $13.3
million, from the prior-year period. Contribution from previously
taken pricing actions and favorable mix provided 14.6% of the
growth, offset by a 10.6% decline from volume. Sweet baked goods
net revenue increased $12.0 million, or 4.0%, while cookies net
revenue increased $1.3 million, or 3.6%.
Gross profit increased 4.4% and was 34.9% of net revenue, an
increase of 13 basis points from a gross margin of 34.8% for the
same period last year. The increase in gross margin was due to
favorable price/mix and productivity benefits which more than
offset higher supply chain costs including inflation. Adjusted
gross profit increased 4.6% driven by favorable price/mix and
productivity partially offset by inflation.
Operating income was $62.1 million, an increase of 6.5% from the
prior-year period. Adjusted operating income of $62.5 million
increased 1.1% from the same period last year. First quarter
operating costs increased by 2.3% as compared to the prior-year
period. Operating costs increased primarily due to the planned
increase in advertising and marketing investments, higher
depreciation and higher share-based compensation expense.
Adjusted EBITDA of $80.4 million, or 23.3% of net revenue,
increased 3.9% from the same period last year.
The Company’s effective tax rate was 26.0% compared to 28.4% in
the prior year. The decrease in the tax rate is attributed to a
discrete tax benefit of $0.5 million during the three months ended
March 31, 2023 as compared to a discrete tax expense of $0.6
million during the three months ended March 31, 2022, both related
to share-based compensation. The effective tax rate, excluding
these and other immaterial discrete items, was 26.9% in the current
year period, largely in-line with 27.1% in the prior-year
period.
Net income was $38.3 million, an increase of 10.7% from $34.6
million in the prior-year period. Adjusted net income of $38.2
million remained relatively flat as compared to the same period
last year. Diluted EPS was $0.28 compared to $0.25 in the
prior-year period. Adjusted EPS of $0.28 increased a penny from
$0.27 in the prior period largely due to lower shares
outstanding.
Operating cash flows for the three months ended March 31, 2023
were $27.9 million, as compared to $31.5 million for the same
period last year. Operating cash flows were lower due to higher tax
and incentive compensation payments partially offset by favorable
working capital fluctuations and increased profitability in the
current year period.
Share Repurchase
The Company announced today that its Board of Directors has
approved a share repurchase authorization of up to $150 million of
its Class A Common Stock, replacing its previous authorization, to
provide additional flexibility to generate greater shareholder
returns. The program has no expiration date and acquired shares
will be held as treasury stock. The share repurchase program may be
amended, suspended or discontinued at any time at the Company’s
discretion and does not commit the Company to repurchase shares of
its Class A common stock. The actual timing, number and value of
shares to be purchased under the program will be determined by the
Company at its discretion and will depend on a number of factors,
including the performance of the Company’s stock price, general
market and other conditions, applicable legal requirements, and
compliance with the terms of the Company’s outstanding
indebtedness.
Conference Call and Webcast
The Company will host a conference call and webcast with an
accompanying presentation today, May 9, 2023 at 4:30 p.m. ET to
discuss the results for the first quarter. Investors interested in
participating in the live call can dial 877-451-6152 from the U.S.
and +1-201-389-0879 internationally. A telephone replay will be
available approximately three hours after the call concludes
through May 23, 2023, by dialing 844-512-2921 from the U.S., or
+1-412-317-6671 internationally, and entering confirmation code
13737548. The simultaneous, live webcast and presentation will be
available on the Investor Relations section of the Company’s
website at www.hostessbrands.com. The webcast will be archived for
30 days.
About Hostess Brands, Inc.
Hostess Brands, Inc. (NASDAQ: TWNK) is a premier snacking
company with a portfolio of iconic brands and a mission to inspire
moments of joy by putting our heart into everything we do. Hostess
Brands is proud to make America’s No. 1 cupcake, mini donut and
zero sugar cookie brands. With annual sales of $1.4 billion and
approximately 3,000 dedicated team members, Hostess Brands produces
new and classic snacks, including Hostess® Donettes®, Twinkies®,
CupCakes, Ding Dongs® and Zingers®, as well as a variety of
Voortman® cookies and wafers. For more information about Hostess
Brands please visit www.hostessbrands.com.
Forward-Looking Statements
This press release contains statements reflecting the Company’s
views about its future performance that constitute “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended, that involve substantial risks and
uncertainties. Forward-looking statements are generally identified
through the inclusion of words such as “believes,” “expects,”
“intends,” “estimates,” “projects,” “anticipates,” “will,” “plan,”
“may,” “should,” or similar language. Statements addressing the
Company’s future operating performance and statements addressing
events and developments that the Company expects or anticipates
will occur are also considered as forward-looking statements. All
forward-looking statements included herein are made only as of the
date hereof.
These statements inherently involve risks and uncertainties that
could cause actual results to differ materially from those
anticipated in such forward-looking statements. These risks and
uncertainties include, but are not limited to, maintaining,
extending and expanding the Company’s reputation and brand image;
leveraging the Company’s brand value to compete against
lower-priced alternative brands; the ability to pass cost increases
on to our customers; correctly predicting, identifying and
interpreting changes in consumer preferences and demand and
offering new products to meet those changes; protecting
intellectual property rights; operating in a highly competitive
industry; the ability to maintain or add additional shelf or retail
space for the Company’s products; the ability to identify or
complete strategic acquisitions, alliances, divestitures or joint
ventures; our ability to successfully integrate, achieve expected
synergies and manage our acquired businesses and brands; the
ability to integrate and manage capital investments; the ability to
manage changes in our manufacturing processes resulting from the
expansion of our business and operations, including with respect to
cost-savings initiatives and the introduction of new technologies
and products; the ability to drive revenue growth in key products
or add products that are faster-growing and more profitable;
volatility in commodity, energy, and other input prices due to
inflationary pressures and the ability to adjust pricing to cover
increased costs; loss of one or more of our co-manufacturing
arrangements; significant changes in the availability and pricing
of transportation; negative impacts of climate change; dependence
on major customers; increased labor and employee related costs;
strikes or work stoppages; product liability claims, product
recalls, or regulatory enforcement actions; the ability to produce
and successfully market products with extended shelf life;
dependence on third parties for significant services; unanticipated
business disruptions; adverse impact or disruption to our business
caused by pandemics or outbreaks of highly infectious or contagious
diseases; disruptions in global economy due to the Russia and
Ukraine conflict; geographic focus could make the Company
particularly vulnerable to economic and other events and trends in
North America; consolidation of retail customers; unsuccessful
implementation of business strategies to reduce costs; increased
costs to comply with governmental regulation; failures,
unavailability, or disruptions of the Company’s information
technology systems; dependence on key personnel or a highly skilled
and diverse workforce; the Company’s ability to finance
indebtedness on terms favorable to the Company; and other risks as
set forth from time to time in the Company’s Securities and
Exchange Commission filings.
As a result of a number of known and unknown risks and
uncertainties, the Company’s actual results or performance may be
materially different from those expressed or implied by these
forward-looking statements. Risks and uncertainties are identified
and discussed in Item 1A-Risk Factors in the Company’s Annual
Report on Form 10-K for 2022, filed on February 21, 2023. All
subsequent written or oral forward-looking statements attributable
to us or persons acting on the Company’s behalf are expressly
qualified in their entirety by these risk factors. The Company
undertakes no obligation to update any forward-looking statement,
whether as a result of new information, future events, or
otherwise.
HOSTESS BRANDS, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(Unaudited, amounts in
thousands, except shares and per share data)
March 31, 2023
December 31,
2022
ASSETS
Current assets:
Cash and cash equivalents
$
101,666
$
98,584
Short-term investments
—
17,914
Accounts receivable, net
189,952
168,783
Inventories
67,498
65,406
Prepaids and other current assets
11,952
16,375
Total current assets
371,068
367,062
Property and equipment, net
442,963
425,313
Intangible assets, net
1,915,002
1,920,880
Goodwill
706,615
706,615
Other assets, net
63,382
72,329
Total assets
$
3,499,030
$
3,492,199
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Long-term debt and lease obligations
payable within one year
$
4,176
$
3,917
Tax receivable agreement payments payable
within one year
11,200
12,600
Accounts payable
91,771
85,667
Customer trade allowances
66,058
62,194
Accrued expenses and other current
liabilities
33,679
59,933
Total current liabilities
206,884
224,311
Long-term debt and lease obligations
998,226
999,089
Tax receivable agreement obligations
123,134
123,092
Deferred tax liability
353,376
347,030
Other long-term liabilities
1,623
1,593
Total liabilities
1,683,243
1,695,115
Class A common stock, $0.0001 par value,
200,000,000 shares authorized, 143,099,217 issued and 133,005,487
shares outstanding as of March 31, 2023 and 142,650,344 shares
issued and 133,117,224 shares outstanding as of December 31,
2022
14
14
Additional paid in capital
1,311,291
1,311,629
Accumulated other comprehensive income
29,499
35,078
Retained earnings
677,884
639,595
Treasury stock
(202,901
)
(189,232
)
Stockholders’ equity
1,815,787
1,797,084
Total liabilities and stockholders’
equity
$
3,499,030
$
3,492,199
HOSTESS BRANDS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited, amounts in
thousands, except shares and per share data)
Three Months Ended
March 31, 2023
March 31, 2022
Net revenue
$
345,403
$
332,051
Cost of goods sold
224,686
216,427
Gross profit
120,717
115,624
Operating costs and expenses:
Advertising and marketing
13,899
11,950
Selling
10,649
9,777
General and administrative
28,198
29,672
Amortization of customer relationships
5,878
5,878
Total operating costs and expenses
58,624
57,277
Operating income
62,093
58,347
Other expense
Interest expense, net
10,185
9,666
Other expense
181
436
Total other expense
10,366
10,102
Income before income taxes
51,727
48,245
Income tax expense
13,438
13,687
Net income
$
38,289
$
34,558
Earnings per Class A share:
Basic
$
0.29
$
0.25
Diluted
$
0.28
$
0.25
Weighted-average shares outstanding:
Basic
133,551,603
138,602,451
Diluted
134,553,122
139,565,136
HOSTESS BRANDS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited, amounts in
thousands)
Three Months Ended
March 31, 2023
March 31, 2022
Operating activities
Net income
$
38,289
$
34,558
Depreciation and amortization
15,327
13,297
Debt discount amortization
264
308
Unrealized foreign exchange losses
52
317
Non-cash lease expense
73
125
Share-based compensation
3,011
2,339
Realized and unrealized gains on
short-term investments
(86
)
—
Deferred taxes
8,312
7,322
Change in operating assets and
liabilities:
Accounts receivable
(21,167
)
(44,848
)
Inventories
(2,092
)
(7,054
)
Prepaids and other current assets
5,092
3,735
Accounts payable and accrued expenses
(23,016
)
10,866
Customer trade allowances
3,869
10,561
Net cash provided by operating
activities
27,928
31,526
Investing activities
Purchases of property and equipment
(23,463
)
(23,034
)
Proceeds from maturity of short-term
investments
18,000
—
Acquisition and development of software
assets
(964
)
(1,825
)
Net cash used in investing activities
(6,427
)
(24,859
)
Financing activities
Repayments of long-term debt and lease
obligations
—
(2,792
)
Repurchase of common stock
(13,669
)
(9,680
)
Tax payments related to issuance of shares
to employees
(5,461
)
(5,216
)
Cash received from exercise of options and
warrants
2,112
1,662
Payments on tax receivable agreement
(1,358
)
(1,443
)
Net cash used in financing activities
(18,376
)
(17,469
)
Effect of exchange rate changes on cash
and cash equivalents
(43
)
74
Net increase (decrease) in cash and
cash equivalents
3,082
(10,728
)
Cash and cash equivalents at beginning of
period
98,584
249,159
Cash and cash equivalents at end of
period
$
101,666
$
238,431
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest, net of amounts capitalized
$
10,096
$
9,678
Net taxes paid (refunded)
$
6,416
$
(514
)
Supplemental disclosure of non-cash
investing:
Accrued capital expenditures
$
11,778
$
5,433
HOSTESS BRANDS, INC. RECONCILIATION
OF NON-GAAP FINANCIAL MEASURES
Adjusted gross profit, adjusted gross profit margin, adjusted
operating income, adjusted net income, adjusted EBITDA, adjusted
EBITDA margin and adjusted EPS collectively referred to as
“Non-GAAP Financial Measures,” are commonly used in the Company’s
industry and should not be construed as an alternative to net
revenue, gross profit, operating income, net income or earnings per
share as indicators of operating performance (as determined in
accordance with GAAP). These Non-GAAP Financial Measures may not be
comparable to similarly titled measures reported by other
companies. The Company has included these Non-GAAP Financial
Measures because it believes the measures provide management and
investors with additional information to measure the Company’s
performance, estimate the Company’s value and evaluate the
Company’s ability to service debt.
Non-GAAP Financial Measures are adjusted to exclude certain
items that affect comparability. The adjustments are itemized in
the tables below. You are encouraged to evaluate these adjustments
and the reason the Company considers them appropriate for
supplemental analysis. In evaluating adjustments, you should be
aware that in the future the Company may incur expenses that are
the same as or similar to some of the adjustments set forth below.
The presentation of Non-GAAP Financial Measures should not be
construed as an inference that future results will be unaffected by
unusual or recurring items.
The Company defines adjusted EBITDA as net income adjusted to
exclude (i) interest expense, net, (ii) depreciation and
amortization (iii) income taxes and (iv) share-based compensation,
as further adjusted to eliminate the impact of certain items that
the Company does not consider indicative of its ongoing operating
performance. Adjusted EBITDA has limitations as an analytical tool,
and you should not consider it in isolation, or as a substitute for
analysis of the Company’s results as reported under GAAP. For
example, adjusted EBITDA:
- does not reflect the Company’s capital expenditures, future
requirements for capital expenditures or contractual
commitments;
- does not reflect changes in, or cash requirements for, the
Company’s working capital needs;
- does not reflect the significant interest expense, or the cash
requirements necessary to service interest or principal payments,
on the Company’s debt; and
- does not reflect payments related to income taxes or the tax
receivable agreement.
HOSTESS BRANDS, INC.
RECONCILIATION OF NON-GAAP
FINANCIAL MEASURES
(Unaudited, amounts in
thousands, except percentages and per share data)
Three Months Ended March 31,
2023
Gross Profit
Gross Margin
Operating Income
Net Income
Net Income Margin
Diluted EPS
GAAP Results
$
120,717
34.9
%
$
62,093
$
38,289
11.1
%
$
0.28
Non-GAAP adjustments:
Foreign currency remeasurement
—
—
—
52
—
—
Accelerated depreciation related to
network optimization
398
0.2
398
398
0.1
—
Other (1)
—
—
—
129
—
—
Discrete income tax expense
—
—
—
(482
)
(0.1
)
—
Tax impact of adjustments
—
—
—
(156
)
—
—
Adjusted Non-GAAP results
$
121,115
35.1
%
$
62,491
38,230
11.1
$
0.28
Income tax
14,076
4.1
Interest expense
10,185
2.9
Depreciation and amortization
14,929
4.3
Share-based compensation
3,011
0.9
Adjusted EBITDA
$
80,431
23.3
%
(1) Costs related to certain corporate
initiatives and are included in other expense on the condensed
consolidated statement of operations.
Three Months Ended March 31,
2022
Gross Profit
Gross Margin
Operating Income
Net Income
Net Income Margin
Diluted EPS
GAAP Results
$
115,624
34.8
%
$
58,347
$
34,558
10.4
%
$
0.25
Non-GAAP adjustments:
Foreign currency remeasurement
—
—
—
317
0.1
—
Project consulting costs (1)
—
—
3,328
3,328
1.0
0.03
Other (2)
129
0.1
129
247
0.1
—
Discrete income tax expense
—
—
—
592
0.2
—
Tax impact of adjustments
—
—
—
(1,051
)
(0.3
)
(0.01
)
Adjusted Non-GAAP results
$
115,753
34.9
%
$
61,804
37,991
11.4
$
0.27
Income tax
14,146
4.3
Interest expense
9,665
2.9
Depreciation and amortization
13,297
4.0
Share-based compensation
2,339
0.7
Adjusted EBITDA
$
77,438
23.3
%
(1) Project consulting costs are included
in general and administrative on the condensed consolidated
statement of operations.
(2) Costs related to certain corporate
initiatives, of which $0.1 million is included in cost of goods
sold and $0.1 million is included in other expense on the condensed
consolidated statement of operations.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230509006141/en/
Investor Contact: Amit Sharma asharma@hostessbrands.com Media
Contact: Jenna Greene jenna.green@clynch.com
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