Vending

Hostess Brands beats Q2 earnings expectations on 6.3% revenue boost

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August 10, 2020

Hostess Brands Inc. beat analysts' second quarter earnings expectations with non-GAAP earnings of 22 cents per share, beating expectations by 7 cents per share as revenue of $256.2 million surpassed last year's number by 6.3%.

The company's stock reached a high of $13.33 at the end of the quarter ending June 30, beginning the period under $12.

"Growth in core Hostess and Voortman branded products and excellent execution on the integration of Voortman helped to propel second quarter financial results ahead of expectations," Andy Callahan, the president and CEO, said in a press release. "In a dynamic operating environment resulting from the on-going COVID-19 pandemic, we executed very well, supported by a strong team, our core competencies and nimble culture. We supported strong demand by collaboratively working with retail and distribution partners to adjust the nature and timing of our merchandising programs as we continued to advance our innovation pipeline to drive long-term growth."

Net revenue of $256.2 million surpassed last year's $241.1 million for the second quarter driven primarily by the acquisition of Voortman which contributed $30.4 million of adjusted net revenue. Adjusting for the $6.8 million cost of obtaining warehouse space needed to facilitate the Voortman transition, adjusted net revenue was $263.0 million, an increase of 14.7%, excluding the in-store bakery business sold in 2019.

Net income was $17.4 million for the quarter compared to $16.7 million in last year's quarter, while earnings was 13 cents per diluted share compared to 10 cents per diluted share.
Adjusted net income was $29.2 million for the quarter compared to $24.1 million last year while adjusted earnings per share was 22 cents compared to 17 cents. Adjusted net income increased as a result of the higher volume and increase in gross profit, partially offset by higher operating costs, depreciation, amortization and interest expense as a result of the Voortman acquisition.

Sweet baked goods net revenue increased $3.3 million, primarily driven by higher volume of core Hostess branded multi-pack products partially offset by lower sales of private label and non-Hostess branded products and lower sales of Hostess branded single-serve products due to impacts of COVID-19 on consumer shopping habits.

The convenience channel posted 3.4% growth in the last four weeks of the quarter.

Gross profit was $89.4 million, or 34.9% of net revenue, compared to $83.5 million, or 34.6% of net revenue. Excluding in-store bakery, gross profit increased 10.5%. Adjusted gross profit was $98.1 million, or 37.3% of adjusted net revenue, compared to $83.5 million, or 34.6% of adjusted net revenue.

Adjusted gross profit increased 21.1% excluding the in-store bakery business sold in 2019 as a result of accretion from Voortman supported by achievement of synergies and higher operating efficiencies gained with increased volume, partially offset by negative product mix and higher operating costs due to COVID-19.

Operating costs and expenses were $54.8 million compared to $46.6 million. The increase was primarily attributed to costs related to the transition of Voortman's operations as well as Voortman's ongoing operating costs, partially offset by prior-year charges for long-term incentive payments, remeasurement of the tax receivable agreement and an impairment of the in-store bakery business.

Adjusted EBITDA was $65.1 million, or 24.8% of adjusted net revenue, compared to $55.1 million, or 22.9% of adjusted net revenue, an increase of $10.0 million, or 18.1%. Excluding the impact of in-store bakery, adjusted EBITDA increased $12.0 million or 22.6%. The increase was primarily driven by approximately $9 million of adjusted EBITDA from Voortman.

The company suspended its previously issued fiscal 2020 full year guidance due to the uncertainties associated with COVID-19. Assuming U.S. movement restrictions and supply chain availability remain at or above current levels, the company expects adjusted EBITDA of $230 million to $240 million, including the Voortman adjusted EBITDA of $25 million to $30 million, and adjusted earnings per share of 70 cents to 75 cents.

For an update on how the coronavirus pandemic has affected convenience services, click here.