Vending

Hostess Brands boosts Q3 revenue and earnings, beats market expectations

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November 6, 2020

Hostess Brands Inc. net revenue rose 14.8% from $227.2 million in last year's third quarter to $260.9 million for the quarter ending Sept. 30,2020, driven primarily by the acquisition of Voortman, which contributed $26.8 million of net revenue, according to an earnings release.

Net income rose from $10.7 million in last year's third quarter to $24.0 million while earnings per diluted share rose from 7 cents to 18 cents year over year. Adjusted net income rose from $19.2 million to $25.3 million while adjusted EPS rose from 13 cents to 19 cents year over year.

The results beat analyst expectations for both revenue and earnings, according to Seeking Alpha. The non-GAAP earnings per share of 19 cents beat expectations by 2 cents and the GAAP EPS of 18 cents beat expectations by 2 cents.

Shares traded today at $13.52 against a 52-week range of $8.33-$14.68.

"We are very pleased with the double-digit revenue growth and continued EBITDA margin expansion in the quarter driven by the strong profit accretion from our Voortman business and continued growth of the Hostess-branded business," Andy Callahan, president and CEO, said in the release. "We are encouraged by the steady return of the convenience channel and our achievement of year-over-year growth in our single-serve business which continues to reinforce the benefits of our operating model and ability to better service this important consumer group."

Adjusted net income increased as a result of the higher volume and gross profit, partially offset by higher operating costs and depreciation and amortization as a result of the Voortman acquisition.

Gross profit was $91.2 million, or 35.0% of net revenue for this year's third quarter, compared to $70.4 million, or 31.0% of net revenue last year. Adjusted gross profit increased 23.9% as a result of accretion from Voortman supported by achievement of synergies, lower promotional activity and higher productivity efficiencies, partially offset by higher operating costs due to COVID-19.

Operating costs and expenses were $49.8 million in this year's third quarter compared to $46.8 million last year. The increase was primarily attributed to the addition of Voortman's operating costs, including transition costs, partially offset by prior-year charges totaling $5.8 million due to costs related to the sale of the in-store bakery business, debt refinancing costs, remeasurement of the tax receivable agreement and costs related to the transition of the company's primary distribution center.

Assuming there are no significant disruptions due to the COVID pandemic, the company raised its expected consolidated financial results for the full year 2020 to the upper-end of our previous outlook. The company has raised adjusted EBITDA from $230 million-$240 million to $235 million-$240 million. It has raised adjusted EPS from 70-75 cents to 73-75 cents.

For an update on how the COVID-19 pandemic has affected convenience services, click here.