Strong Consumer Demand Drives 25% Organic
Net Revenue Growth
Raises 2022 Full Year Guidance
Hostess Brands, Inc. (NASDAQ: TWNK) (the “Company”, “we”, “our”)
today reported its financial results for the three months ended
March 31, 2022.
“Our exceptional top-line and bottom-line growth in the first
quarter highlighted our access to growing occasions, best-in-class
business model, and accelerating innovation and marketing
capabilities as outlined in our recent Investor Day presentations.
Our strong volume growth during the quarter, even as we
successfully implemented pricing actions to offset high inflation,
underscores favorable snacking behaviors as well as our superior
innovation and supply-chain execution,” commented Andy Callahan,
the Company’s President and Chief Executive Officer.
He continued, “We are raising our full year guidance to reflect
our strong momentum even as we take actions to mitigate escalating
inflationary headwinds due to the recent macro events.”
First Quarter 2022 Financial Highlights1
- Net revenue of $332.1 million increased 25.1% from the same
period last year as strong, broad-based consumer demand drove
volume growth which contributed 15% of the growth this quarter,
with the remaining growth from planned pricing actions and
favorable product mix.
- Gross profit increased 21.0% to $115.6 million. On an adjusted
basis, gross profit increased 21.3% to $115.8 million, or 34.9% of
net revenues as pricing and productivity largely offset
double-digit inflation.
- Net income was $34.6 million or $0.25 per diluted share.
Adjusted net income increased 41.3% to $38.0 million, and adjusted
EPS was $0.27 compared to $0.20 in the prior year period.
- Adjusted EBITDA increased 23.8% to $77.4 million, the second
consecutive quarter of record-high quarterly adjusted EBITDA.
Adjusted EBITDA margin of 23.3% was largely in-line with the prior
year period.
- Cash and cash equivalents were $238.4 million as of March 31,
2022, reflecting a net leverage ratio of 3x.
- Capital expenditures increased to $24.9 million from $10.9
million in the prior-year period. The Company continues to expect
capital expenditures to be in the $120-$140 million range in
2022.
- Raising full year 2022 guidance for net revenue growth to at
least 12%, adjusted EBITDA towards the higher end of its initial
$280 - $290 million range while maintaining its adjusted EPS
guidance of $0.93 - $0.98.
Other Highlights
- Hostess Brands’ Sweet Baked Goods point-of-sale (“POS”)
increased 24.7% and its share of the category increased by 135
basis points to 22.0% driven by solid core performance and strong
contribution from new products innovation.
- Voortman® branded POS grew 29.0% and its share of the Cookie
category increased 342 basis points reflecting continued consumer
demand in the faster-growing sugar-free cookies sub-segment and
distribution gains.
- Inflation is now expected to be at least high teens, including
the impact from stronger-than-expected volume growth. We are
planning additional pricing actions along with a combination of
revenue management activities to offset higher inflation.
- Completed the purchase of the Arkadelphia, Arkansas facility
which will be converted into our previously announced new bakery to
support growing consumer demand.
- Repurchased $9.7 million of shares under our previously
announced $150 million share repurchase program.
- Announced the appointment of Travis Leonard as the Chief
Financial Officer. Mr. Leonard will join the Company on May 11,
2022.
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, adjusted net
income margin 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 2021. All measures of
market performance contained in this press release, including point
of sale and market share include all Company branded products
within the 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 refer to the thirteen-week period
ended April 2, 2022. The Company's leverage ratio is net debt
(total long-term debt less cash) divided by the trailing twelve
months adjusted EBITDA.
Guidance and Outlook
The Company is raising its full
year 2022 guidance as follows:
Updated Guidance
Previous Guidance
Net revenue growth
At least 12%
5% - 8%
Adjusted EBITDA
Towards the higher end of $280 -
$290 million
$280 - $290 million
Adjusted EPS (diluted)*
$0.93 - $0.98
$0.93 - $0.98
Capital expenditures
$120 - $140 million (Including
capacity expansion)
$120 - $140 million (Including
capacity expansion)
Effective tax rate
27.0%
27.0%
*Based on weighted average shares
outstanding of 139 to 140 million, updated from previous guidance
of 137 to 138 million
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, 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 2022 Compared to First Quarter 2021
Net revenue was $332.1 million, an increase of 25.1%, or $66.7
million, compared to $265.4 million with higher volumes accounting
for approximately 15% of the quarterly growth, with the remaining
growth from planned pricing actions and favorable product mix.
Compared to the same period last year, sweet baked goods net
revenue of $296.4 million increased 24.7% or $58.7 million, while
cookies net revenue of $35.7 million increased 28.9% or $8.0
million.
Gross profit was $115.6 million, or 34.8% of net revenue
compared to 36.0% in the same period last year. Adjusted gross
profit margin of 34.9% declined from 36.0% in the same period last
year due to transportation, labor and other input cost inflation
partially offset by pricing actions and productivity initiatives.
Adjusted gross profit increased 21.3% on higher volume and pricing
actions.
Operating income was $58.3 million. Adjusted operating income of
$61.8 million increased 31.5% from the same period last year as
higher gross profit was partially offset by higher incentive
compensation and other investments in workforce.
Adjusted EBITDA of $77.4 million, or 23.3% of net revenue,
increased 23.8% from the same period last year driven by strong
Hostess® branded volume and pricing actions, partially offset by
transportation and input cost inflation as well as higher incentive
compensation and other investments in the Company's workforce.
The Company's effective tax rate was 28.4% compared to 27.2% in
the prior year. The increase in the tax rate is attributed to a
discrete expense recognized during the current year period related
to share-based compensation. The current year effective tax rate,
excluding this discrete item was 27.1%.
Net income was $34.6 million. Adjusted net income of $38.0
million increased 41.3% from the same period last year. Diluted EPS
was $0.25. Adjusted EPS was $0.27 compared to $0.20 in the prior
year period as result of the higher net income.
Operating cash flows for the three months ended March 31, 2022
were $31.5 million compared to $32.9 million for the same period
last year. Operating cash flow decreased slightly as the increase
in earnings in the current year period was offset by an increase in
working capital and additional tax refunds of $7.7 million received
in the prior-year period.
Conference Call and Webcast
The Company will host a conference call and webcast with an
accompanying presentation today, May 4, 2022 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 201-389-0879 internationally. A telephone replay will be
available approximately two hours after the call concludes through
May 18, 2022, by dialing 844-512-2921 from the U.S., or
412-317-6671 internationally, and entering confirmation code
13728809. 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. is a leading sweet snacks company focused
on developing, manufacturing, marketing, selling and distributing
snacks in North America sold under the Hostess® and Voortman®
brands. The Company produces a variety of new and classic treats
including iconic Hostess® Donettes®, Twinkies®, CupCakes, Ding
Dongs® and Zingers®, as well as a variety of Voortman® cookies and
wafers. For more information about Hostess Brands, Inc. please
visit 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. The Company undertakes no obligation to update any
forward-looking statement, whether as a result of new information,
future events, or otherwise.
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;
protecting intellectual property rights; leveraging the Company’s
brand value to compete against lower-priced alternative brands;
correctly predicting, identifying and interpreting changes in
consumer preferences and demand and offering new products to meet
those changes; operating in a highly competitive industry; the
continued ability to produce and successfully market products with
extended shelf life; the ability to pass cost increases on to our
customers; the ability to maintain or add additional shelf or
retail space for the Company’s products; our 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 drive revenue growth in key products or add products
that are faster-growing and more profitable; adverse impact or
disruption to our business caused by COVID-19 or future outbreaks
of highly infectious or contagious diseases; volatility in
commodity, energy, and other input prices and the ability to adjust
pricing to cover increased costs; significant changes in the
availability and pricing of transportation; dependence on major
customers; increased labor and employee related costs; strikes or
work stoppages; product liability claims, product recalls, or
regulatory enforcement actions; dependence on third parties for
significant services; unanticipated business disruptions;
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 2021 and its Quarterly Report on Form 10-Q
for the quarter ended March 31, 2022 to be filed today. 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, 2022
December 31,
2021
ASSETS
Current assets:
Cash and cash equivalents
$
238,431
$
249,159
Accounts receivable, net
193,085
148,180
Inventories
59,867
52,813
Prepaids and other current assets
6,972
10,564
Total current assets
498,355
460,716
Property and equipment, net
354,055
335,305
Intangible assets, net
1,938,514
1,944,392
Goodwill
706,615
706,615
Other assets, net
42,821
19,283
Total assets
$
3,540,360
$
3,466,311
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Long-term debt and lease obligations
payable within one year
$
14,126
$
14,170
Tax receivable agreement payments payable
within one year
10,200
11,600
Accounts payable
90,591
68,104
Customer trade allowances
63,329
52,746
Accrued expenses and other current
liabilities
36,873
47,009
Total current liabilities
215,119
193,629
Long-term debt and lease obligations
1,096,867
1,099,975
Tax receivable agreement obligations
134,222
134,265
Deferred tax liability
331,658
317,847
Other long-term liabilities
1,615
1,605
Total liabilities
1,779,481
1,747,321
Class A common stock, $0.0001 par value,
200,000,000 shares authorized, 142,487,326 issued and 138,275,493
shares outstanding as of March 31, 2022 and 142,031,329 shares
issued and 138,278,573 shares outstanding as of December 31,
2021
14
14
Additional paid in capital
1,302,039
1,303,254
Accumulated other comprehensive income
(loss)
17,720
(506
)
Retained earnings
509,958
475,400
Treasury stock
(68,852
)
(59,172
)
Stockholders’ equity
1,760,879
1,718,990
Total liabilities and stockholders’
equity
$
3,540,360
$
3,466,311
HOSTESS BRANDS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(Unaudited, amounts in
thousands, except shares and per share data)
Three Months Ended
March 31, 2022
March 31, 2021
Net revenue
$
332,051
$
265,421
Cost of goods sold
216,427
169,902
Gross profit
115,624
95,519
Operating costs and expenses:
Advertising and marketing
11,950
11,781
Selling expense
9,777
8,630
General and administrative
29,672
22,185
Amortization of customer relationships
5,878
5,878
Total operating costs and expenses
57,277
48,474
Operating income
58,347
47,045
Other expense (income):
Interest expense, net
9,666
10,017
Change in fair value of warrant
liabilities
—
(76
)
Other expense
436
363
Total other expense
10,102
10,304
Income before income taxes
48,245
36,741
Income tax expense
13,687
10,009
Net income
$
34,558
$
26,732
Earnings per Class A share:
Basic
$
0.25
$
0.20
Diluted
$
0.25
$
0.19
Weighted-average shares outstanding:
Basic
138,602,451
130,839,313
Diluted
139,565,136
137,186,889
HOSTESS BRANDS, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited, amounts in
thousands)
Three Months Ended
March 31, 2022
March 31, 2021
Operating activities
Net income
$
34,558
$
26,732
Depreciation and amortization
13,297
12,691
Debt discount amortization
308
311
Change in fair value of warrant
liabilities
—
(76
)
Unrealized foreign exchange losses
317
123
Non-cash lease expense
125
329
Share-based compensation
2,339
2,723
Deferred taxes
7,322
6,646
Change in operating assets and
liabilities:
Accounts receivable
(44,848
)
(34,204
)
Inventories
(7,054
)
(2,796
)
Prepaids and other current assets
3,735
13,112
Accounts payable and accrued expenses
10,866
6,582
Customer trade allowances
10,561
680
Net cash provided by operating
activities
31,526
32,853
Investing activities
Purchases of property and equipment
(23,034
)
(10,251
)
Acquisition and development of software
assets
(1,825
)
(634
)
Net cash used in investing activities
(24,859
)
(10,885
)
Financing activities
Repayments of long-term debt and lease
obligations
(2,792
)
(2,792
)
Repurchase of common stock
(9,680
)
—
Tax payments related to issuance of shares
to employees
(5,216
)
(843
)
Cash received from exercise of options and
warrants
1,662
7,984
Payments on tax receivable agreement
(1,443
)
(1,600
)
Net cash provided by (used in) financing
activities
(17,469
)
2,749
Effect of exchange rate changes on cash
and cash equivalents
74
95
Net increase (decrease) in cash and
cash equivalents
(10,728
)
24,812
Cash and cash equivalents at beginning of
period
249,159
173,034
Cash and cash equivalents at end of
period
$
238,431
$
197,846
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest
$
9,678
$
9,807
Net taxes paid (refunded)
$
(514
)
$
(8,191
)
Supplemental disclosure of non-cash
investing:
Accrued capital expenditures
$
5,433
$
4,026
HOSTESS BRANDS, INC. RECONCILIATION OF
NON-GAAP FINANCIAL MEASURES
Adjusted gross profit, adjusted gross profit margin, adjusted
operating income, adjusted net income, adjusted net income margin,
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,
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 non-operating expenses
on the condensed consolidated statement of operations.
Three Months Ended March 31,
2021
Gross Profit
Gross Margin
Operating Income
Net Income
Net Income Margin
Diluted EPS
GAAP Results
$
95,519
36.0
%
$
47,045
$
26,732
10.1
%
$
0.19
Non-GAAP adjustments:
Foreign currency remeasurement
—
—
—
123
—
—
Change in fair value of warrant
liabilities
—
—
—
(76
)
—
—
Other (1)
—
—
—
239
—
0.01
Tax impact of adjustments
—
—
—
(99
)
—
—
Adjusted Non-GAAP results
$
95,519
36.0
%
$
47,045
26,919
10.1
$
0.20
Income tax
10,108
3.8
Interest expense
10,017
3.8
Depreciation and amortization
12,691
4.8
Share-based compensation
2,723
1.0
Adjusted EBITDA
$
62,458
23.5
%
(1) Voortman acquisition related costs
included in other non-operating expenses on the condensed
consolidated statement of operations.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220504006044/en/
Investor Contact Amit Sharma 816-701-4662
asharma@hostessbrands.com
Media Contact Lauren Bettenga 952-797-6839
lauren.bettenga@clynch.com
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