Hostess Brands (TWNK) Tops Q2 EPS by 2c, Revenues Beat; Offers FY19 EPS Guidance

Hostess Brands (NASDAQ: TWNK) reported Q2 EPS of $0.17, $0.02 better than the analyst estimate of $0.15. Revenue for the quarter came in at $241.1 million versus the consensus estimate of $224.76 million.

Business Highlights for the Second Quarter 2019 as Compared to the Prior Year Period

• Net revenue increased $25.2 million, or 11.7%, to $241.1 million due to higher volume of both core and new Hostess® branded products driven by distribution and merchandising support as well as realization of price increases.
• Total Company point of sale in tracked channels increased 6.3% and market share of 19.0% was up 81 basis points.
• Gross profit increased $16.6 million, or 24.8%, to $83.5 million due to higher sales volume and pricing actions as well as continued operating efficiencies.
• Net income was $16.7 million, compared to $24.6 million, or diluted earnings per share of $0.10 per share. The decline was primarily due to discrete income tax adjustments of $7.8 million.
• Adjusted net income increased $3.8 million or 18.9% to $24.1 million, representing $0.17 adjusted earnings per share.
• Adjusted EBITDA increased $7.5 million, or 15.7%, to $55.1 million, or 22.9% of net revenue, compared to $47.6 million, or 22.1% of net revenue.
• Cash and cash equivalents were $189.3 million as of June 30, 2019 with a leverage ratio of 4.0x, both driven by operating cash flows of $74.1 million for the six months ended June 30, 2019.

“The continued execution against our pillars for growth are evidenced this quarter by meaningful revenue growth, increased market share and improvement in our industry-leading profitability,” commented Andy Callahan, President and Chief Executive Officer. “The strength of the Hostess® brand and our investments in our fundamental capabilities have helped us achieve broad-based success across channels. We will continue to focus on execution in the second half of 2019 as we build upon our strong foundation for sustainable growth and shareholder value creation.”

GUIDANCE:

Hostess Brands sees FY2019 EPS of $0.57-$0.62, versus the consensus of $0.61.

Despite the impacts of the anticipated divestiture of ISB, the Company reiterated its net revenue and adjusted EBITDA guidance as well as improved its leverage outlook for 2019 to reflect the strong year-to-date financial results:

• Net revenue growth well above the SBG category;
• Adjusted EBITDA of $200 million to $210 million, an increase of 7% to 13% from 2018;
• Adjusted EPS of $0.57 to $0.62, an increase of 6% to 15% from 2018;
• The net expected increase in cash of $145 million to $155 million would result in a leverage ratio of 3.2x to 3.4x at the end of 2019, absent any acquisitions or other strategic uses of cash, compared to 4.5x at December 31, 2018;
• Cash provided by operations of $145 million to $155 million, a reduction from previous expectation of $150 million to $160 million;
• Capital expenditures of approximately $30 million to $35 million;
• Income tax rate, excluding discrete items, of 21% to 22% giving effect to the non-controlling interest and the related share exchanges occurring in the second quarter. The Company expects to pay minority shareholder distributions of $7.5 million to $8.5 million and corporate tax payments of $2.0 million to $3.0 million in 2019.

For earnings history and earnings-related data on Hostess Brands (TWNK) click here.

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