Hostess Brands (TWNK) Tops Q3 EPS by 1c, Revenues Beat; Offers FY19 EPS Guidance

Hostess Brands (NASDAQ: TWNK) reported Q3 EPS of $0.13, $0.01 better than the analyst estimate of $0.12. Revenue for the quarter came in at $227.2 million versus the consensus estimate of $215.73 million.

Business Highlights for the Third Quarter 2019 as Compared to the Prior Year Period1

• Net revenue increased $16.2 million, or 7.7%, to $227.2 million due to higher volume of core Hostess® branded products and breakfast innovation driven by distribution and merchandising support, as well as the previously announced price increases, partially offset by the sale of the In-Store Bakery ("ISB") business on August 30, 2019. Excluding ISB, net revenue increased 9.2%.
• Gross profit increased $10.0 million, or 16.6%, to $70.4 million due to higher sales volume and pricing actions as well as continued operating efficiencies. Adjusted gross profit increased $11.1 million, or 17.4%, to $75.2 million, or 33.1% of net revenue, representing a margin improvement of 270 basis points.
• Net income was $10.7 million, or $0.07 per diluted share, compared to $11.2 million, or $0.08 per diluted share, in the prior period. The decline was primarily due to costs related to the sale of ISB and debt refinancing.
• Adjusted net income increased $4.8 million, or 32.9%, to $19.2 million, resulting in $0.13 adjusted earnings per share.
• Adjusted EBITDA increased $7.6 million, or 19.0%, to $47.8 million, or 21.0% of net revenue, representing a margin improvement of 201 basis points.
• Cash and cash equivalents were $266.9 million as of September 30, 2019 with a leverage ratio of 3.5x.

“We are very pleased with the continued growth momentum of our product offerings and our demonstrated ability to meaningfully increase point-of-sale dollars and market share across sales channels,” commented Andy Callahan, President and Chief Executive Officer. “We achieved significant revenue growth in our Hostess® branded core and new breakfast products during the quarter. This strong top-line growth combined with ongoing cost efficiencies from the disciplined investments in our Chicago bakery contributed to a significant increase in profitability and strong cash flow generation. With our focus on growth and efficiency grounded in our five pillars, we remain confident about the growth potential we have for the balance of the year and 2020. We are excited by the improved capabilities we have built which support meaningful growth ahead of an expanding category that will lead to top-quartile financial results into the future.”

GUIDANCE:

Hostess Brands sees FY2019 EPS of $0.58-$0.61, versus the consensus of $0.60.

The Company has refined its outlook for 2019 to reflect current expectations for the remainder of the year:

• Net revenue growth well above the SBG category;
• Adjusted EBITDA of $202 million to $208 million, an increase of 9% to 12% from 2018;
• Adjusted EPS of $0.58 to $0.61, an increase of 7% to 13% from 2018;
• Cash provided by operations of $140 million to $150 million;
• The expected increase in cash of $135 million to $145 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;
• Capital expenditures of approximately $30 million to $35 million;
• Income tax rate, excluding discrete items, of 22% to 23% giving effect to the non-controlling interest and the related share exchanges occurring in the second and third quarters. The Company expects to pay distributions to the non-controlling interest holders of $6 million to $7 million and corporate tax payments (net of refunds) of $1 million to $2 million in 2019.

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

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