Hostess Brands (TWNK) Tops Q2 EPS by 7c, Revenues Beat; Offers FY20 EPS Guidance Above Consensus

Hostess Brands (NASDAQ: TWNK) reported Q2 EPS of $0.22, $0.07 better than the analyst estimate of $0.15. Revenue for the quarter came in at $256.2 million versus the consensus estimate of $253.76 million.

Financial Highlights for the Second Quarter 2020 as Compared to the Prior Year Period1

• Net revenue was $256.2 million, an increase of 11.7%*. Adjusted net revenue was $263.0 million, an increase of 14.7%*, driven primarily by strong performance of recently acquired Voortman Cookies Limited (“Voortman”) and Hostess® branded sales, partially offset by lower private-label and other non-Hostess branded sales.
• Gross profit was $89.4 million, an increase of 10.5%*. Adjusted gross profit was $98.1 million, a 21.1%* increase due to the accretive margin expansion generated from the successful integration of Voortman ahead of expectations.
• Net income was $17.4 million, or $0.13 per diluted share, compared to $16.7 million, or $0.10 per diluted share, in the prior year period. Adjusted net income increased $5.1 million, or 21.2%, to $29.2 million, resulting in $0.22 adjusted EPS compared to $0.17 adjusted EPS in the prior year period. The increase in adjusted net income and adjusted EPS was primarily due to the accretion from the Voortman acquisition.
• Adjusted EBITDA was $65.1 million, or 24.8% of adjusted net revenue, an increase of 22.6%*. The increase was primarily driven by Voortman's adjusted EBITDA contribution.
• Cash and cash equivalents were $127.8 million as of June 30, 2020 with a proforma leverage ratio of 4.3x after factoring in the expected 2020 adjusted EBITDA contribution from Voortman.

∗ Excluding the In-Store Bakery business sold in 2019.

Operational Highlights for the Second Quarter 2020

• Executed meaningful changes to Hostess product mix and production schedules in response to dynamically changing consumer demands in order to achieve margin expansion in our base business.
• Completed key integration activities transitioning Voortman to the warehouse distribution model from a direct-store delivery model. Continue to expect transition costs of $25 million to $30 million, better than original expectations, and made meaningful progress against attainment of the $15 million of cost synergies target.
• Continued to implement heightened safety measures company-wide to protect employees.
• Point of sale increased 7.4% and market share was 19.3%, essentially flat, within the Sweet Baked Goods category. Hostess® branded point of sale of 9.2% was ahead of the category growth.

“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,” commented Andy Callahan, the Company's President and Chief Executive Officer. “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. We are confident that we can leverage the Company's leading brands, category-leading distribution and agile operating network to satisfy evolving consumer behaviors and create an even stronger company in the future.”

GUIDANCE:

Hostess Brands sees FY2020 EPS of $0.70-$0.75, versus the consensus of $0.66.

The Company previously issued its full year 2020 guidance on February 26, 2020, which did not include the impact of COVID-19. Despite year-to-date results that have exceeded Company expectations, the Company's full 2020 Outlook remains suspended due to the dynamic operating environment and the high degree of uncertainty caused by the COVID-19 pandemic. However, assuming there are no significant disruptions to our supply chain or changes to consumer demand resulting from U.S. movement restrictions, we now expect the following consolidated financial results for the full year 2020:

• Adjusted EBITDA of $230 million to $240 million, including Voortman Adjusted EBITDA of $25 million to $30 million.
• Adjusted EPS of $0.70 to $0.75
• Leverage ratio of approximately 4x at the end of 2020

The Company reaffirms its long-term financial objectives of organic revenue growth, adjusted EBITDA margins and free cash flow conversion in the top-quartile of its peers.

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

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