KANSAS CITY — Andrew P. Callahan, president and chief executive officer of Hostess Brands, Inc., spoke about current and upcoming innovation, particularly in breakfast items and the Voortman brand, in a Nov. 5 conference call as the company turned in another strong quarter.
Net income in the third quarter ended Sept. 30 more than doubled to $24 million, or 18¢ per share on the common stock, from $10.7 million, or 8¢ per share, in the previous year’s third quarter. Net revenue increased 15% to $260.9 million from $227.2 million. The recently acquired Voortman Cookies business contributed $26.8 million of net revenue. Not counting the divested in-store bakery business, which had sales of $7.1 million in the previous year’s third quarter, net revenue increased 19%.
Hostess-branded breakfast sales grew more than 14% in the quarter, and innovation there will accelerate, Mr. Callahan said. In the quarter new Cream Cheese Coffee Cakes led to coffee cake sales growing 29%.
“Our single-serve Jumbo Donettes are on fire, up over 45%, and we are now bringing consumers a classic glaze option,” Mr. Callahan said. “Building on our bagged Donettes momentum, we are introducing strawberry cheesecake and caramel chocolate flavors.”
While snacking is a $150 billion market, breakfast accounts for about one-third of that figure, Mr. Callahan said.
“Just within the sweet baked goods category (of breakfast), our share is underdeveloped versus our total portfolio,” he said. “We’ve grown that over $70 million just in the past several years by outpacing the breakfast category. So we’re innovating by bringing unique items that have a specific Hostess twist, that contemporizes the brand and gives consumers an option to choose.”
Hostess limited-time offerings planned for 2021 are new flavors like key lime and s’mores as well as cotton candy Twinkies, Mr. Callahan said.
Super Grains cookies are new under the Voortman brand. They contain fruit and whole grain oats, rye and buckwheat.
“The target subsegment for Super Grains is expected to grow at 30% CAGR (compound annual growth rate), more than six times the total cookie category,” Mr. Callahan said. “This underserved category subsegment appeals to younger consumers with nearly half seeking grain-based cookies.”
Another innovation is Voortman mega wafers as an on-the-go option.
Assuming the COVID-19 pandemic causes no significant disruptions, Hostess Brands raised its outlook for the fiscal year to the upper end of the previous outlook. The company now expects adjusted EBITDA of $235 million to $240 million, which compares to $230 million to $240 million in the previous outlook, and adjusted earnings per share of 73¢ to 75¢, which compares to 70¢ to 75¢ in the previous outlook.
Hostess in the third quarter reported market share was 19.7% within the sweet baked goods category, driven by 8.5% Hostess branded point-of-sale growth. Lower sales of private label and non-Hostess branded partially offset the higher volume of core Hostess branded products.
“Hostess new and one-time consumers are increasingly becoming more frequent buyers at a rate twice the category,” Mr. Callahan said. “Despite overall consumer trips to the store being down, consumers' purchases of Hostess trips are up.
“Additionally, these consumers are younger and have longer potential for growth overall for the brand. We do not see a change in the strong at-home consumption in the short term but do see an improvement opportunity in immediate consumption for our single-serve business as consumers gradually become more mobile and retailers adapt front-end checkouts to the new normal.”
He added repeat buyers versus a year ago were up 11% for multi-packs and 15% for bagged Donettes.
Sales of products for Halloween went well, too.
“The growth of our limited-time offers for fall and Halloween alone was up almost 18% this year on top of our strong summer program, which was up 32% versus a year ago,” Mr. Callahan said.
Over the first nine months of the fiscal year, Hostess Brands reported net income of $44 million, or 33¢ per share on the common stock, which was down 19% from $54 million, or 39¢ per share, in the same time of the previous year. Nine-month net revenues rose 10% to $760.6 million from $691 million.