KANSAS CITY — Even in the face of a steep retreat in unit sales volume and a loss of market share, Hostess Brands, Inc. has reaffirmed its financial guidance for the year.
First-quarter net income, for the period ended March 31, was $38.29 million, equal to 29¢ per share on the common stock, up 11% from $34.56 million, or 25¢, in the first quarter last year. Hostess quarterly sales were $345.40 million, up 4% from $332.05 million.
Hostess said adjusted net income was about unchanged from last year, with adjusted earnings per share up about 1¢ from the same quarter in 2022. Driving the revenue increase from last year was 14.6 percentage points of gain from pricing actions and mix, mostly offset by a 10.6% drop in volume.
In a call with investment analysts, Andrew P. Callahan, chairman, president and chief executive officer, said the drop in volume was not a surprise.
“As expected, quarterly net revenue was driven by higher price mix, which offset lower volumes as we lapped strong volume growth in the year-ago quarter,” he said. “As a reminder, our year-ago results benefited from our extremely strong supply chain execution in a dynamic environment.”
In the year-ago first quarter, Hostess reported a volume jump of 15% from the year before. The 10.6% drop this year means 2023 first-quarter volume was up 2.8% from 2021.
Travis Leonard, executive vice president and chief financial officer at Hostess, said single-serve point-of-sale sales rose 4.9% during the quarter while multipack offerings were down 3%. He noted both lapped 20%-plus growth in the year-ago quarter.
“In the 13 weeks ended April 1, 2023, our dollar share of the sweet baked goods category declined by 166 basis points to 20.3%, while Voortman’s share of the cookie category declined by 7 basis points to 2.2%,” Mr. Leonard said.
For the full year, Hostess Brands reaffirmed its guidance of net revenue growth of 4% to 6%, adjusted EBITDA up 7% to 10% from 2022 and adjusted earnings per share growth of 10% to 15% for the year.
Fueling Mr. Callahan’s optimism about the remainder of the year was the company’s robust pipeline of innovation. He devoted considerable time in the investor call to offering details about new Hostess products. He described the company’s “prolific and insight-driven innovation” as a driver of sustainable and profitable growth. In 2022, this innovation was exemplified by Baby Bundts and Bouncers. He said the company remained the top innovator in the sweet baked foods category in the first quarter of 2023.
“Our 2023 innovation is headlined by Hostess Kazbars, which started shipping in late March,” he said. “And wow, what a start. With Kazbars, we have taken what Hostess does best, our iconic moist cake and transformed it into a multi-textured layered snack bar with six layers of gooey caramel or chocolate fudge and candy crunch wrapped in chocolate, a truly unique product in the broader $65 billion addressable snack market. Again, bringing what Hostess does best, high-quality cake to an indulgent bar form.”
He called initial distribution and merchandising “excellent,” generating strong customer support. Cautioning that it’s still early to assess the product’s success, Mr. Callahan called the first weeks of retail takeaway and consumer response “very encouraging.”
Also in the first quarter, Hostess introduced Old-fashioned Donettes and chocolate Baby Bundts under the Hostess brand.
“Under the Voortman brand, we rebranded our sugar-free cookie and wafer products line to zero sugar as we work to broaden the appeal and interest of these great products to a wider consumer demographic,” he said. “We also launched two flavors of zero sugar mini wafers during the quarter.”
Not a new variety but another Voortman innovation, Mr. Callahan highlighted updated packaging featuring “easy open and reseal.” He said the update is “sure to be a consumer delighter driving higher purchase intent and overall consumer satisfaction.”
With the innovation, Hostess said it is working to build relationships with customers to help the company sustain growth. He said the company has been “gaining additional permanent and temporary displays to drive multiple points of availability within stores, including at the front end, which is a key driver of our impulse-driven snacking portfolio.”
He also said work on the company’s new baking plant in Arkadelphia, Ark., remains on track with an expectation the facility will be operating in the final quarter of the year. Mr. Leonard said the plant opening would add about $5 million of one-time costs, mostly in the second half of the year.
Asked by an analyst during the call about the company’s loss of market share to a large, unspecified competitor, Mr. Callahan said Hostess doesn’t offer guidance on market share but believes the company will hold its own moving forward.
“I expect us to do what we have done the previous five years as we move up, which is continue to grow,” he said. “And I would expect, given our track record, given our strategies and given what we’re invested in, that would likely result in us growing share and driving a disproportionate amount of category growth over time. And I think we’ll start getting back to normal cadence as we move to the back half.”
The Hostess board of directors approved a share repurchase authorization of up to $150 million of its common stock, replacing a previous authorization.