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    Favorable snacking behaviors buoy Hostess

    LENEXA, KAN. — In a March investor day conference, executives at Hostess Brands, Inc. laid out a vision of the company as a differentiated snack company with an advantaged business model capable of delivering sustained profitable growth. Two months later and behind the strength of an “outstanding” first quarter, Hostess is “off to a strong start on delivering that vision,” said Andrew P. Callahan, president and chief executive officer.

    Hostess Brands net income in the first quarter ended March 31 was $34.56 million, equal to 25¢ per share on the common stock, up 29% from $26.73 million, or 20¢ per share, during the first quarter last year. Sales were $332.05 million, up 25% from $265.42 million.

    For all of 2022, Hostess raised its outlook for sales growth to at least 12%, up from previous guidance of between 5% and 8%. The company also said it now expects adjusted EBITDA toward the higher end of $280 million to $290 million. The company expects between $120 million and $140 million in capital expenditures.

    “Our outstanding first-quarter results highlight many of the key factors that make us confident in our ability to catapult into the next phase of growth even as we continue to navigate an environment of heightened inflationary headwinds and supply chain volatility,” Mr. Callahan said during a May 4 conference call with analysts.

    Mr. Callahan said higher pricing and favorable mix lifted strong volume growth and delivered the highest quarterly sales growth ever at Hostess. Higher volumes accounted for nearly 15 percentage points of the quarterly sales growth, reflecting strong innovation and consumer demand as well as solid supply chain execution, he said. Price and mix contributed the other 10 percentage points of growth as Hostess benefited from planned pricing actions in response to rapidly escalating input costs.

    Hostess’ share of the sweet baked goods category increased 135 basis points in the quarter to 22%, Mr. Callahan said.

    “Our sweet baked goods point-of-sale led by the Hostess brand posted its second consecutive quarter of more than 20% growth,” he said. “Our focus on large, growing snacking occasions and investments in innovation and marketing continue to drive the category and enable us to capture greater market share.”

    Mr. Callahan said differentiated innovation remains a key driver of the company’s impressive top-line trends, particularly in the sweet baked goods category.

    “Baby Bundts, targeted at the sweet start occasion, continued to be a standout innovation in the sweet baked goods category as lemon and cinnamon Baby Bundts are the No. 1 and No. 3 (stock-keeping units) across all multipack in terms of innovation sales over the last 52 weeks,” he said. “Recently launched Boost, our Jumbo Donette innovation with the caffeine equivalent of a cup of coffee in each donut, has garnered over 1 billion consumer impressions in just a few weeks, enabling it to gain rapid penetration with on-the-go consumers.

    “Continuing the momentum, we are launching our next big innovation, Bouncers. Bouncers will hit the market in late summer and provides consumers with a smaller, single-serving poppable version of our iconic Twinkies, Ding Dong and Donettes brands. Bouncers is designed specifically to bring incremental consumers to our brands, particularly millennial parents by targeting the lunchbox occasion and making it easier for kids to enjoy our iconic snacks.”

    Momentum also continued in the Voortman business, where point-of-sale increased 29% in the quarter, well above the 9.5% growth of the overall cookie category.

    “Expanding distribution continues to be the key driver of Voortman, fueled by increasing brand awareness and the positive impact of innovation, particularly focused on the fast-growing sugar-free subsegment where Voortman grew its share by 8 points in the quarter,” Mr. Callahan said.

    Later in the call he expanded on the Voortman’s business.

    “Related to Voortman’s, our sugar-free business is growing at more than twice the rate of the total category,” Mr. Callahan said. “We continue to expand the consumers. They’re not just diabetics… We’re attracting other consumers into that franchise. When you try them, they taste extremely good, and there’s not as big of a trade-off for sugar. Sugar is one of the primary — for that consumer, primary needs. So we have two brands that do what they are intended to do very well, one in an indulgent snack without a compromise but a moment of joy that we do responsibly and our Voortman sugar-free business specifically, which is also doing extremely well.”

    Mr. Callahan said Hostess’ single-serve and multipack point-of-sale each increased by more than 20% during the quarter with two-year stacked growth of 32% and 34%, respectively.

    Sales of Hostess-branded products rose 10.6%, Mr. Callahan said, adding that the highlight for the quarter was the company’s performance in channels other than supermarkets and mass market stores. 

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