Hostess Brands Inc. reported its financial results for the three and six months ending June 30, 2022.
Andy Callahan, the company’s president and chief executive officer, stated in the announcement, “Hostess Brands’ iconic brands, access to faster growing snacking occasions, broad-based distribution footprint and excellent execution continues to drive growth in a volatile environment. During the second quarter, our top-line momentum continued as we posted the 10th straight quarter of double-digit growth. I am proud of our team’s timely actions to address the ongoing supply-chain fragility and higher inflation which pressured our margins in the quarter.
“Our year-to-date results are tracking ahead of our initial expectations and our long-term growth targets, enabling us to raise our full-year net revenue guidance to at least 15% growth while maintaining our full-year EBITDA and EPS guidance,” he continued.
Second-quarter 2022 financial highlights
Net revenue of $340.5 million increased 16.8% from the same period last year as higher prices and favorable product mix accounted for 13.8% of the quarterly growth, with remaining growth attributed to higher volumes.
Gross profit increased 7.2% to $112.7 million, or 33.1% of net revenues, while on an adjusted basis, gross profit increased 7.1% to $112.8 million, or 33.1% of net revenue. As expected, second quarter gross margins declined by 295 basis points, 299 basis points on an adjusted basis, from year-ago levels as favorable price/mix was more than offset by 20% inflation and inefficiencies caused by supply-chain fragility.
Net income was $30.5 million or $0.22 per diluted share, a slight increase from the prior year period. Adjusted net income and adjusted EPS of $30.5 million, and $0.22, respectively, decreased modestly from the prior year period.
Adjusted EBITDA increased 0.7% to $68.9 million. Adjusted EBITDA margin of 20.2% declined from 23.5% in the prior year period due to lower gross margins and higher operating expenses.
Cash and cash equivalents and short-term investments were $227.7 million, as of June 30, 2022, reflecting a net leverage ratio of 3.0x.
Capital expenditures increased to $41.9 million from $22.2 million in the prior-year period. The company continues to expect capital expenditures to be in the $120 - $140 million range in 2022.
Raising full year 2022 net revenue guidance to at least 15% growth, while maintaining full year adjusted EBITDA guidance toward the higher end of $280 - $290 million and adjusted EPS guidance of $0.93 - $0.98.
The company’s sweet baked goods point-of-sale (POS) increased 15.6%, maintaining its share of category dollar sales at 21.7%.
Voortman branded POS grew 25.0% and its share of the cookie category increased by 20 basis points driven in parts by the ongoing momentum in the faster-growing sugar-free sub-segment.
Full-year inflation is currently expected to be in the high teens for the full year, in-line with previous estimates.
Repurchased $48.5 million of shares year-to-date, the majority of which were under the previously announced $150 million share repurchase program.
Second-quarter 2022 compared to second quarter 2021
Net revenue was $340.5 million, an increase of 16.8%, or $49.0 million, from the prior-year period. Contribution from previously taken pricing actions and product mix provided 13.8% of the growth, while higher volumes accounted for 3.0% of the quarterly growth. Compared to the same period last year, sweet baked goods net revenue of $303.5 million increased 15.6% or $41.0 million, while cookies net revenue of $37.0 million increased 27.6% or $8.0 million.
Gross profit was $112.7 million or 33.1% of net revenue, compared to 36.1% for the same period last year. Gross margin declined 295 basis points, 299 basis points on an adjusted basis, as favorable price/mix and productivity benefits were more than offset by inflation and inefficiencies caused by supply-chain fragility. Adjusted gross profit increased 7.1% on pricing actions and higher volume.
Operating income was $51.0 million, a decrease of 4.0% from the prior-year period. Adjusted operating income of $51.7 million decreased 4.6% from the same period last year, as higher gross profit was offset by higher advertising expense, greater workforce investments as well as higher depreciation and share-based compensation expense.
Adjusted EBITDA of $68.9 million, or 20.2% of net revenue, increased 0.7% from the same period last year as higher gross profit was partially offset by higher operating expenses.
The company’s effective tax rate was 27.0% compared to 28.2% in the prior year. The current year effective tax rate, excluding certain immaterial discrete items, was 27.2% compared to 27.3% in the prior-year period.
Net income was $30.5 million, a slight increase from $29.8 million from the prior-year period. Adjusted net income of $30.5 million decreased 5.3% from the same period last year. Diluted EPS was $0.22 compared to $0.21 in the prior-year period. Adjusted EPS was $0.22 compared to $0.23 in the prior-year period due to the changes in adjusted net income.