LENEXA, KAN. — The resiliency of its advantaged business model propelled Hostess Brands, Inc. to another strong fiscal year, as the Lenexa-based company posted full-year income in the year ended Dec. 31, 2022, of $164.2 million, equal to $1.20 per share on the common stock, up 38% from $119.3 million, or 91¢ per share, in 2021. Net revenue for the year was $1.36 billion, up 19% from $1.14 billion.
The double-digit gain in full-year net income came despite a fourth quarter in which net income slipped 10% to $32.89 million from $36.53 million in the same period a year ago. Adjusted net income was $33.85 million in the fourth quarter, virtually unchanged from $33.99 million in the same period a year ago, while adjusted EBITDA moved up to $75.11 million from $73.16 million. Sales increased 14% to $339.46 million from $297.2 million.
“Hostess Brands delivered another year of strong top- and bottom-line results in 2022, highlighting our attractive snacking portfolio and the resiliency of our advantaged business model,” said Andrew P. Callahan, president and chief executive officer. “I am very proud of the focus, agility, and commitment of the Hostess Brands team as they continue to execute with excellence against our key strategic growth initiatives in a dynamic environment.
“Our track record of top-tier net revenue and earnings growth over the last three years, operational excellence and continued investments in our marketing and innovation capabilities give us the confidence to maintain our profitable growth momentum and deliver growth ahead of our long-term targets in 2023, as outlined by our initial guidance.”
A 2.6% increase in adjusted EBITDA during the fourth quarter reflected higher gross profit, partially offset by a planned increase in operating costs, particularly advertising and marketing.
During the quarter, Hostess’ point-of-sale increased 9.2%, but the company lost 150 basis points of share in the sweet goods category.
Despite losing share in the sweet goods category, Mr. Callahan was upbeat about the company’s performance, noting the category is “highly expandable” and that there is a lot of interest in baked foods right now.
One product that has him excited is Hostess Bouncers, a “poppable” take on the company’s classic baked snacks. Introduced in the spring of 2022, the bite-size Bouncers have resonated with customers.
“We’re really encouraged with Bouncers,” Mr. Callahan said during a Feb. 21 conference call with analysts. “Our customers and what we hear from consumers through the initial trial phase makes us feel nothing but encouraged, and I feel really good about the visibility we have with both our customers and what we’re hearing from consumers as we look at the plans we have in FY ’23.”
He said the early response has been that Bouncers “fits what they need.”
“We’re also able to attract their millennial parents in a disproportionate way,” he said. “So it’s all cranking the way we expect. And we have designed that for a skew toward the lunchbox occasion. So … that seems to be working.
“It’s a reimagination of … some of our icons, Twinkies, Ding Dongs, Donettes, in a two-bite poppable version. That’s all resonating with these consumers. It’s reimagining what our Hostess brand could be with the whole new generation, putting it in a form that they can do and really achieving part of our strategy and core to our strategy, which is taking these iconic baked goods and putting them in a more relevant form for a $65 billion snacking universe. So we’re really excited about our early indications of its ability to do that. But it does over-skew to the lunchbox. With that being said, once it gets in the household, we do see our products consumed at multiple occasions, but that one over-indexes to the lunchbox.”
Voortman branded point of sales rose 28.2% in the quarter, nearly 1.5 times the growth rate of the overall cookie category. Hostess said the strong performance reflected “ongoing momentum in the faster-growing sugar-free sub-segment.”
Hostess has owned Voortman for three years, and Mr. Callahan said what has driven growth for the brand has been “velocity mostly related to our ability to be able to provide more compelling and higher product quality versus competition.”
“Velocity driven by our execution of our merchandising model that we learned from Hostess,” Mr. Callahan said. “Velocity driven by the macro trends behind reduced sugar within a cookie category, now preferred position, and our innovation launches. That … when I look and dissect our model, that shows us that, that’s what’s driving growth despite the fact that we’ve been aggressive with our price/mix on this to protect the margins over time.
“So once again, very similar to Hostess, I expect these macro trends of velocity to continue on Voortman as we continue to build this sub-segment of the cookie category into a larger piece of it, and we lap the elasticity impacts of the pricing. There’s nothing but good stuff ahead of Voortman, but it’s mostly almost completely due to the velocity drivers of the business.”
In addition to projecting earnings per share of $1.08 to $1.13 in 2023, an increase of 10% to 15% from adjusted EPS in 2022, Hostess said its net revenues would be up 4% to 6% from last year. Adjusted EBITDA was forecast at $315 million to $325 million, up 7% to 10% from 2022.Hostess said its capital expenditures in 2023 would total $150 million to $170 million.