Dive Brief:
Hostess Brands announcedfirst-quarter net revenue of $208.7 million, a 13.1% jump from the $184.5 million reported during the same period a year earlier. Excluding the Chicago Bakery, which the Kansas City-based company acquired in February, net revenue was up 5.2%.
Gross profit was$71.2 million, or 34.1% of net revenue, compared to$79.3 million, or 43.0% of net revenue. The decline was primarily attributed totheChicago Bakery, higher transportation costs as a result of tightened shipping capacity, higher co-packing costs and one-time bonuses paid to hourly employees as a result of the corporate tax legislation.Net income was reported as $29.3 million — including a one-time $12.4-million gain from a buyout of former part-owner Apollo Funds' right to current and future tax savings — compared to $24.2 million for the year-ago period.
"We continue to introduce new innovative items that have expanded the Hostess brand market share and continue to expect to grow well above the category average in 2018 and beyond,"Dean Metropoulos, Hostess Brands' executive chairman, said in a statement.
Dive Insight:
Hostess said its growth this year should be "well above" the sweet baked goods category average due to an ongoing focus on strategic initiatives around expanded distribution, continued innovation and filling gaps in current product lines. The company also said it expects its sweet baked goods segment will "continue to serve as a platform for future acquisitions," although no further details were offered.
Hostess noted a 3% net revenue drop in its In-Store Bakery segment to $9.4 million for the quarter, which it attributed to a shift in product and channel mix. Gross margin in that unit also fell because of higher transportation costs — a challenge facing many CPG companies — plus the one-time bonuses for hourly workers. These issues could influence whether the company further invests in its in-store bakeries,as it had indicated previously, or pulls back in that area.
Net revenue in its Sweet Baked Goods segment jumped 14% during the first quarter to $199.3 million. Excluding the Chicago Bakery contribution, roughly $10 million of the $24.5-million increase was from continued sales of last year's product innovations — providing evidence that, when Hostess decides to change or expand the reach of a product, it is working and contributing to overall sales growth.
Hostess has been aggressively expanding the reach of many of its own brands. Last year,the company introducedcinnamon sugar crunch Donettes, white fudge Ding Dongs, chocolate peanut butter Twinkies, chocolate cake Twinkies, Golden CupCakes and peanut butter Ho Hos. More recently, Hostess introduced new premium Hostess Bakery Petites with no artificial colors, flavors or high fructose corn syrup — and an expanded breakfast pastry portfolio.
The appeal of these new items to the public's sweet tooth is clearly paying off and could be an indication that people still crave sugar despite their pledge to eat healthier. Recently retiredpresident and CEO BillTolersaidthe company is seeing new consumers thanks to its Bakery Petites snack lineup, which is critical to pushing the brand's presence further into convenience stores and other retail channels.
Thomas Peterson, executive vice-president and chief financial officer,indicated on the earnings callthat Hostess plans to roll out some new items in the fall. However, nothing was said about whether these new products would stick to the sweet category or branch out into more savory directions. Given Hostess' recent success in sweets and push to roll out new varieties of existing brands, it would not be a surprise to see the company stick to what it does best.
