KANSAS CITY — Hostess Brands, Inc. capped off a successful but challenging year with a strong fourth quarter, as earnings and sales climbed 3.4% and 18%, respectively, in the period. The fourth-quarter gains helped offset sluggish results early in the pandemic.
In the fourth quarter ended Dec. 31, 2020, Hostess net income was $24.37 million, equal to 18¢ per share on the common stock, up 3.4% from $23.56 million, or 18¢, in the same period a year ago. Sales were $256.04 million, up 18% from $216.67 million.
Overall, Hostess net income in the year ended Dec. 31, 2020, was $68.36 million, or 52¢ per share, down 12% from $77.57 million, or 57¢ per share, in fiscal 2019. Results in 2019 included a $7.13 million gain during the fourth quarter on a foreign currency contract, a hedge against its January 2020 acquisition of Voortman Cookies Ltd., a Canadian business.
Sales in 2020 were $1.02 billion, up 12% from $907.68 million.
“We executed the Voortman acquisition and seamless integration, including transition to the warehouse model ahead of schedule and under budget, creating a profitable platform for future innovation, and market opportunities, and serving as yet more proof that Hostess is a platform well suited for complementary acquisitions,” Andrew P. Callahan, president and chief executive officer, said during a Feb. 24 conference call with analysts.
He said full-year EBITDA contribution from Voortman was approximately $28 million, well above the company’s original 2020 forecast of $20 million. Hostess now is prepared to move into Voortman’s next stage of growth, he said, which has strong building blocks of innovation, expanded depth of distribution, penetration into new channels and increased merchandising.
Hostess drove a 5.8% increase in its rolling three-year innovation revenue contribution versus 2019, driven by strong performance of 2020 innovation and a 39% increase in 2019 innovation velocities, Mr. Callahan said.
“Behind sharper behavior-based insights and capabilities, our 2021 innovation slate is even better,” he said. “We are focused on growing consumer snacking subsegment, where we have leading market positions and see strong opportunities for above-average growth. While these are only a few of our many accomplishments in 2020, they speak to how well we are positioned to deliver on sustained, profitable long-term growth and leading shareholder returns.”
Offering guidance for the new year, Hostess projected revenue growth of 3% to 4.5%, and adjusted EBITDA of $255 million to $265 million, up 6% to 10% from 2020. Adjusted earnings per share were forecast to climb 7% to 13% in 2020, and the company forecast a year-end leverage ratio of 3 times EBITDA, down from 3.9 times at the start of the year. The leverage level assumes an effective net share settlement of outstanding warrants that expire in November 2021 and no other strategic uses of cash.
Hostess said capital expenditures in 2021 are expected to total approximately $60 million to $65 million, which includes a $25 million investment to increase the company’s cake production capacity to support continued growth.
Mr. Callahan said Hostess also plans to have cash on hand for potential acquisitions, particularly given the success of the Voortman integration.
“We are maniacally focused on unlocking shareholder value, and we believe we have a very high cash flow to be able to give us the flexibility to be able to do that,” he said. “With the Voortman acquisition, we certainly believe that we’ve demonstrated that we have a platform to be able to do that, execute that. And we also are in a position that for other snacking access that we think we can sustainably grow them profitably, and there’s assets out there, what we call scalable niches. We believe we have a high opportunity to do that. And that’s the way we look at it. Is it branded? Does it fit in our portfolio? Can we drive the right synergies and the shareholder return? You believe there’s assets out there, and that’s what we’re focused on doing.”
Mr. Callahan said Hostess is excited about its new slate of innovation coming to market in 2021. The new products are expected to leverage key consumer insights and trends and penetrate faster-growing consumer usage occasions.
“This continues to expand Hostess’ footprint in the growing indulgent snacking segment, where Hostess has a strong relative position and consumer affinity,” he said. “Our development in high-growth subsegments of snacking is one of the drivers of our consistent growth ahead of the category and why we are confident we can achieve significant growth in innovation revenue as we bring more differentiated ideas to market. We are seeing strong retail response to our 2021 innovation slate.”
Hostess currently has several products scheduled to hit the market at the beginning of the first quarter, including Hostess Muff’n Stix, Voortman’s Super Grain cookies and Voortman mega wafers for convenience stores. In the spring, Hostess plans to introduce two sub-brands with Crispy Mini and Baby Bundts snack cakes, which Mr. Callahan said Hostess believes will generate incremental growth for the business.
On the merchandising front, Hostess has seen “excellent performance” in its seasonal limited-time-offer programs with a significant year-over-year increase in the execution of its Valentine’s program as it begins 2021, Mr. Callahan said. He added that the company also is executing against various initiatives, including enhancing its Hostess partner program in an effort to increase single-serve sales in the small format convenience channel. Hostess also is adapting its execution of multipack and bagged donut displays in large-format grocery and mass retailers to enable improved inventory flow into and out of retailers that have been stressed from excess demand during COVID.
“These changes are already driving greater impulse purchase opportunities,” Mr. Callahan said.
