Milling & Baking News - May 19, 2020 - 14

Financial Results

Hostess hopeful shift to multi-pack
from single-serve will reverse soon
the divested in-store business,
were tracking up 5% in the quarter
through February, spiked 12% in
March and then were up 4% in April,
demonstrating the "pantry loading
and subsequent decline." He said
the temporary surge contributed two
to three points to the company's revenue growth in the first quarter.
Of concern, he said the company's
higher-margin single-serve business
has been down 10% to 15% over the
last few weeks while sales of multipacks have increased 15%.
"We believe a large portion of this
shift in product mix reflects the temporary change in consumer shopping habits during stay-at-home

QUIKTRIP FACEBOOK

KANSAS CITY - A marked product mix shift away from higher margin single-serve products at Hostess Brands, Inc. over the past two
months is likely to reverse as stayat-home orders expire, Brian Purcell, the company's chief financial
officer, said. A tilt in product mix
toward multi-packs is one of several
dramatic shifts Hostess executives
described in a May 8 conference call
with investment analysts.
Hostess net income in the first
quarter ended March 31 was $2.64
million, equal to 2¢ per share on the
common stock, down sharply from
$21.13 million, or 21¢ per share, in
the first quarter last year. Sales were

Hostess is seeking to take advantage of a weaker market for fresh baked foods at convenience stores during the pandemic.

$243.49 million, up 9%. The income
drop was attributed to costs from the
acquisition of Voortman Cookies Ltd.
Net sales rose 14%, excluding the
divested in-store bakery business.
Hostess said Voortman accounted for
8.1 points of adjusted sales growth
with other sweet baked foods generating 6.3 points of growth.
Adjusted EBITDA of $51 million
was up 6% from a year earlier, excluding the in-store baking business,
and beat an anticipated single-digit
decline. Hostess said the improved
profitability reflected higher volume
and better-than-expected Voortman
performance, offset partly by increased distribution and labor costs.
Mr. Purcell said sales, excluding
14 / May 19, 2020

Milling & Baking News

orders, which has resulted in less
store traffic in our highly developed c-store channel and increased
pantry stock with other channels,"
Mr. Purcell said. "We are optimistic
that this shift will begin to reverse as
stay-at-home orders lift and there is
an increase in convenience store traffic this summer as more people may
drive versus fly."
He cautioned that his crystal ball on
how buying patterns will shift in coming months is anything but perfect.
"The timing and extent of the
COVID-19 impacts on consumer
behaviors in the near term is uncertain," he said.
Andrew Cahillane, chief executive
officer, said Hostess facilities have

remained operational during the
pandemic but not without extraordinary effort. Initiatives include incremental sanitation breaks and cleaning protocols above "already robust
traditional sanitation protocols."
"We have installed additional
sanitation stations within the bakeries, provided temperature and
health survey readings at every facility in our network, provided base
coverage for all employees, installed
safety glass, plexiglass and dividers
at critical locations on the lines and
break facilities," he said.
Hostess has paid associates for
COVID-19 testing, provided supplemental pay benefits and extended
leave-of-absence job protection, Mr.
Cahillane said. How the company
has been affected has not been uniform from one plant to the next.
"Each of our facilities has been impacted differently based on the mix
of demand, local variations and policies and the degree of COVID-19 impact in the community," he said. "For
example, our Chicago facilities lines
are physically closer together and
require more people as compared
to our highly automated Emporia
(Kansas) bakery, resulting in more
impactful changes to our operating
procedures and modifications to the
facility to ensure the safety of our employees. We are continuing to modify
our manufacturing, supply chain and
merchandising priorities to respond
to the changing market dynamics."
In addition to the shift between
single-serve and multi-packs, a
jump in e-commerce sales represents
another change since the start of the
pandemic.
"We're not missing the opportunity as we're stronger in c-stores,"
he said. "There's some positives
here as well. Some of our c-store customers are doing less around fresh
bakery and more packaged. So the
areas that used to be fresh donuts
and pick-and-mix are now prepackaged. We're expanding our shelf
sets during the time because we're
there - where maybe some other
suppliers are not there. The impact
is more related to impulse purchase
and single-serve. So as a matter of
fact, even though the channel in cstore is down, we still see relatively
strong and growing performance in
our bread business, for example, and
our bun business as well as our donut business in that channel."
Hostess has withdrawn financial
guidance for the balance of the year. MBN
bakingbusiness.com / world-grain.com

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - May 19, 2020

Table of Contents for the Digital Edition of Milling & Baking News - May 19, 2020