Trends

Hostess Brands, Inc. (TWNK) Q4 2022 Earnings Call Transcript

Trending 1 year ago
beritaja.com

Hostess Brands, Inc. (NASDAQ:TWNK) Q4 2022 Earnings Conference Call February 21, 2023 5:00 AM ET

Company Participants

Andrew Callahan - President and CEO

Travis Leonard - CFO

Conference Call Participants

James Salera - Stephens Inc.

Ken Goldman - JPMorgan

Rob Dickerson - Jefferies

Bill Chappell - Truist Securities

David Palmer - Evercore ISI

Pamela Kaufman - Morgan Stanley

Robert Moskow - Credit Suisse

Steve Powers - Deutsche Bank

Operator

Greetings. Welcome to nan Hostess Brands, Inc. Year-End 2022 Earnings Q&A. [Operator Instructions]

I will now move nan convention complete to your host, Andy Callahan. You whitethorn begin.

Andrew Callahan

Terrific. Thanks, and bully afternoon, and welcome, everybody, to nan Q&A information of Hostess Brands' 4th fourth 2022 net convention call. I'm Andy Callahan, Hostess Brands' President and CEO, and I'm joined by Travis Leonard, our Chief Financial Officer.

Hopefully, you've each had a chance to reappraisal nan net merchandise for nan play ending December 31, 2022, on pinch nan investor presentation, which was published coming astatine 4:00 p.m. Eastern Time. That is disposable still and will beryllium connected nan Hostess website astatine www.hostessbrands.com. A replay of nan webcast and our consequent Q&A will besides beryllium disposable connected nan Investor Relations conception of our website.

During nan people of nan call, we whitethorn make a number of forward-looking statements, including expectations and assumptions regarding nan company's early performance. Actual results whitethorn disagree materially from these forward-looking statements, and we undertake nary responsibility to update aliases revise these forward-looking statements. A elaborate database of these risks and uncertainties tin beryllium recovered successful today's net merchandise and successful our SEC filings.

Management will make a number of references to non-GAAP financial measures that we judge supply useful accusation to investors. A afloat reconciliation of these non-GAAP measures to nan astir comparable GAAP measures is included successful nan net release.

So pinch that retired of nan way, pinch that, we're disposable for nan Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Our first mobility comes from nan statement of Ben Bienvenu pinch Stephens Inc. Please proceed pinch your question.

James Salera

Hi, guys. Jim Salera connected for Ben. Thanks for taking my questions. I conscionable wanted to get an thought arsenic we look into 2023, could you possibly springiness america a small item connected benignant of nan creation of sales? Should we deliberation of that chiefly arsenic benignant of level measurement and past value done there? Or was location immoderate of nan invention from bouncers built into that? Any colour connected that I deliberation would beryllium helpful.

Andrew Callahan

Yes, for illustration connected there. So arsenic acold arsenic nan afloat twelvemonth '23, actually, we consciousness bully astir it. As you tin see, it gets backmost to algorithm and profit supra algorithm for nan year. Volume is flattish for nan afloat twelvemonth and past value operation drives to nan -- gets america to nan full guide. But you tin also, arsenic we mentioned successful our prepared remarks, if you've had a chance to spot it, we're focused connected nan user customer sustainable profitable growth.

As you look astatine nan creation of nan afloat twelvemonth FY '23, nan measurement and nan gross is coming successful astatine a gating perspective, much successful statement pinch historical, if you look backmost astatine for illustration history. The comparisons, particularly successful Q1, are distorted because of immoderate of disruptions successful nan marketplace successful comparison to past year.

So we consciousness bully astir nan afloat twelvemonth erstwhile you really look astatine our models and you comparison gating to historicals, if you return retired a small spot of nan disruption and distortion. As a matter of fact, further makes america -- encourages america Q4, what we conscionable reported, our 2 twelvemonth stacked maturation was 33%. We'll person a bully stack 2 twelvemonth maturation successful Q1 of FY '23, albeit not astatine nan aforesaid level arsenic Q4, but very bully and astatine nan apical of nutrient peers.

So we're really getting backmost to much of a normal pacing successful nan quarters of FY '23. Now Bouncers, we're really encouraged pinch Bouncers. Our customers and what we perceive from consumers done nan first proceedings phase, makes america consciousness thing but encouraged, and I consciousness really bully astir nan visibility we person pinch some our customers and what we're proceeding from consumers look astatine nan plans we person successful FY '23. And arsenic we mentioned successful nan prepared remarks later this week, we were astir our adjacent innovation, which we're really excited this year.

James Salera

Great. And Andy, since you brought it up pinch Bouncers. Can you possibly talk astir -- you guys person laid retired successful nan past benignant of these 5 targeted snacking occasions. Is location immoderate juncture that you consciousness that Bouncers aliases possibly immoderate invention that you person benignant of coming successful nan pipeline helps you onslaught and benignant of grow your scope pinch consumers in?

Andrew Callahan

Yes. So Bouncers is -- erstwhile again, we get awesome feedback. For those who person tried it, they've told america nan merchandise that fits what they need. We're besides capable to pull their millennial parents successful a disproportionate way. So it's each cranking nan measurement we expect. And we person designed that for a skew towards nan lunchbox occasion. So -- and that seems to beryllium working. It's a reimagination of our -- immoderate of our icons, Twinkies, Ding Dong, Stone Nets and 2-bite Poppable version. That's each resonating pinch these consumers. It's reimagining what our Hostess marque could beryllium pinch nan full caller generation, putting it successful a shape that they tin do and really achieving portion of our -- a batch of our strategy and halfway to our strategy, which is taking these iconic baked equipment and putting them successful a much applicable shape for a $65 cardinal snacking universe.

So we're really excited astir our early indications of its expertise to do that. But it does complete skew to nan lunchbox. With that being said, erstwhile it gets successful nan household, we do spot our products consumed astatine aggregate occasions, but that 1 over-indexes to nan lunchbox.

James Salera

Great. Thanks for nan colour guys. I'll walk it on.

Andrew Callahan

Thank you.

Operator

Our adjacent mobility comes from nan statement of Ken Goldman pinch JPMorgan. Please proceed pinch your question.

Ken Goldman

Hi, convey you. I wanted to inquire astir what you're seeing successful nan promotional situation correct now. Clearly, location are immoderate indications that 1 of your larger competitors possibly measurement connected nan pedal a small spot toward nan extremity of nan year. Just funny what you're seeing successful nan first quarter? And I guess, much importantly, what you're modeling successful promotional strength from you and your consent arsenic nan twelvemonth goes on? Thank you.

Andrew Callahan

So we consciousness really bully astir our expertise -- and nan statement of show we person some pinch nan user consequence to our plans and our customer engagement. As a matter of fact, I don't deliberation our customer relationships person ne'er been stronger. It's each contemplated successful our guideline arsenic a headline.

Certainly, we've seen related to nan marketplace successful our class successful which we compete, nan class successful full continues to execute really well. moreover during times of immoderate of these things coming back, we proceed to turn highly good pinch our 2 twelvemonth stack numbers.

And I really for illustration what we're doing. You're seeing nan distortion you're talking -- we're talking astir because we proceed to consistently negociate done a proviso concatenation successful a very affirmative rate. So I consciousness really bully astir nan playbook we're running, nan expertise to thrust nan growth, which is included successful our scheme arsenic we use from our accordant execution business pinch our customers, attraction connected our consumers and driving our algorithm complete time.

Ken Goldman

And past -- convey you for that. Quick follow-up. You talked astir really 1 of your expectations for this coming twelvemonth is that, yet consumers arsenic they person successful nan past, right, much -- turn much accustomed to higher prices. Can you talk a small spot astir conscionable what's baked in, successful position of wide elasticity? Are you still assuming that location is simply a higher level of elasticity? I cognize it's reliable to benignant of exemplary and fixed that you're not taking arsenic overmuch pricing going forward. But conscionable trying to get a consciousness for, if you're astatine slightest assuming that consumers will beryllium somewhat much delicate aliases little delicate than it historically has been put to higher prices?

Andrew Callahan

Yes. As a reminder, you mentioned that Ken, we judge -- now, we'll ever consequence to an agile to changes successful nan marketplace, but we judge each of nan pricing that we person in, is each nan pricing we request to present nan guideline that we conscionable established and present nan maturation that we conscionable established.

So we consciousness really bully astir that, and truthful arsenic nan twelvemonth goes on, what we'll spot is nan use of lapping retired of nan pricing and much into nan backmost half we get to nan measurement driving nan algorithm and that's much of our sustainable long-term. That's what we spot today.

Relative to nan user consequence to elasticity, we break that out. We deliberation we person a -- well, we do person a bully hit connected what nan elasticity impacts and what we spot is our finance successful innovation, our finance successful marketing, our execution, our activity connected driving our business and enhanced merchandise pinch our customers, which includes not moreover conscionable nan displays -- type of displays, timing of it, that's each offsetting immoderate short-term effect that we'll spot connected elasticity and we'll commencement seeing that travel done nan backmost half.

We person not needfully changed those assumptions from what we've seen successful Q4, which really gives maine a bully consciousness for arsenic we move forward. You published immoderate reports, that's person a batch of nan peers and we've seen pinch our economists successful different banks. Certainly nan user is still undergoing changes successful nan marketplace arsenic they sorb benignant of nan caller economies. We've done immoderate investigation arsenic I've said successful my proprietary remarks that nan resiliency of our class and accessibility of our value points performs very good successful aggregate conditions and nan breadth of our readiness crossed channels besides thief support that.

So, each of those facet up to my assurance astir our guideline and our expertise to proceed to thrust sustainable profitable maturation complete time.

Ken Goldman

Thanks, Andy.

Andrew Callahan

Yes, thanks. Ken.

Travis Leonard

Thanks, Ken.

Operator

Our adjacent mobility comes from nan statement of Rob Dickerson pinch Jefferies. Please proceed pinch your question.

Andrew Callahan

Hi, Rob.

Rob Dickerson

Hi, Andy. How are you going? Thanks. I conjecture a mates of questions. First mobility is, I deliberation nan EBITDA guideline implies a small spot higher than benignant of semipermanent algo nan '23. Apologies if I didn't person clip to spell done each nan prepared remarks. Maybe if you could conscionable explain, benignant of what is driving that maturation comparative to benignant of longer-term expectations?

Andrew Callahan

Hi, Rob. Just to make judge we heard it. You were a small spot garbled location for a second, I deliberation you said explicate why nan profitability is somewhat higher than nan semipermanent algo and nan guide?

Rob Dickerson

Yes, that's it.

Andrew Callahan

Yes. Sorry astir that. You are small spot garbled. Travis, I'll fto you return that one.

Travis Leonard

Yes. Hi, acknowledgment for nan question. So first off, we consciousness really bully astir our guide. We're really proud of nan results that we delivered successful 2022. And, arsenic you mentioned, we expect to present beardown maturation going forward.

So, arsenic we deliberation astir our maturation from an EBITDA perspective, it's driven by nan flywheel that we've talked astir -- since Investor Day you've heard maine talk. So, it's bully top-line maturation and we're targeting -- and we're expecting and guiding to 4% to 6% top-line maturation and arsenic Andy mentioned, a batch of that is volume. It's our continued attraction -- I'm sorry, value operation rather. Sorry, I misspoke. It's our continued attraction connected productivity.

So this is productivity crossed our full business system. This is gross maturation guidance and you've heard maine talk astir that arsenic well. We've sewage bully leverage crossed our operating expenses. So our operating costs arsenic a percent of nett gross is going to beryllium comparatively level successful 2022. So each of our flywheel is communal and it's kicking starting from nan top-line. Our cardinal attraction connected margins and getting leverage, peculiarly successful our operating costs wherever we spot that.

Rob Dickerson

Okay, great. And past possibly conscionable 2 speedy travel ups. In position of gross separator cadence for nan twelvemonth and past measurement connected a year-over-year, cadence for nan year. Andy, it sounds for illustration you benignant of implied that possibly successful nan backmost half, nan top-line albeit small spot much measurement driven, which would propose possibly affirmative measurement successful nan backmost half. I'm not judge if that's benignant of what nan connection is and past besides conscionable connected nan gross margin, is location thing we should beryllium reasoning astir arsenic we get done nan twelvemonth successful position of accelerated ability, not yet. Thanks truthful much.

Andrew Callahan

Let maine reiterate nan top-line and past Travis travel connected apical connected nan gross margin, so. Rob, your takeaway is correct. As you look astatine price-mix much of a driver early arsenic we thigh nan aggregate pricing actions that we executed successful 2022 arsenic that flows retired done nan year. You'll commencement seeing our maturation drivers astir trading and invention and different things becoming much and past you'll spot that astatine supra algo arsenic we move done nan year.

So that's it. And if you want to look astatine nan cadence of our '23, you'll spot that it follows much historical. If you return an mean of humanities benchmarks and return distant nan distortion of past twelvemonth wherever you spot a batch of timing of pricing and proviso concatenation disruptions distorting immoderate things, you'll spot that'll beryllium a bully measurement to get that. So that each adds up and aligns pinch our model. So that's nan measurement to look astatine it.

I'll move it complete to Travis for nan gross separator discussion.

Travis Leonard

Hi, awesome question. Let maine talk a small spot astir gross margins and framework this up a bit. So, our gross margins are fundamentally flat. Adjusted gross separator is fundamentally level versus FY '22. Now support successful mind, we expect to present beardown EBITDA growth. We've sewage level gross margins, but we are absorbing precocious single-digit ostentation and Arkadelphia start-up costs, of which $5 cardinal is fundamentally onetime successful nature.

Now, our gross separator still stay amended than peers. We are committed to recovering those gross margins complete time. So arsenic we deliberation astir FY '23, this is astir -- nan choices astir timing. We're not prioritizing separator betterment of semipermanent profitable growth. But we'll proceed to leverage our gross separator instrumentality which we consciousness really bully astir those capabilities astir gross maturation guidance and productivity to retrieve our margins and substance our investments for growth.

As you deliberation astir nan cadence, 1 of nan things that you'll astir apt spot connected a cadence, we did person a reliable Q2. So I talked astir that. It was really my first net call. So location was a batch astir -- obviously, ostentation was high. There were proviso concatenation fragility. So we do expect a amended consequence successful Q2, arsenic we statesman to thigh immoderate of that.

Andrew Callahan

Yes. And conscionable related to it. I consciousness we've -- what's paid disconnected really good for Hostess Brands is our continued attraction connected our user -- customer first and sustainable profitable maturation complete clip and that's going to service america good and arsenic Travis mentioned, we're committed to recovering gross margins complete clip and we'll do that until we'll do that wrong nan discourse of continuing to present accordant sustainable profitable growth. Thanks, Rob.

Rob Dickerson

Super. Thank you.

Operator

Our adjacent mobility comes from nan statement of Bill Chappell pinch Truist Securities. Please proceed pinch your question.

Bill Chappell

Thanks, bully afternoon.

Andrew Callahan

Hi, Bill.

Travis Leonard

Hi, Bill.

Bill Chappell

Can you opportunity a small spot astir nan competitory landscape. I cognize it's conscionable for nan 3 large goods. You held share, I conjecture for nan twelvemonth aft a mates of years of benignant of gaining immoderate share. And I cognize it's a small spot different from an invention standpoint, but it gets one, what are benignant of your expectations for nan class maturation this year? And past two, do you expect promotions? I cognize it wouldn't beryllium it connected nan single-serve broadside but benignant of nan market level to travel backmost arsenic costs commencement to easiness arsenic we move done nan 2nd half?

Andrew Callahan

Yes, a mates of things. I consciousness really bully astir our models, astir our expertise to beryllium capable to tally our play and really consciousness awesome astir our guide. It's a small spot harder to foretell share, mostly because we're successful a class that's highly expandable for one. So it's not a complete set. We're successful $65 cardinal snacking juncture representation of which we're successful a $7 cardinal Sweet Baked Goods class that meets and that tin entree maturation crossed it, and there's a batch of liking successful baked equipment correct now.

So that -- I return that arsenic a complement that we're successful a existent bully category. And successful nan short word and a batch of disruptions and of course, stock to benignant spell up and down complete time, I really judge that our playbook will execute that stock amended of time. So a agelong measurement of saying, we don't really exemplary share. But that doesn't springiness america -- that doesn't undermine our assurance and our expertise to thrust nan number that we judge is successful our guide. We person a batch of assurance successful that.

The timing of pricing was each different successful our category, was it flowed done including now, we person everything we need. The timing of our execution connected proviso chain, they each person helped aliases contributed to small spot of nan distortions I've talked astir successful nan marketplace. All that being said, our two-year stack maturation continues to beryllium bully and my assurance successful our exemplary continues to beryllium good.

Related to promotions, we person -- I'll reiterate this. I do deliberation '23 akin to nan gating of nan top-line, nan pacing of nan promotions is each contemplated successful our guide, akin astir apt to humanities patterns. And I consciousness really bully astir nan partnerships that we person pinch our customers, pinch a business to thrust user restitution and wide growth. And it's ne'er been better. It's afloat successful there.

When you get a chance to perceive prepared remarks if you haven't already, Travis talked astir our enhanced merchandising which is multi-tiered related to our attraction connected readiness crossed nan store, displays, merchandising, we're activating our entree to consumers done customers devices and really bully astir -- I consciousness really bully astir nan visibility we person successful nan partnerships performing.

Bill Chappell

Got it. And truthful -- I'm sorry, I missed, class maturation you expect for this year.

Andrew Callahan

I did not exemplary that. So I'm not forecasting that successful forecasting ours. I wouldn't person a reliable number to springiness it to you but I judge complete time, that will thrust -- proceed to thrust share. In nan short term, predicting a stock number. It's difficult for maine to do fixed nan truth that really awesome Sweet Baked Goods has been performing complete clip and nan distortion that I talked astir that we communicated successful nan class successful nan short term.

Bill Chappell

Great. Thanks truthful much.

Andrew Callahan

You sewage it, Bill.

Operator

And our adjacent mobility comes from nan statement of David Palmer pinch Evercore ISI. Please proceed pinch your question.

David Palmer

Thanks. Question for you astir productivity and really overmuch do you deliberation nan proviso concatenation costs pinch these overtime and what nan nett effect, those 2 things would person this twelvemonth and possibly moreover into adjacent twelvemonth successful position of gross separator improvement?

Travis Leonard

Hi, this is Travis. Thanks for nan question. So fto maine possibly abstracted these things a bit. So productivity, I deliberation I alluded to it a small spot earlier successful nan call. We consciousness really bully astir our productivity and our expertise to really support nan pipeline of initiatives full. We've accelerated our investments and you've heard maine talk astir this successful fiscal twelvemonth '22. We've accelerating our investments to build this capability, to create scalable and repeatable processes to support this pipeline of productivity nan afloat and we consciousness very bully astir that, and that's again portion of our flywheel of maturation and past let america to proceed to put successful maturation and evidently retrieve our margins.

As we deliberation astir nan proviso chain, arsenic we beryllium present today, nan measurement we spot it is that, it's improving and successful FY '22, we are unsocial successful this. This is not unsocial to us. There were a batch of proviso concatenation challenges. You mightiness person heard america talk astir successful nan discourse of proviso concatenation fragility. But what came retired of that was, we strengthened our relationships pinch our cardinal suppliers.

So we consciousness really bully going guardant pinch that -- those strategical relationships, nan partnership, our expertise to fortify it during reliable situations successful 2022 and consciousness good, if we person to -- if location are immoderate shocks successful nan strategy arsenic we move forward.

Andrew Callahan

So building connected that, we've committed to recovering our gross margins complete time. So we're communicating level this year. Now if you ladder up from that, surely we person a mates of things. We've talked connected our prepared remarks and Travis mentioned earlier successful this Q&A conception related to a onetime $5 cardinal cost, obviously, immoderate of our ostentation is going to beryllium double-digits. Obviously, we astir apt skew a small spot much tags, truthful arsenic we equilibrium each of that pinch our attraction connected sustainable growth, we cognize we person that equilibrium right.

So we will yet get it. With each of that, we're still successful really precocious profit growth. We will retrieve them complete time. But this twelvemonth we person it and we've really -- nether Travis's leadership, we've been doing awesome connected building our pipeline of productivity and I judge arsenic we settee retired there, that's going to beryllium a existent driver of substance arsenic we put successful -- proceed to put successful growth.

David Palmer

So your belief is that, your productivity will beryllium a bigger use this twelvemonth and that location will beryllium immoderate easing of those proviso concatenation costs. But value nett of commodities and immoderate other, including promotion, you're bringing it backmost to neutral, is that what you mentioned astir gross margin?

Andrew Callahan

Certainly each of that matters -- arsenic nan neutral because that's what we're doing is, we sorb immoderate of nan onetime costs of Arkadelphia and negociate nan equilibrium of a user maturation exemplary to nan timing of gross separator recovery. That's nan conclusion you person to make.

David Palmer

And past one, my last mobility astir nan invention pace, will this and past nan cadence it, really will caller merchandise news and merchandising use nan first 4th versus nan remainder of nan year. Thank you.

Andrew Callahan

So, arsenic you know, David, covering a batch of companies, we do person -- we launched Bouncers backmost successful nan fall. We're now -- we will denote different invention present later this week, which I cognize you will really for illustration and immoderate manufacture attendees will person a chance to sample. So I look guardant to that feedback.

As we looked astatine 2022, we drove 44% of nan full gross from innovation. So that's good supra what nan class and nan scale was. The pacing of nan invention and nan proceedings phase, it takes astir 12 months. So we expect our invention publication to beryllium different really beardown year. As we proceed to get nan use of nan innovations, we've launched previously, Buns continues to grow.

We besides person -- Voortman invention is coming retired pinch caller packaging and Zero Sugar. We person different 1 connected Hostess we're announcing and Bouncers is still successful nan proceedings shape arsenic good arsenic nan caller ones. So I've really consciousness arsenic amended -- arsenic bully arsenic I've ever felt related to our invention pipeline and expertise to thrust growth.

We'll proceed to -- expect america to proceed to beryllium astatine a 2 times scale possibly of nan category, our vitality of delivering astatine nan precocious extremity of -- moving up to nan precocious extremity of our 15% to 17%. I'm very optimistic about. So it will beryllium really good, but nan first half of nan 2023, we're still successful that proceedings shape related to Bouncers, nan caller products we're launching, our first feedback from our consumers is really encouraging and our customers proceed to beryllium really excited astir it.

And for really excited they were astir Bouncers, obviously, they person a sneak peek nether nan invention since they're trading it successful and it's launching present later successful March. They are moreover much excited astir nan adjacent 1 we are launching.

David Palmer

Thank you.

Operator

Our adjacent mobility comes from nan statement of Pamela Kaufman pinch Morgan Stanley. Please proceed pinch your question.

Pamela Kaufman

Hi, bully evening. I conscionable wanted to inquire about, what you're watching successful user behaviour crossed channels? I guess, are you seeing immoderate differences successful shopping habits crossed convenience versus wide and market stores? And past what are you seeing successful position of request for azygous service versus multi-packs?

Andrew Callahan

So, related to, fto maine return nan past portion first and past I'll talk astir that transverse channel. Our single-serve business does very good and it continues to do very well. And matter of fact, it's not only is our convenience transmission proceed to person beardown depletion and we do very well, wherever arsenic you cognize we complete scale a azygous serve, we besides person an inaugural of expanding our single-serve business crossed much broader channels, leveraging nan spot and nan business exemplary we really spent convenience.

And nan description of that readiness pinch for illustration planogram beforehand ends astatine immoderate really ample market retailers is going good and I spot that those numbers regularly and expanding much. So nan business we person pinch our customers to build that programme connected azygous serves is really doing good now and I expect it proceed to thrust maturation and do good successful nan future.

Related to nan channels, arsenic -- conscionable arsenic a headline, 1 of nan spot of our business is nan breadth of our availability, which has really enabled by our operating exemplary and powered by our finance successful value products passim nan full support life, adding to nan availability. So we strive to person nan nonstop aforesaid value astatine nan extremity of our support life arsenic time one, which really neutralizes and it really empowers our expertise to beryllium capable to enact that.

But you asked astir nan channels. We've seen evidently immoderate insignificant shifts, but not for illustration a awesome displacement crossed our channels, but we're positioned if that does happen. We person seen trips, which were primitively really high, but they person moderated somewhat recently. We proceed to spot beardown resilience wrong nan convenience channel. We're moving into a precocious season, related to that and those trends are normal.

So related to user behaviour and shopping trends, successful our business anyway, we haven't seen a awesome move across. They've been insignificant pinch continued spot wrong convenience and nan breadth of our readiness and entree to user really booing our business arsenic nan user moves.

By nan measurement related to already Pam, we proceed to spot really beardown summation of 2 times purchaser to our franchise, which is nan summation successful loyalty complete clip astatine a complaint that's almost 2 times greater than 2 times nan full category. So I proceed to way that because that's really a testament to our finance successful our merchandise quality.

Pamela Kaufman

Great. And past conscionable connected Voortman, truthful proceed to person very beardown maturation successful nan 4th quarter. Can you conscionable springiness an update connected what's driving nan growth? How overmuch -- wherever is distribution now and what are you targeting for distribution description complete nan adjacent year?

Andrew Callahan

Yes. One of nan awesome things astir Voortman is, erstwhile we primitively bought it, 3 -- we conscionable passed nan three-year day and it has been separator accretive, maturation accretive. It's added a caller class to us. We person a starring position wrong a reduced sweetener segment, wrong $8 cardinal cooky class that's increasing astatine much than doubly nan rate. We instantly moved it to nan storage to unlock nan separator floor plan of it.

And past we focused connected really driving nan growth. The supplier -- what's driving nan maturation now is not really nan distribution. Although our distribution is not going down. It continues to beryllium positive. What's really driving maturation of Voortman has been a velocity. And velocity is mostly related to our expertise to beryllium capable to supply much compelling and precocious merchandise value versus competition, velocity driven by our execution of our merchandising exemplary that we learned from Hostess, velocity driven by nan macro trends down reduced sugar, wrong a cooky class now preferred position and our invention launches.

When I look and dissect our model, that shows america that that's what's driving maturation contempt nan truth that we've been fierce pinch our value operation connected this to protect nan margins complete time. So erstwhile again, very akin to Hostess, I expect these macro trends of velocity proceed connected Voortman arsenic we proceed to build this sub-segment of nan cooky class into a larger portion of it.

And we thigh nan elasticity impacts of nan pricing. There's thing but bully worldly up of Voortman, but it's mostly -- almost wholly owed to nan velocity drivers of nan business.

Pamela Kaufman

Thanks.

Andrew Callahan

Yes.

Operator

Our adjacent mobility comes from nan statement of Robert Moskow pinch Credit Suisse. Please proceed pinch your question.

Robert Moskow

Hi, thanks. I americium astatine nan CAGNY convention correct adjacent to a large show of Jack Daniel's. So if I go incoherent successful nan mediate of this question, conscionable fto maine know.

Andrew Callahan

Rob. That's what you get for having our convention telephone astatine 5 O'clock, but we'll spot it tomorrow and you'll beryllium capable to return immoderate of our adjacent innovation.

Robert Moskow

Okay. Well, if it's Jack Daniel's, fto maine know. But I want to cognize astir shaping of nan year, for illustration first 4th you person this really reliable comp because of nan distribution that you picked up from a competitor and now it's reversing. So first quarter, really should we deliberation astir measurement and top-line growth?

Andrew Callahan

Yes, I'm trying to explicate this conception nan champion measurement I can. So if you look astatine nan pacing of our volumes -- gross pacing passim nan quarters, Q1, Q2, Q3 and Q4, nan pacing of that gross is successful statement with, if you return retired nan twelvemonth ago, which was mostly successful Q4 of '21 and Q1 of '20. It follows those humanities patterns. And truthful that's why we consciousness good. And past that is supported erstwhile we transverse tab that done our soul models, rising innovation, et cetera. We aligned pinch that approach.

Now what's really distorting that arsenic looking for illustration it whitethorn beryllium up aliases down is nan comparison to nan twelvemonth ago, which was -- really nan outlier was nan growth. Now -- and we besides still consciousness bully astir that, erstwhile you normalize that, it's not for illustration we're declining because successful Q4, here's a stat for you, Rob. In Q4, 2 twelvemonth stack are arsenic precocious successful Q1 of [technical difficulty] it's not going to beryllium arsenic high, but it will beryllium a really beardown 2 twelvemonth stacked successful Q1 and will beryllium disconnected to nan races pursuing that. So that's nan champion measurement to deliberation done benignant of fresh successful nan year.

Robert Moskow

Okay. So...

Andrew Callahan

That benchmark versus historicals gating.

Robert Moskow

So, does that mean we should look astatine things connected a 3 twelvemonth stack erstwhile we're forecasting 1Q? Is that nan champion measurement to look astatine it?

Andrew Callahan

You tin look astatine that for nan gait -- for nan -- yes, comparison nan absolute number to nan Q2 '22 maturation and past gated based connected nan humanities gating of a 3 twelvemonth history. Okay. Both. And it will return retired nan distortions.

Robert Moskow

Okay. And, is location thing much you tin show america astir whether nan grade of nan marketplace stock declines successful 4Q was a astonishment to you? Like, it was a astonishment to me. We each knew this competitor is going to regain capacity, but nan grade to which it came backmost was a surprise. I conscionable wanted to cognize really you thought astir it erstwhile you looked astatine nan numbers really came retired for retail?

Andrew Callahan

Yes. So nan stock number is different than our total. Now our -- wherever we came successful in Q4 was wrong our guide. So nan stock number is impacted by measurement nan full baking category, Sweet Baked Goods class does specifically of which you tin look astatine it 2 ways and 1 of nan ways we look astatine it is intelligibly we're successful a priory expandable categories. We sewage a batch of news and liking from a batch of competitors, willing successful baking, and frankly, I deliberation we do it very well.

So, nan stock number, we do not forecast arsenic precisely arsenic we do our ain number. Our ain number wrong our guideline and nan class performed amended than we would person anticipated, which is driving nan share, but still our models fresh successful our expertise to beryllium capable to access. New millennial consumers proceed to thrust penetration successful households, proceed to summation nan maturation complaint of our 2 times buyers, each is intact and we consciousness bully astir our maturation going forward.

Robert Moskow

Okay, makes sense. Thank you.

Andrew Callahan

Yes. Thank you.

Travis Leonard

Thanks, Rob.

Operator

Our adjacent mobility comes from nan statement of Steve Powers pinch Deutsche Bank. Please proceed pinch your question.

Steve Powers

Yes. Hi, bully evening. Just a follow-up connected nan capacity investments you called retired for '23. Maybe if you could conscionable supply a small spot much colour astir precisely what parts of nan business are getting those capacity increases? And then, based connected expected maturation arsenic we spell forward, conscionable thief america framework do you spot much capacity needs successful '24 and beyond? Or is this really a large step-up successful '23 and past you build capacity for nan foreseeable future?

Travis Leonard

Hi, this is Travis. I'll commencement this -- nan answers. Great question. Thank you for that. So what we were referring to is our caller bakery and Arkadelphia. This will supply 20% incremental capacity to our Donettes and barroom lines and it will travel online successful Q4 of 2023. So we consciousness really bully astir this bakery. It's sewage a benignant of a sustainability first conception lands consciousness to it, which we consciousness really bully about. And definitely, it's going to really thief america pinch nan Donettes and barroom platform.

So I would say, arsenic we deliberation astir investments successful capacity, this is nan large one. The measurement to deliberation astir -- fto maine talk a small spot astir CapEx here, nan measurement to deliberation astir this successful nan discourse of our capital, you will spot that our guideline is $150 cardinal to $170 million. That reflects nan finance into this bakery. And arsenic we talked astir successful Investor Day successful 2024 and 2025 and beyond, we will ramp that down.

So conscionable to springiness you a small spot of much colour here, successful 2022, we had CapEx spending of $130.5 million, which is astir 10% of our gross and that's benignant of really we talked astir it successful nan discourse of Investor Day. That will stay elevated astatine low-double digits successful 2023 fixed nan guide. And past we will beryllium accordant pinch what we talked astir astatine Investor Day, arsenic you deliberation astir our CapEx arsenic a percent of revenue.

Andrew Callahan

Yes, Steve, fto maine build connected that. So I was talking astir nan financials, manufacture first feels really bully astir it. We're adding a caller bakery footprint and astatine nan measurement we -- and it's going to adhd 20% capacity to Donettes and our barroom business precisely wherever Travis said which are strategically important to america and they're growing.

And we've -- obviously, you person to make these decisions 2 years successful advance. We request this capacity and what we're going to do erstwhile we unlock it, we're capable to thrust efficiencies wrong it. As we beryllium present today, arsenic we've driven our maturation complete time, we talked astir our full measurement growth, our stacked growth, erstwhile we get backmost into nan algorithm, we request nan maturation and there's not a clip now that there's not a quality aliases online either producing barroom product, sanitizing our lines, we're up upgrading them pinch either instrumentality aliases preventive maintenance. So we're 24/7 beautiful overmuch connected these lines and if it's complete clip aliases whenever say, anything.

When COVID hit, we tally a analyzable web and we did a existent bully occupation of optimizing nan web to thrust efficiencies throughout. We will do that erstwhile we unlock this caller bakery. We'll beryllium capable to reset our network. We will beryllium capable to optimize nan statement runs. We will beryllium capable to past negociate to a measurement that's little burdensome connected our employees, much planful, portion of our pipeline, nan productivity, includes our expertise to beryllium capable to do that.

So first we request nan capacity. And second, we're going to optimize it successful a measurement that really thrust successful sustainable profitable maturation that we talk astir successful nan first time. And we're truthful assured successful those semipermanent maturation algorithm which is mostly measurement driven. As we get retired of this play of hyperinflation, it will really thrust awesome occurrence for us.

So consciousness really bully astir that. I consciousness really fortunate that nan squad made nan determination to really get it online successful nan backmost half of nan twelvemonth erstwhile we did, because we'll request it.

Steve Powers

Yes, that's great. And you benignant of anticipated portion of my follow-up, but arsenic you get that flex successful nan wide accumulation footprint, connected nan lines that you've been benignant of moving each retired now for a while, is location investments you've made successful those older lines arsenic you had a small spot much state to upgrade them, to automate them, you're going to afloat modernity aliases is that -- is it much -- conscionable gets america caller scheme online, optimize successful nan caller footprint and transportation forward?

Andrew Callahan

Well, I deliberation it's, yes, yes. I deliberation it would beryllium that possibly not -- trying not to beryllium nan flippant reply but nan honorable answer. We do a batch of things successful our line. We person -- successful portion of our productivity, we put successful automation, for example, which is portion of our lines. We request to return down lines to beryllium capable to do that. And past that unlocks really precocious ROI savings arsenic we spell forward.

We've besides -- erstwhile we're launching Arkadelphia, we person immoderate guardant integer IT exertion that we're capable to instrumentality correct away. We're capable to train our squad and our supervisors astatine different accommodation and past bring backmost those learnings pinch IT investments back. So it's not only, yes, it gives america nan state to beryllium capable to past without arsenic effect to capacity to beryllium capable to update nan lines. It besides provides america a really a foot-forward trial furniture for immoderate of nan IT and different digitization technologies that we scheme to bring passim nan network.

They're each contemplated successful immoderate of nan pipeline that we talked astir related to productivity. And don't forget, our value investment. So not only do that, but those integer technologies, which we already implement. They really let america to attraction connected our value and support our innovation.

Steve Powers

Okay. Thank you very much.

Operator

Our adjacent mobility comes from nan statement of Ken Goldman pinch JPMorgan. Please proceed pinch your question.

Ken Goldman

Hi, thanks. Two speedy follow-ups, if I can, successful nan sanction of clarification. I deliberation there's a small spot of disorder astir precisely what number you would benignant of soft guideline america to for nan first quarter's apical line. I deliberation immoderate group are getting a small spot person to that $340 cardinal number. I'm funny if that's reasonable for group to model. Again, pinch nan context, you're not really giving nan number. I conscionable want to make judge that we're not measurement disconnected successful modeling that.

And past nan 2nd mobility is you're guiding to -- astir astatine nan midpoint 5% integrated apical statement maturation for this year. You're guiding to a fewer percent points supra that for EBITDA, but you're besides seeing gross separator percent will beryllium level and your operating disbursal arsenic a percent of income will beryllium flat. So I guess, mathematically, nan quality is D&A. I presume that's nan Arkadelphia works coming online, but I wanted to make judge I'm conscionable reasoning astir that correctly. So acknowledgment for your thief there.

Andrew Callahan

So we tin travel up connected nan Q1 number, but it does connote that erstwhile you get retired of Q1 pinch nan 5%, you're higher than that. The benchmark crossed nan afloat twelvemonth astatine a 5% maturation versus nan quarter. So we tin travel up offline connected that, Ken. But I deliberation your mathematics connected Q1 -- what did you say? Was -- I deliberation that was somewhat high.

Ken Goldman

Thinking astir somewhat high. Okay. acknowledgment for that.

Andrew Callahan

I don't know.

Travis Leonard

Ken, let's talk astir this successful nan follow-up call.

Andrew Callahan

Yes. So we don't guideline nan circumstantial quarters connected that. Related to nan profitability that you talked about, we do get immoderate leverage passim intelligibly passim nan P&L from nan apical statement to nan EBITDA to nan EPS. And if you spell to nan separator bridge, we talked astir that related to - mostly related to immoderate of our substance initiatives, immoderate of our pricing flowing done successful nan first half and past our maturation and price/mix passim nan year. So that's wherever we consciousness astir that.

Ken Goldman

We'll travel up connected that one, too. Thanks guys.

Operator

And we person reached nan extremity of nan question-and-answer session. I'll move nan telephone backmost complete to guidance for immoderate closing remarks.

Andrew Callahan

That's it. I consciousness I'd for illustration to convey nan Hostess Brands' squad for what they do each time to present nan results that we person sustainably shown that we tin present twelvemonth aft twelvemonth aft year. We look guardant to proceed to return a semipermanent sustainable profitable maturation to this business, and I'm assured that our position to thrust industry-leading maturation will continue.

So acknowledgment for your interest, and we will spot you adjacent quarter.

Operator

This concludes today's conference, and you whitethorn disconnect your lines astatine this time. Thank you for your participation.

Editor: Naga



Read other contents from Beritaja.com at
More Source
close