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Hostess Brands Inc Class A TWNK

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Narrow-Moat Hostess Continues to Report Sweet Growth, but Valuation Looks Full

Analyst Note

| Rebecca Scheuneman, CFA |

We continue to be impressed with Hostess’ ability to realize robust organic sales growth, particularly for a 100-year-old brand. In its 2021 second-quarter, Hostess realized 10.8% organic year-over-year sales growth, or 14.5% growth versus the second quarter of 2019. Increased mobility drove a sharp 19.4% recovery in single-serve formats popular at convenience stores, while sales of multipacks (generally consumed at home) remained strong, chalking up 5.4% growth. We see several catalysts that should drive 3% annual sales growth over the long term, such as Hostess’ continued push into the breakfast category, expanded distribution of the recently acquired Voortman cookie brand, and the development of new platforms to tap into additional usage occasions. As an example of the latter, after engaging in data-driven research to better understand what drives sweet treat usage, Hostess launched Crispy Minis, a bite-size snack in convenient to-go pouches with a satisfying crunch, an item that has been very popular with millennials.

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Company Profile

Business Description

Hostess Brands is the second- largest U.S. provider of sweet baked goods under the Hostess, Voortman, and Dolly Madison group of brands, including Twinkies, Cupcakes, Ding Dongs, Ho Hos, Donettes, and Zingers. In 2018, Hostess expanded its breakfast offerings with the purchase of Aryzta's breakfast assets (the Cloverhill business), including a branded business and private-label deals, and in 2020 entered the cookie category via the Voortman tie-up. Although its roots stem from the 1919 launch of the Hostess Cupcake, the company filed for bankruptcy in 2012. Investors purchased the brands and restarted production in 2013, followed by a 2016 initial public offering. Most products are sold in the U.S., although third parties distribute some product to Mexico, the United Kingdom, and Canada.

7905 Quivira Road
Lenexa, KS, 66215
T +1 816 701-4600
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type Speculative Growth
Employees 3,000