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Hostess Brands Inc Class A TWNK

Rating as of

Morningstar’s Analysis

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1-Star Price

PREMIUM

5-Star Price

PREMIUM

Economic Moat

PREMIUM

Stewardship

PREMIUM

Narrow-Moat Hostess Managing the Pandemic Well; Shares a Tasty Treat for Investors

Analyst Note

| Rebecca Scheuneman, CFA |

After Hostess’ first-quarter earnings report, we continue to believe that the coronavirus will not have a material impact on the firm’s results, either for fiscal 2020 or over the long term. While pantry-stocking provided a 2%-3% bump in first-quarter sales, the benefit was offset by a negative mix shift from single-pack to multipack and additional coronavirus costs. Furthermore, we expect the pandemic-related sales lift to subside in the second quarter as orders slow from convenience stores, which represent 43% of retail scanner sales, or about 30% of company sales. More importantly, in our view, the strong Hostess brand, which underpins our narrow moat rating, continued to perform well before pantry-stocking began, generating 4% growth heading into the demand surge and gaining 17 basis points of market share year over year to 18.5%.

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Company Profile

Business Description

Hostess Brands is the second- largest U.S. provider of sweet baked goods under the Hostess 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.

Contact
7905 Quivira Road
Lenexa, KS, 66215
T +1 816 701-4600
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Mar 31, 2020
Fiscal Year End Dec 31, 2020
Stock Type Slow Growth
Employees 2,000

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