Is Hostess Brands Still In Business?

Is Hostess Brands Still In Business?: A handful of companies have a special place in American popular culture, and Hostess is on that list. Twinkies, Ding Dongs, and the signature frosting swirl on Hostess cupcakes are American icons. However, brand recognition means nothing if a company is unable to evolve and adapt to changing consumer demands. 

Hostess can trace its roots back to 1920, but the snack cakes truly became popular in 1940. By the 1980s, Hostess products were examples of classic Americana. Twinkies were showcased in blockbuster films like 1984’s Ghostbusters and 1988’s Die Hard. However, in the decades that followed, junk food fell out of favor, and Hostess’s sales began to decline. 

When lower demand combined with increasing labor costs and higher food prices, Hostess couldn’t adjust. In 2004, Hostess entered a bankruptcy that lasted through 2009. The company attempted to redesign products with healthier lifestyles in mind. For example, it launched a series of 100-calorie snack packs like Twinkie Bites. 

The trouble was that Hostess’s precarious financial position precluded the sort of investment in facilities and equipment that would make a true transformation possible. The small, affordable steps it could take were too little, too late. 

In 2012, Hostess Brands declared bankruptcy and ceased operations. Assets were liquidated, and more than 18,000 employees lost their jobs. It was the last in a series of financial disasters that took Twinkies off the market for good. Or did it?

Is Hostess Still In Business?

Twinkie fans had a few terrifying months when Hostess snack cakes were scarce. Some passionate snackers hoarded boxes of Twinkies, Ding Dongs, and Ho-Hos, and a few sold their stock of Hostess products through online auction sites for many times the original price.

Fortunately, the Twinkie shortage was short-lived. In 2013, C. Dean Metropoulos (net worth $2.7 billion) bought the brand in partnership with the Apollo Group for $410 million. 

Under Metropoulos’ leadership, Hostess slowly recovered its financial footing, and by 2016, the company was valued at $2.3 billion. It was much smaller, with just 1,170 employees on the payroll, and it operated three bakeries – down from 11 in 2012.

The Hostess Brands product line decreased from 150 to 90. This shortened list included new twists on old favorites in an effort to re-engage consumers. 

The company’s newfound success was due, in part, to Metropoulos’ decision to prioritize facility upgrades. He oversaw significant manufacturing improvements at a total cost of approximately $130 million. All of his efforts proved effective, and the company returned to the stock exchange in November 2016 under the ticker symbol TWNK. 

Hostess Brands Revenue

After nearly perishing in 2012, Hostess Brands has a new philosophy on growth: It’s not worth the risk if expansion requires a large amount of debt. As a result, the company’s product lines remain streamlined, and manufacturing focuses on execution excellence. 

Hostess is interested in increasing its distribution footprint, but it is getting there organically – and the slow, cautious strategy is working. During the second quarter of 2022, Hostess Brands achieved its tenth consecutive quarter of double-digit revenue growth. 

On August 3, 2022, Hostess announced its second-quarter financial results. The biggest win was 17 percent organic net revenue growth. President and Chief Executive Officer Andy Callahan remarked: 

I am proud of our team’s timely actions to address the ongoing supply-chain fragility and higher inflation which pressured our margins in the quarter.

Callahan went on to say that because of the higher-than-expected revenue figures, Hostess was increasing its full-year net revenue guidance. Now, the company expects at least 15 percent growth for full-year 2022. 

Hostess Brands Earnings 

High inflation makes manufacturing products more expensive because there is an increase in the cost of raw materials. A portion of that expense is passed along to consumers, but most companies absorb some of the increased cost in the form of reduced margins.

Unfortunately, Hostess isn’t in the rare position of being able to persuade consumers to cover the entire cost of inflation, so for the second quarter of 2022, Hostess saw gross margins decrease by 295 basis points year-over-year. In addition, adjusted gross margins declined by 299 basis points. 

Gross profits went up to $112.7 million for the quarter – a year-over-year increase of 7.2 percent. Adjusted gross profits totaled $112.8 million, which represents a year-over-year increase of 7.1 percent. To look at it another way, gross profits constituted 33.1 percent of net revenue. 

Net income increased by a small amount year-over-year to a total of $30.5 million ($0.22 per diluted share). Adjusted net income also totaled $30.5 million ($0.22 per diluted share), which is a small decrease year-over-year. 

Adjusted EBITDA went up by 0.7 percent for a total of $68.9 million. This puts the company on track to achieve its full-year 2022 EBITDA projections of $280 to $290 million and adjusted earnings per share of $0.93 to $0.98.

Is Hostess Brands Stock A Buy? 

Hostess has been on a financial roller coaster for the better part of 20 years. However, in its newest form, it generates profits through the thoughtful execution of a conservative strategic plan.

This has investors motivated to add TWNK stock to their portfolios, and the ones who bought in early have realized strong returns. Since Hostess Brands returned to Nasdaq, share prices have increased by more than 135 percent. 

A majority of analysts have rated Hostess Brands stock a buy, and the median 12-month price target is $26 per share. If accurate, the stock would go up 12 percent to reach that price. The most optimistic analysts gave a 12-month forecast of $30 per share, and the least optimistic predicted $25 per share. 

Overall, the combination of smart management, fiscal responsibility, and a valuable brand should be enough for Hostess to continue growing sustainably. That makes Hostess Brands stock a buy.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.