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Twinkie owner Hostess cites '20% inflation' in earnings beat

·Anchor, Editor-at-Large
·2 min read
In this article:
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Hostess Brands CEO Andy Callahan wasn't kidding when he told Yahoo Finance Live back in May that he saw no relief in sight amid elevated inflation.

The Twinkie-maker said in its earnings release late Wednesday that the business saw "20% inflation" in the second quarter — likely caused by elevated prices for sweeteners, oils, and packaging. For perspective, the latest Producer Price Index (PPI) showed 11.6% annualized inflation through June.

On the positive side, shoppers appear receptive to increased prices on Hostess' baked goods. The company's second quarter sales grew 16.8%, driven by a 13.8% increase in prices and a 3% gain in volume.

"Hostess Brands’ iconic brands, access to faster growing snacking occasions, broad-based distribution footprint and excellent execution continues to drive growth in a volatile environment," Callahan said in a statement. "During the second quarter, our top-line momentum continued as we posted the 10th straight quarter of double-digit growth. 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."

TODAY -- Pictured: Twinkie The Kid appears on NBC News'
Twinkie The Kid appears on NBC News' "Today" show -- (Photo by: Peter Kramer/NBC/NBC Newswire/NBCUniversal via Getty Images)

As a result of this eye-popping inflation, Hostess' adjusted gross profit margins fell 299 basis points from a year ago.

Here is how Hostess performed compared to Wall Street estimates for the second quarter:

  • Net Sales: $340.5 million vs. $327.4 million

  • Adjusted Diluted EPS: $0.22 vs. $0.22

Despite the cost pressures and economic slowdown, Hostess lifted its full year sales growth guidance to "at least" 15% from "at least" 12%. The company reiterated its full year EPS outlook of $0.93 to $0.98.

The Street was modeling for EPS of $0.97.

Shares of Hostess fell nearly 4% in after-hours trading on Wednesday. The stock has gained an impressive 12% year to date versus the 12% drop for the S&P 500, reflecting strong execution on new products and the ability to pass along price increases to shoppers.

"Since 2018, Hostess Brands has bolstered its internal capabilities and the pay-off is now," Evercore ISI food analyst David Palmer wrote in a note to clients.

Palmer added that new innovations such as caffeinated donuts and baby bundts are "working," supporting a solid outlook for sales and profits.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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