Q1 2021 Hostess Brands Inc Earnings Call

Greetings and welcome to hostess brands first quarter, 2020 One earnings conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please.

Press Star Zero on your telephone keypad. Please note. This conference is being recorded.

And I'll now turn the conference over to Chris Mandeville with ICR. Thank you you may begin.

Good morning, and welcome to hostess brands first quarter, 2020, one and earnings conference call.

Joining me on today's call are Andy Callahan, hostess brands, President and CEO, and Brian Purcell, Chief Financial Officer.

By now everyone should have access to the earnings release for the period ended March 31, 'twenty 'twenty. One that went out this morning at approximately seven O five a M eastern time.

The press release and an updated investor presentation are available on hostess is website at www dot hostess brands dotcom.

Call is being webcast and a replay will be available on the company's website.

Well, it's just would like to remind you that today's discussion will include a number of forward looking statements.

If you'll refer to houses and the earnings release as well as the company's most recent SEC filings, you'll see a discussion of factors that could cause the company's actual results to materially differ from these forward looking statements.

Please remember the company undertakes no obligation to update or revise these forward looking statements.

The company will make a number of references to non-GAAP financial measures. The company believes these measures provide investors with useful perspective on the underlying growth trends of the business and has included in its earnings release, a full reconciliation of non-GAAP financial measures and the most comparable GAAP measures and now I will turn the call over to Mr. Andy Callahan.

And thank you Chris and good morning, we appreciate you joining us today.

I'd like to begin by offering a few highlights from our first quarter performance to emphasize and reinforce the strength of our business.

And we'll then turn it over to Brian to discuss our financial results in greater detail and we'll wrap it up and the discussion of our outlook before opening it up to you for questions.

In short hostess continues our strong profitable growth with our 13th consecutive quarter of revenue growth and the first quarter and very strong momentum leading into the second quarter.

And I am extremely proud of our entire team of hostess heroes execution and a fluid environment.

Our results are a testament to the strengths and the hostess and Borkman brands, our leading position and consumer snacking occasions, the impact of our insight and data investments.

Our latest marketing and merchandising efforts and the remarkable talent, who execute against our proven playbook on a daily basis.

Underpinning these very strong results and building momentum is the outstanding execution of the hostess supply chain, who are executing today to service our consumers and customers while building the foundation for continued profitable growth tomorrow.

We are consistently and profitably growing and our solid foundation is getting stronger.

A few takeaways to highlight our quality results before I provide greater color on the quarter.

Net revenue grew 9% with our sweet baked goods sales contributing five points and our board and and sales contributing four points to total growth.

Sweet baked goods point of sale was very strong up 8.7% once again led by our hostess branded growth of <unk>.

10, 6%.

The growth resulted in a 163 basis points of market share gains across multiple channels, demonstrating our strength and growing consumer occasions, and the benefit of our broad based distribution model.

On a two year stacked basis, we had point of sales growth of 13, 7% versus the category of five 8% exemplifying our continued strong consumer demand and successful execution, both before and during COVID-19.

Consumer mobility is increasing and in home snacking occasions remain elevated providing a solid foundation for continued strong growth.

Workmen continues to deliver strong growth as well with net revenue up over 60% year over year as we lapped transition from the direct store distribution model and the prior year and drive Inc increased distribution and velocity.

Total borkman point of sale achieved 18.3% two year stacked growth as compared to seven 8% growth for the cookie category.

Demonstrating again, the strong performance and faster growing snacking sub segments.

Insights and quality innovation are driving improved contribution of new products versus year ago.

L. T OS are also contributing nicely to overall results.

Additionally, Q2 has two big launches with baby bonds and crispy, many which are both off to good starts to help continue the momentum.

Our small format success and the quarter was simply remarkable we touch new highs and market share for C store dollar and drug with year on year share gains of 327, 786, and 570 basis points respectively.

This strategic decision to drive shelf and customer expansion.

Our consumer focused innovation creative for the needs of the channel and our advantage warehouse distribution model helped drive. These impressive results. We are positioned for continued growth as mobility increases consumers are vaccinated and communities lift the restrictions.

Now on the innovation are very strong three year innovation pipeline, which leverages key consumer insights and it's tethered to fast growing consumer usage occasions is performing very well to start 2021 and has been a strong contributor to our performance of the sweet baked goods category.

While walkmans innovation is realizing steady distribution games. These offerings are more ankle and metal and more profitable than previous years, and we expect them to drive us towards our 15% vitality target rate by year end.

Shifting to occasions hostess breakfast products continued to performed tremendously well with point of sale growth of 17, 6% growing our share of breakfast and sweet baked goods by 290 basis points to 25 per cent Stu.

Strong growth of hostess coffee cakes, including our new cream cheese flavor updated packaging for a multi pack Danish as well as our early introduction to market of our baby bonds at select retailers are all resonating with consumers. These initiatives build off previous successful launches like donut snack packs and base breakfast item core growth.

Across their net honey buns and Danish is.

Grounded and our consumer insights and strategic investments and the on the go consumer innovation, specifically curated for convenience has proven critical to our success during the quarter, we launched but can't spins and mop and sticks with positive early consumer reception C store retail partners are showing good interest and our boardman.

Mega wafers and in recent weeks, we launched our crispy many with a key national chain.

Again heading into the all important summer driving season, we are confident that our core business strength and new products position us well to capitalize on increased mobility as the economy continues to reopen and longer term. We believe we have best in class innovation pipeline tailored to both on the go and eat at home snacking occasions, where.

We're focused on four key strategic growth priorities for innovation that will help deliver sustainable growth.

Invigorating our icons.

Boeing household penetration with young families.

Continuing C store consumer growth and establishing boardman and distinct positioning to optimize growth potential.

Underpinning the remarkable results. This quarter is the success of our marketing and merchandising efforts, we continued to drive incremental growth through our strong hostess partnership program and the convenience channel as we are able to leverage the data and insights we have mined and maximize our sales and profit for our retailers.

These strong partnerships have been instrumental and managing through the evolving consumer demands over the last year and helped steadily increase our leading market share and the convenience channel. We are seeing the benefits of these partnerships pay off and expect this to continue.

Our debt Donald channel performance, it's impressive.

Our dollar channel point of sale grew 36, 5% and the quarter as we grew share 786 basis points driven by revitalize shelf set expansion of our breakfast platform and continued strong partnerships and customer service. We continue to work with our partners and the mass channel to develop programs.

And are mutually beneficial and have seen sequential improvements this quarter as we implement new changes to our product assortment and merchandising programs.

We have iconic brands that consumers love as we look forward, we're committed to building on our great Foundation through targeted proven marketing investments that we are confident will deliver incremental growth.

To that and we executed a handful of ecommerce advertising trials during the quarter with very encouraging results. We were pleased that each of our trials Liberty return on advertising spend and response rates well above benchmarks, providing us the confidence that future programs can drive growth and unlock another lever and are already formidable grow.

Toolbox.

Our merchandising efforts to abort men are also beginning to pay off as total Boardman point of sales grew eight 7% and the quarter.

Fueled by accelerated growth of sugar free which grew 18% year over year.

<unk>, two and a strong point of sales growth is the increase and our total workman and E. C D, which we have grown by six points since the acquisition acquisition with good improvement across all channels, particularly within the grocery channel, which expanded by nine points we.

We expect to continue to drive growth and Boardman and as we introduce more innovation and drive awareness with targeted marketing programs.

We also continue to make great strides on our ESG initiatives, we've embedded ESG goals into our operating model, including the continued focus on retention and diversity.

We were also thrilled to add two new board members to our board of directors, a look back and you Janine who bring with them a wealth of experience and knowledge that will be very valuable to our organization as we move forward and our journey.

We also continued to build our management team and last week announced the addition of Dan O'leary as our Chief growth Officer.

Dan brings valuable experience of having profitably grow iconic brands at Kraft Ms Khan and Tyson Foods, where he was most recently the senior Vice President and general manager for Tyson prepared foods.

We are excited to have Dan on board to help drive our important growth initiatives.

Hostess once again delivered industry, leading revenue growth at leading margins. We closed Q1 strong and are heading into Q2 with momentum although early in the year and this dynamic market. We are very well positioned to deliver on our full year guidance. We will continue to prioritize the safety of our dedicated and loyal and flow.

And while we execute with agility and efficiency to continue catering to consumer needs and a highly profitable manner.

And with that I'll turn it over to Brian and go through the quarters financial results in greater detail.

Thanks, Andy.

It's a privilege to speak to another quarter of strong results.

Andy mentioned this represents another quarter of robust growth underscoring the power of our brands and strength of our business model.

Net revenue for the quarter was $265 4 million and increase of 9%.

This increase and net revenue was fairly balance between continued strength and sweet baked goods with five points of growth and boardman contributing the remaining four points of growth.

Wartman growth is primarily due to a favorable lap on timing of shipments as we transition from DSD to warehouse model and 2020.

We saw P O S growth and.

Sweet baked goods across both single serve and multi pack sizes or single serve P. O S growth accelerated to 10% driven by our strong performance and convenience, where we saw share gains of approximately 330 basis points.

Our multi pack and bag donut business grew seven 6%.

Despite our lapping of last year's COVID-19 bump at the end of the quarter.

Driven by continued growth and the grocery and dollar channels and.

Importantly.

And when a sale growth is driven by share gains across the business.

Gross profit was $95 5 million per the quarter, while gross margin came in at 36%.

And and 40 basis points higher than the prior year period.

Approximately half of the realized margin expansion was driven by favorable mix and our core hostess business and the remainder was the result of the achievement of Boardman and synergies and productivity efficiencies.

Yeah.

As we anticipated operating costs were notably lower and the first quarter down 24, 5% to $48 5 million due to prior year expenses incurred for the integration and conversion of Boardman and the operations and the realization of synergies.

Our effective tax rate, excluding discrete items was 27, 3% compared to 23 six per cent and the prior year quarter.

The effective tax rate for the prior year period was impacted by the write off of deferred taxes related to boardman and the allocation to the Noncontrolling interest, which was eliminated and the fourth quarter of 2020.

Net income was $26 7 million and diluted EPS was <unk> 19 says adjusted.

And net income and EPS were $26 9 million and 20 per share and increase of over 40% versus the prior year period, as a result of higher volume and operating efficiencies, including accretion from bornemann.

Adjusted EBITDA for the quarter was $62 5 million or 23, and a half per cent of on net revenue compared to 51 million or <unk> 29 per cent of net revenue and the prior year.

The increase was driven by strong hostess branded volume and favorable mix as well as 8 million higher Borkman adjusted EBITDA as a result of higher revenue and operating efficiencies from the integration and transition to the warehouse model during 2020.

At the end of the quarter, we had cash and cash equivalents of 197 8 million and net debt of $925 8 million with a leverage ratio of three six times down from three nine times at Q4, 2020 driven by our strong operating cash flow growth.

Turning to our outlook given the strength of how we started the year, we are increasingly confident and our ability to achieve our full year guidance. We continue to expect to drive net revenue growth of three to four five per cent and expect adjusted EBITDA between to be between 255, and 265 million with adjusted EPS of <unk> 80.

To <unk> 85 per share.

Looking forward, we feel confident and and our ability to manage margins as we move through the remainder of the year.

We have good visibility to balance costs with pricing and productivity. Additionally.

Additionally, we are seeing strong consumption across our portfolio, namely in the convenience channel, which is benefiting our single serve mix.

From a balance sheet perspective, given healthy cash on hand, strong fundamentals and increased operating cash flow as we lap transition costs related the bornemann, we feel confident that our leverage will approach three times by year and absent M&A right and any material buybacks.

As we Delever almost a full turn in 2020, one we continue to make strategic investments and the business to help support future growth such as the investment and our new cake line, which remains on track for a ramp up in the back half of the year.

Longer term, we remain committed to and investing for growth and generating shareholder value.

We are excited by the opportunities ahead of us and confident and our teams ability to deliver.

With that I will turn the call back to Andy for closing comments.

Terrific. Thanks, Brian.

Hostess is well positioned to deliver sustained strong growth throughout 2021, and beyond hostess has leading positions and snack occasions and need states that are growing ahead of overall snacking propelling our growth and providing a solid foundation for sustained growth and 22.

'twenty, one we expect in home snacking with indulgent and well known brands will continue at elevated levels as consumer simultaneously increase and their mobility increase and the demand for hostess on the go occasions.

The strength of our brands wrath of our availability across channels and agile business model positions hostess to realize this opportunity.

Our track record of consistent execution clear ability to innovate and grow through successful acquisitions like Workman. In addition to the strong consumer affinity for hostess brands is foundational to capturing this industry leading growth.

We will continue to work to build on our consumer and customer foundation going forward.

We are deeply committed to shareholder value creation and sustainable profitable long term growth as we move forward, our strong and growing cash flow positions us well to unlock shareholder value.

We will continue to reduce our leverage and reinvesting the business to support industry, leading growth at industry, leading margins, while maintaining the flexibility to opportunistically pursue strategic acquisitions as well as enhance shareholder returns and we remain stewards of capital and will always strive to optimize shareholder value.

And with that Brian and I are available for your questions.

Thank you.

And he would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question queue. You May press star two if he would like.

Three moving your question and friendly Kim and from participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys. Please ask one question and one follow up question and then re queue for additional questions.

Our first question is from David Palmer with Evercore ISI. Please proceed.

Thanks.

First question would be on on the reinvestment levels that you're making and then the nature of those Reinvestments I think you mentioned data and analytics.

And I don't know about and marketing and advertising part of that but if you could give us a sense of how much you reinvested in the quarter and generally what your expectations and your guidance and tails or includes in terms of reinvestment this year and I have a follow up.

Yeah, David I'll take that thanks for the question, we've been investing and building that foundation.

You know for years and it starts with really understanding and the way we build our businesses understanding the consumer.

So we've invested and understanding occasions drivers of occasions quantifying those occasions.

We started by just understanding our customer shelf set early if you remember one of my first calls one of the first decisions I made was an investment and and more.

Data around the convenience store shoppers.

And how they shop, how it flows through what are the incrementals of the convenience channel and that's paid off well we've done similar across the board and sharper than we moved up to consumer and then we have even greater insights over the last.

Last year around consumers. We've also taken that and then investing a lot under Tina our head of innovation and growth and now with Dan coming in and the great team that we built around that.

Understanding our consumer investments this quarter, we've invested and e-commerce.

Marketing as well as test and both warfarin and hostess.

And we're taking a build and as we go we're now as we go forward. There are some modest investments you'll see them come through on me.

The SG&A line as we move out and I'll, let Brian talk about that but we do it concurrent with our growth and we do it in a way that when we validate that it's very successful and then when we look forward when that happens we'll continue.

Continue to build it but the.

The good news for US is we don't have I I've lived and large businesses that had deep.

And you know heavy spending that was inefficient.

And there was a lot and you had to build off of it we have all that growth in front of us. So we're really excited about validating and then investing and our customers and and our consumers to continue to drive growth.

So that's mostly where it is it's around foundational on consumers and then testing and and the market with.

With.

Some modest increase and when we get to the point, where we really believe that it's going to.

Continue to drive our growth that's another lever, we have Brian and anything to build on that.

Oh, Yeah, just a couple quick numbers and if you look at our advertising and marketing expense, we were up about a million and a half to $2 million versus prior year last year, we kind of ramped up.

And instead and so it was largely in line with Q4.

And just kind of year on year. So there's some incremental investments, we're making there there's a little bit that hits G&A as well just to complement what and he started well.

Great. Thanks, and then just some color on gross margins I mean.

You can see that.

A lot of companies and the first quarter had headwinds with regard to supply chain.

Headwinds of weather and whatnot.

Mid quarter and.

Could you maybe talk about whether you've had those and then thinking through the year on the gross margin line.

And we could see a tailwind from your mix with the on the go growing but also make perhaps and gathering headwinds in terms of input costs. So any thoughts about how we should think about gross margin cadence versus this quarter would be helpful. Thanks.

Sure David I'll take that so yeah. If you look at Q1, we expanded margins both in the base business and also with Boardman Boardman was largely a function on the timing lap and we.

Transition from the warehouse or the DSD model to the warehouse.

So we expanded margins roughly 140 basis points and if you look at on our mix is driving a chunk of that and our business on the volume that we're seeing we're seeing.

Absorption and we're getting some productivity so those items, we are seeing inflation.

But those items are offsetting inflation to the point, where we're actually expanding margins I would say.

We look forward to the year I would expect sort of <unk>.

Neutral ish to maybe a little bit of favorability from a margin standpoint based on the visibility we have with pricing and productivity to offset inflation. We are seeing inflation, we are seeing certain areas tick up a little bit more than we thought at the beginning of the year, but we're pretty confident that we can offset that with with pricing productivity and mix.

One call out just to remind everybody is we did have very elevated margins in Q2 of last year, driven by Boardman and when we did the transition to the warehouse model and April a week.

And a big pipeline fill and a lot of production efficiencies and so I would actually expect Q2, driven by Boardman and the lap on margins there to protect and potentially be a headwind in Q2, and then the balance of year as I said I think that we can offset inflation with pricing and productivity and mix.

Great. Thank you.

Yeah.

Our next question is from Ken Goldman with J P. Morgan. Please proceed.

Alright. Thank you two from me if I may.

Obviously your total share is doing great. It's also good to see that your you know your share losses, and the mass channel or sequentially diminishing and.

And you do have some fairly easy comps and those share or the share story and the mass channel ahead is it fair to assume that as the year progresses, you'll start to regain share with these customers or how do we think about that it's just going to be share losses at a lower level to try and get a sense of what we should be looking for and some of the.

You know the measure data that we get.

Yeah. So just across the board you know and maybe a comment.

Talked about this one of our strengths and so broad based distribution and agile model. So we expect overall to continue to grow our business and one of the reasons why we grow share isn't just because of the channels because we continue to innovate across a broader snacking spectrum.

We're committed to.

Investing and category growth, we're doing it with innovation, we're doing with insights we do it by investing in capacity, we'd do it by investing and consumer so were continue to invest and growing capacity and we're continuing to invest and sustainable long lasting partnerships with all of our customers and I expect that through and the mass channel expected and can be.

And food across the board so overtime I would expect us to grow share and now in any given one channel at any one time, we back the headline is yep I expect to continue to see improvement COVID-19 impacted every channel and every model differently. So we're investing and we're committed to investing and me.

And sure that we continue to grow.

And solve our consumers problems and do that and great long term partnerships with all of our customers and over time, yes, I would expect.

With that model and our brands and our team to continue to grow share and I would expect that to happen.

And every channel and maybe not one quarter or one month, but over time, absolutely. We would expect us to continue to see grow share because we're committed to investing in the category and growing and that's what customers expect from us.

And we're making really great progress across the board and this channel and you brought up thanks Ken.

Okay, Okay, yeah. So.

Thank you for that and then Brian.

Brian I think last quarter, if I'm not incorrect you mentioned that all in.

On your cost inflation will be somewhere in that two and a half three and 5% range.

You talked about some inflation, having picked up what's the range you're looking for now is there and update on that number.

Yeah, So I think.

In total were our guide overall, we're maintaining our guidance.

We do see certain areas of inflation, a little higher than you know kind of what we saw at the beginning of the year.

So for instance, transports up a little bit we're.

We're looking at a pretty dynamic labor situation, which a lot of companies and the and the space or looking at as well So we're monitoring that.

But we also feel great about so we do so we do think inflation's picking up a little bit versus what we saw originally at the beginning of the year.

But again I think we also get better visibility on on pricing the price increases we've been selling in.

We've got a good visibility of our productivity pipeline.

And and our mix is working for us.

As we talked about.

And the upfront comments, so collectively we feel good about the ability to manage that in line with where we guided the implied EBITDA guide that we gave.

Okay. Thank you.

Uh huh.

Our next question is from Rob Dickerson with Jefferies. Please proceed.

Great. Thanks, so much.

And I guess, just a follow up on the pricing.

<unk> sales like you do have this good visibility, maybe yours, even already starting to sell and sell them, but just with respect to that.

And I guess any color around the magnitude and timing we've heard a lot of companies can speak more to the Q3 time period. So when I just kind of what he did an idea of how you are how.

And how you think about the phasing of this pricing as we go through the year and then.

Obviously, you don't I understand for competitive reasons, you're likely not going to tell us exactly what their pricing is but just trying to gauge when.

And what are you talking about pricing is this you know similar to what we've seen in the past, maybe a little bit more a little bit less and then you can provide would be really helpful. Thanks.

Yeah.

Yes, so from a I'll I'll take that from a timing standpoint, and then Andy can just add color on the selling processes and alike.

And.

We're expecting to see the pricing take hold and the back half of the year, So really kind of starting in the Q3 time frame at the beginning of Q3.

So we're we're still on the process and different channels of the cell and so can't give you the exact.

And number but we're from a timing standpoint, we expect at the beginning of Q3 two.

For the pricing to take hold.

Got it Okay fair enough and then I guess.

And just curious.

You had a number of comments around driving itself right.

And.

The smaller format stores and I think you had mentioned.

Couple of LCR is coming.

And Q2 would you say there is.

You know anything wildly different kind of what the go to market strategy as you try to drive.

Drive revenues, not only and basketball so on and smaller format stores, just given the shift in mobile and <unk> and mobility like do you view. This as you know.

This is a core opportunity for us and make sure you're taking share of stomach.

And share of market.

Yeah, just a couple of things. Thanks, I appreciate the comment Rob.

As I mentioned earlier with David's question, and I believe our insights and our understanding of consumers occasions are sharper and they continue to built and taking that we're able to tailor innovation much more specifically to a need of and on the go consumer versus.

Maybe a multi pack purchase that brings home for our snacking occasion, either brought from home or in home <unk>.

All of those occasions are increasing and the occasions in which our business is more highly developed and where we have assets that consumers are looking for are also growing at a greater rate than total snacking, which is why when we execute our playbook very well.

We grow the category and are able to grow share.

And going forward one of the things that we've done that is different is we have more tailored innovations like the <unk> and other things that are the flavors curated or the actual ideas more on the go consumer.

And then we have you know baby bonds, obviously, Christie minis, which are off to great starts Mega wafers, which is expanding boardman and to that on the go occasions and they're all designed for this more and more tailored for the specific need state and then work where were taken as Brian mentioned, we've taken early steps to finding that consumer who is looking.

And for talking to them and advertising either through our customer channels or be at some other consumer and methods and we're testing that so we're getting feedback on that so we're trying to put together and successfully put in together and ecosystem that very efficiently be able to find the consumers we want and the occasion, they want and then be able debt to invest.

And that consumer to grow it.

That's a flywheel of growth and that's what we're building.

Sure.

Our next question is from Ryan Bell with consumer Edge Research. Please proceed.

Hi, Good morning, everyone could you talk a little bit about your expectations for the future of intelligence practice.

It's clear there's been a benefit.

And so the at home category and given the pandemic.

How do you think about it going forward.

And then maybe as we start to get into a bit more of a normalized environment.

And what some incremental work from home could mean about that occasion and going forward.

Big fan of in home breakfast.

Consumers love hostess during the breakfast occasion.

We call it a M snacking.

So there's different occasions and need stayed around breakfast Jimmy remember about.

And.

And I guess it was about two and a half three years ago, we made a commitment to vacation and our research has continued to demonstrate.

On that breakfast and there's going to grow at a greater pace, we were underdeveloped and that occasion, where now fair share and continue to grow.

Our breakfast share.

And now we were up and breakfast are above 15%.

And the quarter.

Driven by a lot of those initiatives that we.

We took.

As we come out of this.

COVID-19 environment, we do expect obviously mobility to increase we do not expect in home occasions of snacking too.

To go down to pre pandemic levels, we expect them to maintain and continue to be elevated.

At some level and as a result, the investments we've made and that breakfast occasion and home we expect to are positioned to be AR and VR.

Well, we'll continue to innovate around there and we expect to continue to have that occasion, specifically that'd be a meaningful contributor of growth both because of our core items and because of the innovation that we'll bring to the occasion.

Our next question is from Bill Newby with D. A Davidson. Please proceed.

Hey, good morning, guys and congrats on a on a great start to the year.

Thanks.

And just maybe Andy you touched on a little bit at the on there but wanted to ask a little another follow up on just the category growth and and then if I look at multi pack this quarter and it's still very strong growth there, especially off the difficult comp and I guess, you know a lot of talk about where the sweet baked goods category that's going on.

Go post COVID-19 and.

And whether it will kind of fall back into that low single digit range or not and I guess is is this growth that we're seeing and multi pack kind of an indicator that maybe we can sustain above that range a little bit longer.

And then I guess I appreciate any further thoughts there.

Yeah I believe.

And that there is a good.

And then there is an emerging visibility.

And I'm not going to say all the models that we look at our.

Perfect and because we're coming out of an unchartered territory here related to COVID-19.

But I think all of the consensus and myself included is that Theres.

And theres going to be behavioral changes that are going to stay.

And I would expect specifically for hostess and specifically four I'll talk more broadly into consumer occasions, and need states that and in home breakfast occasion, and it's gonna stay meaningfully elevated versus where it was and therefore, that's good for overall growth.

Projections going forward for hostess.

And likely for the category, but for sure for where we compete relative to morning snacking.

Sweet snacking occasions in the morning, I expect that to grow I would expect that to grow at a better at a greater rate than overall food I would expect it to grow at a greater rate than our overall breakfast because historically it has and I would expect hostess to continuing to grow share and so all of that positions us well.

To continue to grow which is why we've invested and our insights and our innovation and our.

Our marketing and that area and it's paying off and I expect that to continue to happen going forward.

Great Super helpful. And then I guess, just one quickly on <unk>.

And what you're seeing promotional environment here is when you start to lap COVID-19 and and I assume providers start to rollout whatever strategies that they've developed and try and retain much of the trial that happened last year I guess any thoughts on on how that's developing and how it maybe relative to what you guys would have expected three months ago.

Okay.

Yeah. So what we're seeing is as you know well we didn't.

And it's it's it's a it's kind of funny, we there was a reduction and promotion spending year ago that is true we had plans to drive more efficient growth prior to eat and COVID-19 happened, which was really good timing we were taking out.

And adjusting our models to drive efficiency leveraging promotion.

Promotion is coming back at a level, but it's being put back I can only speak for ourselves. Our intent is to continue to support our consumers and our customers and do it at the most sufficient growth growth for the category and for the brand. So we are bringing we do have promotions coming back we believe that.

They are more efficient than.

And then they were before.

And you need to manage the entire revenue management model with both promotion and base pricing and as we mentioned earlier.

And and pricing into the marketplace, that's going to come and in the back half so.

So I do believe it's going to come back to the normal model, but not at the level and Bob.

I would expect that it was pre pandemic.

And that's more efficient for everybody, it's more efficient for our customers and core.

And hostess.

Our next question is from Andrew Olson with UBS. Please proceed.

Yeah, Hi, good morning, guys Andrew.

Andrew just to build on your comments just there I'm just talking a little bit more on the pricing that you guys are are are slated to take it in the back half.

Just from a high level, how do you think about about pricing levels are levers that you can pull through the revenue growth management, whether it's like with less price versus price pack architecture and then.

How do you think about that based on channel like how did those levers vary by channel and as you think through pricing and the different channels and then I'll pass it on.

Yeah, So Andrew sorry for the foundational work, but I remember we talked about this a lot, but we have we haven't done a week and we try not to do pricing.

Until it's a natural progression of and.

Input costs and inflation and other things, which is why and my three years, we've we've done like a base price on part of the portfolio.

Three years ago, and there is some parts of our portfolio haven't we haven't been pricing and six or seven years since we relaunched and the reason we've been able to do that is because of all of our productivity initiatives to offset the efficiencies of our supply chain and other things that you mentioned that we do price pack architecture changing.

Prices getting efficiency on lanes all of these multifaceted elements of our pricing managing the everyday price versus the trade efficiency, we've been able to manage that over time and that's our goal our goal and that's good for our ability to be able to drive growth. So we are doing pricing now on on.

Prices are parked on the portfolio because it's the efficient thing and the right thing to do relative to the cash to category and now healthy for the category manager and input prices. So but your point is well taken we look at all of those and a continued every day I mean every day, we have a pipeline.

And what we call multi faceted efficiency programs at the revenue line down and that looks at mix looks at.

And price pack architecture sizes productivity out of packaging and product formulations are running the way we run our plants all of those things are efficiency initiatives that the team looks at and does very well every day.

And when it comes to the data we have elasticities by channel by form.

And that all goes into our models show that we can be very predictive on what.

What we think the impact of our pricing is going to be on one elasticity going forward and so that's all built into our forward forecast related to pricing.

Assuming that what gets reflected in the marketplaces are correct and our models. We believe we have a pretty we have a very good visibility to the.

And the impact going forward both on that on the.

On the growth side as well as the profitability side anything to build on that Brian.

No other than I think and.

And you you asked it's Andrew.

By channel and it does play out differently, we look at debt, obviously, what pricing is across different channels.

And our ability to manage that across different channels and certain channels lend themselves to.

Perhaps managing trade versus list price.

And the universe has a price pack architecture and the price pack changes. So we do look at and kind of on a channel by channel basis, and and and do what we think is appropriate and and that particular channel, which also kind of overtime I think gives us a little bit of runway as well.

Okay.

Okay.

Alright, Thank you very much.

Our next question is from Pamela Kaufman with Morgan Stanley. Please proceed.

Hi, good morning.

Hey, Brian Hey, do you have any insight into how much the growth how much of the growth over the last year has been driven by an increase and household penetration.

And that mix versus increased consumption among existing households, and.

And I guess, how you're thinking about the retention of new households.

And as things normalize.

Yeah. So the retention of our new households has actually been extremely well you know that household penetration is more about a broader long term.

Metric, we have been able to early and the pandemic, we were increasing our households, and and based on some of the merchandising flows it's kind of gone.

Flat and then it goes back up again, just because of access to consumers.

But the early and the pandemic, we're increasing our households, we were then converting those households into.

Into a more frequent multi buyers at a greater rate than the overall category.

So we're increasing that penetration we also find that our advertising when we look at our growth consumer we're acquiring those consumers are.

Very well be on our advertising, so our ability to be able to get the long lifetime value of consumers very well.

So feel really good about the tools that we have.

To access consumers.

And they continue to drive long term growth both.

Overall and with our it's not just the overall number it's with our strategically important growth consumers that we've identified as well so feel good about that.

And also can you talk about how youre thinking about and performance over the course of the year given the various growth initiatives.

Operating on just looking at the absolute level of sales.

They have been somewhat stable over the last couple of quarters.

Should we expect to start to see the sales man.

I guess, maybe some color on the cadence as you execute on and that's about the strategy there.

Can you what are you looking at on when you mentioned and the Boardman said sales are stable.

I don't have day to sequentially and looking at the absolute level of sales over the last couple of quarter eight and relatively stable.

Yeah. So there is a little seasonality and and the business Q1, Q4, I do expect the.

We're looking to build a run rate with form and probably more as we move throughout the year for sales on an absolute basis to increase.

Yeah, our plan say for Boardman to grow headline and I guess sequentially on the seasonality you see a difference so I agree with Brian.

Our next question is from Rebecca <unk> with Morningstar. Please proceed.

Yes, good morning.

Thanks for.

Sharing some of the color on your data driven innovation.

Love to also here and like what are the systems that you're sourcing that data from and also you know you talked about how you're doing a lot to study and really understand usage occasions are there other.

Types of data that you were taking into such as you know traits that consumers are seeking.

Yeah, we don't disclose we use a lot of the tools that are very common and our and.

And our industry.

And then we either internally or sometimes with partners. We then take it and we mine it through proprietary tools to really understand and as deep as we can at the consumer level.

How they're behaving.

And you are behaving that way, we look at different segmentation to it so.

We will take our data from.

And our partners are Nielsen partners will take other sources of data.

We'll take our third party, sometimes we buy and what will take and media consumer with our partners who we are.

And who we work with so what we're doing is not.

Necessarily proprietary or reinventing and approach and the industry, but we do it in a way that leverages, our Oh, Oh and insights and we tailor it specifically to our business to be able to.

Our work on the segmentation and then draw.

Drive the consumer motivations of why once we get that so.

We do a lot of I'm not going to claim that we're doing it.

We're reinventing how they do the segmentation through the analysis, but having spent a lot of time.

And cutting my teeth at Kraft and with Hill Shire, and Tyson and now with hostess and having a great.

Our marketing team and partners, we're trying to apply what we collectively learned with really talented people and apply it to a terrific brand and we think we're doing it very well.

And that's probably as good that's a lot of other much larger companies out there. So I feel really good about that but that's our approach.

Yeah, Okay, great. Thanks for that color and secondly, and I know you talked a lot about them.

You know the great opportunities ex expanding assortments from their 61 per cent ACB towards on the hostess brands 91 per cent.

I'm just wondering how much can you close that gap you know department and have the same inc.

And the potential that the hostess brand does or should we expect it to to lag that.

And you would expect it to lag it over time, but we're in the Boardman and the word.

And the growth mode with both close to <unk>.

Hostess has a you know.

Nearly ubiquitous awareness.

Borkman does not so both when we advertise with consumers and build the brands, we do it and a different approaches so what.

And it's a lot about building the awareness and then having the ACB follow so what you should think about them on the.

Getting to 91 will eventually get there we're not going to get there next year, we're not going to get there probably in two years, but it's going to continue to grow year after year and that gives us a long runway for growth as we simultaneously invest and the consumer and innovation and then and that consumer is going to drive. The awareness is can continue to go.

And then also importantly, I talked about the hostess being and snacking occasions wortman when we do the segmentation of Boardman Borkman, both with its sugar free business, which is growing extremely well with a leading share within sugar free and sugar free is growing at greater than two times. The overall cookie category and we're the number one need.

And then also a real benefits those those areas with workmen competes are also growing faster and overall cookies. So as we build availability and build awareness, we expect that to be a long runway for growth.

We have reached the end of our question and answer session I would like to turn the conference back over to Andy for closing remarks.

Great. Thanks, everyone for your participation and interest and hostess.

And as you can see from the results and hopefully you've heard from our tone. Today. We are increasingly confident that we are emerging from the pandemic and a stronger position than when we went in it and we believe we have the talent the proven playbook.

To continue to deliver profitable growth over the long term both on the back half of this year and for many years to come so thanks again for dialing in.

And it and we will see you in next quarter will continue to work hard for you.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.

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