Q2 2021 Hostess Brands Inc Earnings Call
Greetings and welcome to the hostess brands second quarter 2021 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.
Mind you. This conference is being recorded I would now like to turn the conference over the your host Amit Sharma, Vice President Investor Relations at hostess brands.
Thank you you may begin.
Good afternoon, and welcome to the hostess brands second quarter 2021 earnings conference call.
Joining me on today's call are Andy Callahan, hostess brands, President and CEO and Brian for cell Chief Financial Officer.
By now everyone should have access to the earnings release for the period ended June 30, 2021 that went out at approximately 4 P M Eastern time.
The press release and an updated investor presentation are available on hostess website at www Dot hostess brands Dot com.
This call is being webcast and a replay will be available on the company's website.
During the course of this call management will make a number of forward looking statements, including expectations and assumptions regarding the company's future performance the cause.
<unk> actual results may differ materially from these forward looking statements and the company undertakes no obligation to update or revise these forward looking statements.
A detailed list of these risks and uncertainties can be found in today's earnings release and in the company the SEC filings.
The company will make a number of references to non-GAAP financial measures that we believe will provide useful information to the investors.
A full reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in the earnings release.
With that I will turn the call over to Andy Callahan, our president and CEO.
Thank you all of it we are very excited to have you on board as our new head of IR.
And good afternoon, everyone I'd like to begin by offering a few highlights from our second quarter performance. The underscore the ongoing strength of our business I will then turn it over to Brian to discuss our financial results in greater detail and we'll wrap it up with the discussion of our higher sales and earnings outlook for the back half as we continue to gain.
And more confidence in the sustainability of our growth model before opening it up for your questions.
We had an excellent second quarter with our 14th consecutive quarter of attractive top line growth and solid momentum heading into the second half even as we lapped last year's high single digit growth.
This yet again accentuates hostess advantage branded portfolio and its increasing share in the faster growing high margin subset what segments of the snacking category.
No because some of the key quarterly highlights adjusted net revenue grew 10, 8% in the quarter with growth accelerating sequentially from the first quarter on both of 1 year and the 2 year basis as sweet baked goods business led by the hostess brands posted 12.9% growth in the quarter are high.
This growth rate in over 2 years.
Our sweet baked goods point of sale trends accelerated sequentially as well.
7.4% growth led once again by our hostess branded growth of 12, 4%.
This growth drove over 200 basis points of market share gains in measured channels demonstrated hostess is outstanding execution in the fluid environment and increasing pay off from our investments in innovation consumer facing marketing and talent throughout the organization.
Even on a 2 year stacked basis, our sweet baked goods point of sales growth accelerated to 19, 3% versus the category growth of 9.8% showcasing the sustainability of our growth trends before.
During and in the normalizing Covid environment.
Workmen posted another quarter of strong Pos growth.
With 1 year and 2 year stacked growth rates of 23, 7% and 23, 9% respectively.
Most of our well ahead of the Cookie category.
<unk> continues to execute on 5 building blocks of growth.
Greater depth of existing distribution extending in the new channels of distribution.
Activating hostess proven merchandising model.
Building brand awareness and finally impactful innovation.
Now our hostess single serve and multi pack sub segments, both posted solid double digit 2 year stack Pos growth in the second quarter, highlighting the unique strength of our brands.
Our share of sweet baked goods sales increased in convenience.
Grocery dollar club and drug channel as we leverage our deep broad based distribution footprint across both large and small format retailers in fact, our convenience store market share increased by nearly 325 basis points, the 29, 9% for the quarter positioning.
US exceedingly well to benefit from the positive impact of improving consumer mobility on C store sales at the same kind of our market share in grocery channel increased by nearly 180 basis points for the quarter the $15.7 per cent as we posted mid single digit point of point of sales growth in the channel.
Lapping strong COVID-19 driven growth in the year ago period.
We are very pleased with our first half performance.
Brian will take you through our revised full year outlook, but I want to reiterate that I'm confident of our ability to maintain this momentum and the secondhand even as the cost environment becomes more challenging.
Touch on a few key themes as to why our portfolio is indeed advantaged first the majority of our sales come from our hostess and <unk> brands, which command a good price premium and our higher margin.
Next we have strong positions in sub segments of indulgent snacking that are growing at a faster rate than overall snacking.
Additionally, our overall brand assets position us to grow faster in the sub segments.
And third we are uniquely positioned to benefit from both improving mobility as consumers return to work or school as well as from the sticky elevated level of of at home snacking consumption, even as the broader at home food consumption trends moderated from the year ago Covid driven spike.
As evidenced by our strong 1 and 2 year stack top line trends as our single serve P. O S. What's up over 19% of the quarter, while multi pack business was up mid single digits versus the year ago period and over 24% on a 2 year stack basis in.
In summary, we're advantage because we can grow more profitably and faster the not only overall food, but also the snacking aisle.
The fuel this growth we are rapidly improving our understanding of our key consumers not just the purchase behavior, but also what leads to that decision the path to purchase enable us to create a very detailed granular snacking occasion map the kita intercepting consumer behavior in the impulse driven snacking category Mister.
Directly fuels, our innovation pipeline and is already starting to bear fruits evidenced by the strong success of our recent new products for instance, recently launched baby bonds, 1 of our key innovation items and breakfast is off to a very strong start across multiple channels in fact, baby bunting, lemon and baby bonds sentiment.
We're 1 and for fastest growing of Skus in the category across the total knee Nielsen universe over the past for weeks ending July 17th.
We expect our new product momentum to continue as we expect extend new baby bugs single serve sales and launch new flavors. We will also be launching a number of other new products, including all of the go versions of Christi Minis in the coming months.
We are supporting our innovation through incremental advertising and marketing support I am very excited about our look our new live your most of this campaign the launch during the quarter, our first national AD campaign in nearly a decade.
The highlight the moments of Joy, our brands brand the rings drive engagement across multiple digital platforms and position us to win with both consumers and our retail partners.
With the full pipeline of new consumer facing initiatives, we firmly believe that sustained investments in the advertising capabilities and our people will drive sustained growth and long term shareholder value creation.
We are also laser focused on execution.
Continue to execute at the highest levels, particularly in light of the volatile retail marketplace and challenging operating environment.
Our demonstrated excellence at retail is best exemplified by the strong success of our hostess partnership program, which is fueled by our investment in data and capabilities and continues to drive our share in the C store channel. These investments are clearly elevating our competitive positioning the thing key channels are.
Small format success is simply remarkable we continued to gain market share of C store dollar and drug channel with year over year gains of 300 to 800 basis points and just the second quarter.
Given our improving in store execution I firmly believe that the share gains will serve as well as overall on the go channel trends improved from last year's depressed levels.
I'm also extremely proud of our agile supply chain, which has continued to execute at the high levels in the face of heightened volume mix volatility and the exceedingly tight labor market.
Mexico manufacturing footprint, which has enabled us to successfully manage increased complexity and launch highly incremental new products, such as baby Bunting, Christy Minis, along with our band it's lower cost distribution platform has been a key enabler of our strong market share performance over the last 12 to 18 months.
More importantly, we believe that our ongoing initiatives will make our supply chain, even more efficient and nimble and of sorts of sustained competitive advantage in snacking.
Rising inflation and access to labor remain 2 of the biggest challenges across the CPG landscape in the near term as included in our revised 2021 outlook, our input and labor inflation are going to be higher than our initial estimates due to commodities.
<unk>.
And packaging inflation incremental costs from stronger than expected volume growth and tighter labor markets.
We expect the continued to incur higher labor costs, because we have higher overtime attrition and elevated hiring needs given the increased consumer demand.
We're actively working on a variety of programs to attract and retain our workforce to support our continued growth.
With that said, we're confident we will mitigate these higher costs by continuing to to drive additional productivity initiatives utilizing our revenue management tool kit and as we benefit from higher prices in the second half.
Pricing is never easy, but our pricing conversations with our retail partners have progressed as expected with higher realized prices beginning to flow through our P&L. In July we are closely monitoring elasticities of shelf prices begin to move higher and early indications suggest that they're largely in line with our.
Spectation.
We also continued to make great progress on our ESG initiatives with the launch of our first ever ESG report in June we the embedded ESG goals into our operating model and are committed to operate with higher and consistent standards of transparency fairness and Intel.
Gritty for all stakeholders, we view this report as a meaningful start an important milestone on our perpetual journey towards sustainable profitable growth.
In summary, we had a strong second quarter and first half more importantly, we remain confident about our second half outlook, enabling us to raise our full year sales EBITDA and EPS guidance.
With that let me turn it over to Brian to go through the quarters financial results in greater detail.
Thanks, Andy it's a privilege to speak to another outstanding quarter at hostess underscoring the power of our brands strength of our business model and excellent execution.
Net revenue for the quarter was $291.5 million an increase of 10, 8% on an adjusted basis. The increase in adjusted net revenue was primarily due to continued strength in sweet baked goods, which increased by 12, 9% during the quarter more than offsetting the expected for 6% decline in <unk>.
And due to the lapping of last year's inventory pipeline fill the ahead of its shift to the warehouse distribution model.
Stronger Pos growth in our single serve portfolio continues to drive favorable mix in the quarter. We are clearly benefiting from increased consumer mobility as sales and traffic trends rebound in the C store channel.
Our of 325 basis point share gain in the convenience channel during the quarter also highlights our strong execution and improving capabilities that Andy alluded to in his comments.
Our multi pack in the bag done of business grew 5.4%. Despite lapping of last year's Covid bump driven by continued growth in the dollar convenience and grocery channels.
Adjusted gross profit of $105.3 million increased by 7.3% for the quarter. While gross margin came in at 36, 1% down from 37, 3% entirely due to the expected headwinds from lapping elevated boardman margin in the year ago quarter, when we transition to the work.
How's the width of remodel.
Margins were flat.
On a year to date basis, as increasing contributions from favorable mix and productivity initiatives are offsetting higher inflation.
Adjusted operating income of $54.2 million increased $5.2 million or 10, 6%.
From the prior year as higher gross profit dollars were partially offset by higher E N M and G&A investments to support our top line momentum.
The adjusted SG&A as a percentage of revenues declined from the year ago quarter, but SG&A dollars increase as we are increasing our A&M spending and investing in talent to drive innovation and growth.
Adjusted EBITDA for the quarter was $68.4 million or 23, 5% of net revenue compared to $65.1 million or 24, 8% of net revenue in the prior year quarter, including $7.5 million EBITDA contribution from Boardman in the quarter.
The increase was driven by strong hostess branded volume and favorable mix slightly offset by lower wartman EBITDA due to the aforementioned lap and increased A&M spending.
Year to date, EBITDA increased 12, 7% to $130.8 million for the first half.
Our effective tax rate, excluding discrete items was 27, 3% compared to 24% in the prior year quarter the.
The effective tax rate for the prior year period benefited from the allocation to the Noncontrolling interest, which was eliminated in fourth quarter 2020.
Net income was $29.8 million and diluted EPS was <unk> 21 per share.
Adjusted net income of $32.2 million for the quarter increased 10, 1% from the prior year, while adjusted EPS of <unk> 23 per share increased 5% as the second quarter adjusted diluted EPS assumes average fully diluted shares outstanding of $139 million versus the 100 and for.
The $3.8 million in the year ago period.
At the end of the quarter, we had cash and cash equivalents of $218.8 million and net debt of $878.3 million with a leverage ratio of 3.4 times down from 3.9 times at Q4, 2020, driven driven by our strong operating cash flow growth.
We repurchased approximately 1.5 million shares for $25 million through July and now have $67 million available under our previously authorized 100 million dollar share repurchase authorization.
Turning to our outlook.
Given our strong first half performance as well as solid momentum and visibility to the second half we are raising our full year guidance for net revenue growth from 3 to 4.5% to 7.5% to 9% as well as raising our adjusted EBITDA expectations from 255 to 265 million to 2 <unk>.
Hundred and $60 million to $268 million.
And adjusted EPS from 80 to 85 per share the 83 to 87 per share.
Our updated guidance continues to include Borkman sales and EBITDA approaching 120 million and $38 million in 2021.
Our new EPS guidance assumes an effective tax rate of 27, 5% up from 27% in our previous outlook.
Average shares outstanding of $139 million.
Our updated guidance assumes full year inflation of mid single digits up from our initial guide of 2 and a half to 3 and a half per cent.
<unk> incremental costs to support stronger volume growth as well as higher inflation in our non hedge costs, including certain commodities freight packaging and labor.
Inflation is indeed expected to be higher in the second half however.
However, we remain confident in our ability to continue to be able to offset rising costs with higher realized prices and additional productivity initiatives.
And as it of updated EBITDA guidance implies we plan to reinvest some of the volume and pricing driven upside into the business to sustain our top line momentum.
Our 2021 capex guidance remains unchanged at $60 to $65 million and given our solid year to date cash flows we remain confident that our leverage will approach 3 times by year end absent M&A or any material buyback.
As we Delever almost a full turn in 2021, we remain committed to executing against our key capital allocation priorities, including investing for growth, making strategic acquisitions and returning cash to shareholders.
We're really proud of the team's ability to grow not only top line, but also achieving growth in EBITDA and EPS above our initial expectations. During this exceedingly volatile and challenging environment.
With that I will turn the call back to Andy for closing comments.
Thanks, Brian.
We are emerging from the pandemic in a stronger position each quarter builds more confidence that hostess will deliver sustained top quartile growth through the remainder of 2021 and beyond.
We are enabled by our strong brand of portfolio.
The index the exposure to attractive categories breadth and depth of our distribution increasing growth investments and excellent execution.
Our increased outlook for the back half and the full year in an increasingly challenging operating environment, clearly demonstrates our ability to deliver sustainable profitable long term growth.
With that Brian and I are available for your questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad.
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Our first question comes from David Palmer with Evercore. Please proceed with your question.
Thanks.
Great quarter.
Nice guidance I wanted to ask about the guidance you actually had some very specific numbers of importance the.
He did.
Did you say.
You expected.
Most of $40 million in EBITDA from <unk>.
And over $120 million in sales I mean did I get those numbers right.
And then I have a I have a.
A couple of other clarifying questions.
Yeah, Hey, Dave Yes, you heard correctly. So we set of approaching a 120 million in net revenue for Boardman and approaching 38 million of EBITDA. That's the guide that we actually gave at the beginning of the year and we're basically just reiterating that so it's just not that of the overall guide, we're bringing up our overall guidance, but we're basically re.
Reiterating what we said at the beginning of the year for work.
Great and the the recent scanner trends in July were pretty high I know, there's there's volatility in any given weeks.
But you know they are looking like they're mid teens on a 1 year basis of your your guidance looks like it implies 6% to 8% in the second half of the year, maybe you can confirm if that math is right.
But are there things that you're thinking about in the recent trends that's not sustainable or how are you looking at the comparisons in the plans.
For those of US tracking your progress in the scanner data.
Yes, so kind of out of Hey, David Good to hear you of a couple of things on the scanner data.
Overall.
We were a couple of weeks early on our back to school promotion, it's about equal levels that it was a year ago with just a little bit early so I think we're.
What we're seeing now.
Kind of a little bit of moderate I'd say as we go through the year I think your math on the full year number feels feels.
Generally good but I think what's most important is we feel terrific about the underlying.
The consumer trends that we're seeing that supports the sustained growth.
As we went through Covid.
We had the decrease in mobility of the increase in home snacking as we get to a more normalized rate what we're seeing is increased mobility.
Improving our on the go and immediate consumption sales and the even with the return of that mobility, we're still seeing an elevated level of consumers in the home and when consumers are in their home more of their snacking more so we have of portfolio as I mentioned in my prepared remarks that our.
Is well positioned for what we believe are some sustained consumer trends around the indulgent snacking and how they snack neither of the Ms.
<unk> of our portfolio of individually portion of the portion control, but it's available in the home and on the go and we're well positioned for sustained growth there, but I believe you have your numbers correct yes.
Yeah, I mean, just to comment just given the fact that we're seeing such a sustained strength in boardman.
Yes.
It just seems like Youre being conservative there on that on that are on that particular.
Brand.
Keeping that guidance the same I'm wondering if you're seeing comparisons there, but but 1 thing I wanted to ask before I. Let you go is the instant consumables. Yes, you cited that there was a positive mix driver what was the relative growth of convenience or were on the go packaging if you wouldn't mind.
Yeah, just give me a second I'll give you the exact numbers because we had that in our.
In our presentation. So if you go to I know you've just got released so but if you go to page 6 of our.
The Investor deck, you will say that it is it just got really the Q2 are single served was up 19, that's lapping obviously with mobility down, but if you look at the 2 year. It is very good and then you can see multipack just continues to perform well despite of over 3 of any way you look at it.
Okay, great yeah, Okay. Thank you.
Yes. Thank you.
Our next question is from Ken Goldman with J P. Morgan. Please proceed with your question.
Oh, hi, thank you.
No I just wanted to ask about the increased sales guidance, which I think is $46 million at the midpoint of my.
The math is correct and then $8 million for EBITDA I think that implies the incremental revenue versus your prior guidance carrying only about a 16% EBITDA margin, which is obviously much lower.
And then the corporate average so I know you of higher costs.
I know you want but you had higher cost in the first half as well it just feels a little conservative to me on the EBITDA line. Even if you are investing more as you said so I'm just curious if there is an element of sort of hey, let's wait and see where our costs and pricing and elasticity really come in or whether no you're actually going to invest that much more in the business.
It is beyond what you initially thought.
Yeah, Hey, Brian So if you look at our Guy.
Both the top line and the bottom line relative to our initial guide I think theres kind of of 2 different things going on we've got better visibility honestly.
And from that standpoint.
I think of story in the second half is going to be similar to what we're seeing in the front half we feel good about our ability to offset that inflation.
With pricing of productivity, it's different than the front half of where we have mix is the big favorability along with productivity, but the net outcome is the same we're basically flat from a margin standpoint of prior year than the front half, we expect that to be the same in the back half.
Relative to SG&A I think the back half on a total SG&A basis will probably look directionally more of like Q2 on an absolute basis in Q1. So it implies a little stepped up investment versus the first half.
And as the driving our business with advertising and marketing and you have things like incentive compensation like that that are going up as well as some talent that we brought into the business. So I think from an overall standpoint, we've got the better visibility of inflation and we've got better visibility to how we want to invest behind our brands with that.
Advertising and marketing and so we're bringing up both top and bottom line, but the EBITDA contemplates that.
Okay. No. That's helpful and then I guess my follow up.
<unk>.
I hate to pick on this 1 channel.
Because you're obviously, killing it in most channels, but I'm just curious Andy when when do you expect what's your latest on when we should start seeing the market share losses.
In the mass channel.
The flip on their head and turn into market share gains.
You're asking because we're starting to see losses on top of year ago losses, now so not a big deal obviously youre doing great. Besides of that just trying to get a little sense of that particular.
Sector, yet so I don't as you know.
Discuss specific channels, but youre right in the sense that not all channels or to the potential.
That they have or where they will be.
No I'm not kind of communicate specific timing of when they all get there, but what youre seeing really most importantly is the strength of our broad based distribution and the availability we have across it.
You mentioned the were up despite not all channels being to the potential were up 10 points in availability for the <unk>.
The next closest competitor and our brands really strong and that's what's driving nearly in the first half nearly 2 points of share growth. So I don't have the timing, but I know that we will have the we're all working.
It'll be choppy as we go from the back half, but I feel good about where we're at.
Thank you.
Okay.
Our next question is from Rob Dickerson with Jefferies. Please proceed with your question.
Great.
<unk>.
So.
I just wanted to ask you about.
The 22, a little bit I realize obviously you can't provide too much color I was just the question that's coming up I think for a lot of companies now, especially for you just given some of the cost inflation.
The the pricing dynamic.
I'm, assuming there are some hedges you still have on.
I'm, assuming at some point some of those hedges roll off and then it'll be a mark to market cost impact.
By the way you're speaking now is debt.
Essentially for this year.
You were able to offset with productivity of pricing, but I just wanted to kind of hear you say it like if you think about that pricing that would be entering the market.
From your perspective.
The less the further of place then you should be.
There's still a decent position on the profitability basis as you enter next year some assets.
Yes, I think I think overall I think that's right Rob.
Pricing, we've got good visibility of inflation.
The back half of it's obviously rising and.
The pricing that were enacted in the second half.
As contemplated that so we'll get a wraparound benefit as we're going into next year.
And from a 22 standpoint.
We've got a playbook that we typically run in terms of locking in commodities. We started to do that I don't have specific guidance for you on 22, but the pricing that we aren't acting in the marketplace in the second half does contemplate kind of our out of the contemplation.
And as I mentioned the back half.
We feel good about offsetting that inflation with pricing of productivity.
Okay perfect.
And then I guess, maybe just coming back to the question a bit again coming in the pack, but I kind of view of that has more upside than further downside.
Just.
Something seems to kind of be going on in that mass channel.
I realized maybe some of the back to school for the for pork for just a little bit.
But then there is kind of non back the school reset from kind of the broader conversations. So I'm. Just curious you know now out of.
Where you sit for some of the new innovation some of the renovation.
On Boardman.
How do you feel are let's say power some of those conversations going for some of those mass retailers with respect to.
The increased distribution points shelf space, what have you that's all I have thanks.
Yeah, Hey, Thanks, Ralph Yes, no I'll just reiterate the breadth of our distribution is really showing through we're gaining 2 share points across.
I liked the productive conversations we have with all of our customers regardless of channel even in the channels, where we're not performing well I feel good workman is doing very well across all of those channels. When you look at point of sale that's coming through we're in sub segments that are growing I feel really good about some of the news with the per.
Front end resets and the strength of our single serve business that we will see coming through as we get through the end of the summer and specific the baby bonds across all channels, including some of the chance for not performing well, where some of the number 1 new items. So we're really positioned for of the long term.
Specially given the affinity of our consumers and the strength of our brands over time. So a lot of these planning they don't happen just overnight and I feel really well, where we are positioned across all of our channels.
Alright, great. Thanks fair enough. Thank you.
Our next question from Ryan Bell with consumer Edge Research. Please proceed with your question.
Hi, how are you.
1 of them when we're thinking about the pricing that you're taking.
For trying to get maybe a broader sense of the percentage or the mix of the pricing that's coming from frontline pricing for.
First is mix I.
I think that could be helpful to understand the dynamic.
And then when we're just looking at the scanner data, we're seeing sort of mid maybe even to high single digit price mix increases.
On a weekly basis in July.
Is that roughly in line sort of what the expectations over the balance of the year.
So just sort of unclear.
What you are saying I think you said youre seeing single serve is it the single serve mix, you're referring to is higher than multi pack is that what you're saying.
Oh, no sorry, I was just saying that rate right now in July we're seeing mid to high single digit price mix increases price.
Is that is that just just the overall year over year pricing.
Is that something that we'd expected for the balance of the year and then I know you've talked about there being a benefit from mix shifts.
Potentially versus from frontline pricing and I was trying to see how that would play out over the balance of the year.
Yes, suraj, so just directionally.
From if you think about the front half of the year given kind of the back half the.
On the front half of the year, we've got a lot of mixed benefit.
Particularly driven by the singles are so it's Andy alluded to in our Investor deck, There's a slide where we share that we were actually down in single serve in Q2 last year.
<unk> substantially this year, that's helping drive our mix favorability that helps our margins.
It helps to offset inflation of the front half of our productivity as we move to the back half I think that mix upside starts to wane and if the trans it transforms more into pricing upside as we of pricing in the marketplace more in the back half so any interim where youre talking about July specifically I think.
Comments like for 1 month, but I think over the back half I would expect our from a margin standpoint and pricing in the marketplace that youre, saying youre going to see that more from.
Over the second half of it is going to be more pricing driven the mix driven relative to the front half if that answers your question.
Okay. That's helpful.
And then when I'm thinking about the.
For the potential volatility in demand across channels, given the unknowns the Delta Varian would you built the frame.
The ability to manage around that you did a good job last year when the things came out.
And then have you noticed any slowdown in heavier hit regions in terms of the mobility and how that relates to the demand.
Yeah, Thanks, Brian I'll pick that up.
I would I agree with the I feel confident on our team to be able to execute in the.
In multiple challenges.
We ramped up our Edgerton distribution center integrated Borkman dealt with Covid and in each of them. The agility of the team and the excellence of execution has resulted in a sustainable growth model.
And so now we have history on Covid.
And we have a pretty good feel for how consumers behave when different things happen and I feel confident that we're well positioned to capitalize and to service our consumers and customers.
In a changing environment as we have over the last 18 months with Covid. So I don't anticipate although I could be off of a little bit of a.
Quote unquote of lockdown or a dramatic change like we saw before how's.
However, if that does happen we'll be ready.
So I feel really really good about that.
Thank you that's it for me.
Our next question comes from Ben Bienvenu with Stephens. Please proceed with your question.
Hey, Thanks, good afternoon everybody.
Hey, Matt I wanted to ask.
Light of the deleveraging going on of the business.
No it was not.
Significantly you did buy back from stock in the quarter, just how you think about utilizing of the cash flow coming in the door and for that concurrent with deleveraging.
Presumably providing you some increased flexibility how do you think about capital allocation as you get through the year.
Yeah, so from a capital allocation standpoint, we always think investing in the business.
The good news for of cash so.
Investing in the business like we've done as it evidenced by.
Additional doing that line.
Our cake line, that's going to be coming on in the back half of this year are moved to address some of those are all good.
High ROI projects, so investing in the business is always a good use of cash for us against these good projects.
M&A is also a.
We've called out of the use of cash obviously, that's a little bit more opportunistic when that comes available for the right company.
And.
And as you mentioned, we're delevering almost a full turn this year.
Absent any significant M&A or additional buyback activity will be around 3 times at the end of this year, we were close to 4 times when we started the year.
And we just bought back 1.5 million shares through July of the majority of that was in Q2, but that's up through July we spent $25 million on the share buyback.
So we said that returning capital to shareholders was <unk>.
It was inter playbook, and we just demonstrated that and as we're thinking about the balance of the year.
All of those options are still on the table for US. We've obviously as we got 67 million still available under our <unk>.
Our share repurchase authorization and those are things that we talk about on a consistent basis. So that's generally how we think about.
Prioritizing our cash allocation and I do feel like we're in a good spot as we continue to Delever as you mentioned.
Okay, Great and I know theres been some commentary on pricing for some color you've given you talked about the receptivity from the market.
As it relates to the demand elasticity to the.
We get further labor tightening in the workforce and that drives are necessitates increased pricing beyond even what we've contemplated.
Where do you think we stand on the demand elasticity of front to enable incremental pricing on top of what we're contemplating now.
Yeah.
Very data driven analytically, driven we have very detailed models related to elasticity, we pass it through but more importantly to your core.
Question is I feel really good about our equity our consumer loyalty is extremely high our ability to be able to pass through pricing when need it which we're now demonstrating now.
I feel good about.
You also said we have a pipeline of revenue management that we talked about the we monitor all the time, it's always integrated we'd look at it all the time not just in these high inflationary environment, but it's a daily part of integrated the way we run the business and I feel good that we have a good pipeline of revenue management of productivity initiatives.
The 2 to be able to manage our margins over of sustainable period. That's a.
Capability not just the.
The 1 time event, so I feel good about where we are.
Okay very good congrats and best of luck.
Yes, thanks, Matt Thanks.
Our next question comes from Pamela Kaufman with Morgan Stanley. Please proceed with your question.
Hi.
How are you thinking about the sustainability of strong consumer demand given youre benefiting from a combination of continued elevated at home consumption as well as improving mobility do you see this as a sustainable of dynamic and would you expect top line to grow next year as consumers transition out of.
Of the pandemic.
Yes.
Pam.
Good to hear your voice I do I would expect us to continue to grow I think before the pandemic opened up by the.
Aleve, we were in good indulgent categories that were growing.
And what we're experiencing now when the early in the pandemic our on the go business, we were able to expand our distribution and our share of shelf, we saw penetration within the convenience channel for example increase and now we're holding on to those increases and mobility is increasing so that's a good positive tail.
And within the in home snacking or the carried away from home.
It's really interesting because we're not.
Then when the.
It opened up a little bits of the consumers were maybe lack at home. They are still in home more and even though they may eat out of restaurants more of it being the home more means snacking at home for and we're benefiting from that and I think that's going to be a sustainable shift. So I think we're well positioned for our on the go.
Business and I believe we will continue to be able to grow in our in home snacking business because of that dynamic.
The where snacking business not necessarily of center of the plate business.
Great. Thanks.
Also you highlighted some of the new products that you've launched that are targeting younger consumers you've talked a lot about your strategy to expand into new occasions like breakfast, but do you also see opportunity to increase penetration within certain demographics and how are you incorporating this into your innovation strategy.
Yes, we do we test our innovation first of all of that thanks for the question that I Love. This question because we've invested a lot of really understanding our consumer we've invested a lot of understand the occasions in which we compete we've also looked at where the those occasions are fastest growing who is our core target demographic and that.
That underpins, how we test, how we develop and Tina and Dan.
Tina and Dan who are on our growth side 2 of great job of really threading, the consumer target, which is younger the new products that are going to capture the imagination and fit their needs and then our advertising does that as well. So we expand not just our frame of reference around.
Who is going to come into the occasions from the snacking, but we also make sure we're talking to them not only directly through our advertising, but also with products that fit their needs. That's why you see things like our Christy minis that are more around in the occasion, where those consumers are looking forward. It's a combination of baked in crunchy baby bonds is just the app.
Absolutely doing really well and it's doing well across the demographic spectrum. So it's inherent in the way we understand our consumers certifications and then develop new products and communications to them.
Great. Thanks, and then can you just give an update on the investments that you're making into the breakfast category and what you're seeing broadly in terms of growth and eating occasions for sweet baked goods.
Well as you know breakfast is.
As of the growing sub segment of sweet baked goods, it's growing in total I think consumers of homing eating breakfast for a little bit more on home when we invest the when we originally talked.
<unk> talked about accelerating our growth in breakfast to put it in perspective.
We were underdeveloped by 5 share our.
Share of development and breakfast versus our overall share within sweet baked goods was about 5 points below where now at or slightly above our total development. So the initiatives were taking have been extremely positive I'm looking at some of those initiatives, we entered hostess with our Danish business and the expanded within that.
With the Jumbo Donuts, we know muffin sticks out this year of baby bonds is doing extremely well.
We've also expanded space in some customers we have segment of specific shelves related to breakfast. So the consumers could really understand how it fits within the within their usage occasion, so we're seeing that.
Not only from a consumer standpoint that the breakfast is increasing penetration of suites to get the positive start to the day, but also the.
Repeat purchases and where given the products that they want within that occasion, both for on the go and within the retail space. So we thought about it 3 years ago, we have been successful with that strategy and we actually believe.
Of that Theres, a long way to go.
We're just really getting started so.
I feel really good about that strategy on page 7 of our investor presentation, Youll see some headlines of total breakfast and where we've how we're performing well our quarter to date.
Great. Thank you.
We have reached the end of the question and answer session. At this time I would like to turn the call back over to Andy Callahan for closing comments.
Yeah, well I just wanted to thank everyone for your participation of continued interest in hostess as you can hear we're excited about the continued strong execution of all of our teams against our priorities as we drive growth and continue to focus on where it works and working hard for our shareholders to continue to increase shareholder value. So thanks.
For participating today, we will continue to work hard and see you next quarter.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Yeah.