Q4 2022 Hostess Brands Inc Earnings Call
Ladies and gentlemen, thank you for your patience, we will begin momentarily again, we thank you for your patience, we will begin momentarily. Thank you.
[music].
Greetings and welcome to the hostess brands, Inc. Year end 2022 earnings Q&A.
At this time all participants are in a listen only mode. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad I'll now turn the conference over Geos, Andy Callahan you may begin.
Terrific, Thanks, and good afternoon, and welcome everybody to the Q&A portion of hostess Brands' fourth quarter 2022 earnings conference call I'm, Andy Callahan hostess Brands', President and CEO and I'm joined by traps Leonard our Chief Financial Officer.
Hopefully you've all had a chance to review the earnings release for the period ending December 31, 2022, along with the Investor presentation, which was published today at four P. M. Eastern time that is available still and will be on the hostess website at www hostess brands Dot com.
A replay of the webcast in our subsequent Q&A will also be available.
On the Investor Relations section of our website.
During the course of the call we may make a number of forward looking statements, including expectations and assumptions regarding the company's future performance actual results may differ materially from these forward looking statements and we undertake no obligation to update or revise these forward looking statements. A detailed list of these risks and uncertainties can be found on today's earnings release and in our SEC.
Filings management will make a number of references to non-GAAP financial measures that we believe provide useful information to investors a full reconciliation of these non-GAAP measures to the most comparable GAAP measures is included in the earnings release, so with that out of the way with that were available for the Q&A.
Thank you at this time, we will be conducting the Q&A session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Okay.
Our first question comes from the line of Ben.
With Stephens, Inc. Stephens Inc. Please proceed with your question.
Hey, guys just to layer on for Ben Thanks for taking my question.
Just wanted to get an idea.
As we look into 2023.
Can you give us a little detail on kind of the composition of sales.
Should we think of that primarily as kind of plant volume and in price from there or is there some of the innovation from bouncers built into that any color on that that would be helpful.
A lot going on there so.
As far as the full year 'twenty three I actually we feel good about it as you can see it's a yes. It gets back to algorithm in profit.
Above algorithm for the year.
Volume is flattish for the full year, and then price mix drives to that gets us to the total guide.
But you can also as we mentioned in our prepared remarks, if you've had a chance to see it.
We're focused on the consumer customer sustainable profitable growth as you look at the composition of the full year F. F Y 23.
The volume and the revenue is coming in.
At a gating perspective more inline with historical if you look back at like history.
The comparisons, especially in Q1 are distorted because of some of the disruptions in the marketplace in comparison to last year.
So we feel good about the full year when you really look at our models and you compare the quarterly gating to historical so if you take out a little bit of the disruption and distortion as a matter of fact.
Further it makes this encourages us.
Q4, what we just reported our two year stacked growth was 33%.
You know, we'll have a good stack two year growth in Q1 about FY2023, albeit not at the same level as Q4, but very good and at the top.
Food peers so.
We're really getting back to more of a normal pacing in the quarter. So best way to FY2023 now bouncers were really encouraged with bouncers, our customers and what we hear from consumers through the initial trial phase.
It makes us feel nothing but encouraged and I feel really good about the visibility we have with both our customers and what we're hearing from consumers as we look at the plans we have in our FY2023 and that's what I mentioned in the prepared remarks later this week, you'll hear about our next innovation, which we're really excited to share.
Great and Andy since you brought it up with bouncers and can you maybe talk about <unk>.
As I've laid out in the past kind of these five targeted snacking occasions, yes, that's only occasion that you feel that bouncers or maybe any innovation that you have kind of coming into the pipeline helps you attack and kind of expand your reach with consumers on yes. So bouncers is once again, we get great feedback for those who have tried it.
Taught us the product if that's what they do what they need we're also able to attract their millennial parents in a disproportionate way. So it's all crank in the way, we expect and we have designed that for <unk>.
A skew towards the.
The lunchbox occasion.
And that seems to be working it's a re imagination of our some of our icons twinkies Ding dongs doughnuts and it did have to bite possible version, that's all resonating with these consumers its re imagining what our hostess brand can be with a whole new generation, putting it in a form that they can do and it really achieve and part of our spend.
A lot of our strategy in quarter, our strategy, which has taken these iconic baked goods and putting them in a more relevant form for a 65 billion snacking universe. So we're really excited about our early indications are its ability to do that but it does over skewed to the lunchbox, but that being said once it gets in the household we do see you know.
Our products.
Consumed at multiple locations, but that one over indexes to the lunch box.
Right, Okay I'll pass it on alright. Thank you.
Our next question comes from the line of Ken Goldman with Jpmorgan. Please proceed with your question.
Alright, thank you.
Wanted to ask about what you're seeing in the promotional environment right now.
Clearly there are some indications that one of your larger competitor maybe step on the pedal a little bit.
Toward the end of the year, just curious what youre seeing in the first quarter and I guess more importantly, what youre modeling units.
Promotional intensity from you and your competitors.
Thank you Scott So we feel really good about our ability and the line of sight, we have both with the consumer response to our plants and our customer engagement and matter of fact, I don't think our customer relationships have never been stronger it's all contemplated in our guidance.
As a headline.
Certainly we've seen you know related to the marketplace.
Our category in which we compete where we the category in total continues to perform really well even during times of some of these things coming back we continue to grow extremely well with our two year stack numbers and.
I really like what we're doing you're seeing the distortion, you're talking <unk> talking about because we continue to consistently manage through our supply chain.
And a very positive right. So I feel really good about the playbook, we're running the ability to drive the growth which is included in our plan.
As we benefit from our consistent execution partnership with our customers focus on our consumers and driving our algorithm overtime.
And then thank you for that quick follow up.
Talked about how one of your expectations for this coming year is that you'll ultimately consumers as they have in the past, we'll grow more accustomed to higher prices.
Can you talk a little bit about just what's baked in in terms of overall elasticity are you still assuming that there is a higher level of elasticity I know, it's tough to kind of model and given that you're not taking as much pricing going forward, but just trying to get a sense for it.
The pro forma will be somewhat more sensitive.
We're less sensitive than the historical data with the higher prices.
Well as a reminder, you mentioned it can we believe now will always responsive and agile to changes in the marketplace, but we believe all of the pricing.
That we have in is all the pricing we need to deliver the guide that we just established and deliver the growth that we just established so we feel really good about that and therefore as the year goes on what we'll see is the benefit of lapping out of the pricing and then more into the back half we get to.
The volume driving the algorithm and that's more of our sustainable long term, that's what we see today relative to the consumer response to elasticity.
We break that out we think we have a well we do have a good beat on what the elasticity impacts and what we see is our investment in innovation our investment in marketing our execution, our work on driving our partnership and enhanced merchandise with our customers which includes.
Not even just the just the displays type of displays timing of it that's all offsetting any short term impact that we'll see on elasticity. So we'll start seeing that come through the back half.
We have not necessarily changed those assumptions from what we've seen in Q4, which actually gives me a good feel for as we move forward you published some reports that they have a lot of the peers and we've seen with our economists and different banks.
Certainly the consumer still undergoing.
Changes in the market place.
As they absorb the new new economies, we've done some research as I've said in my proprietary to <unk>.
<unk> that the resiliency of our category and accessibility of our price points performs.
Very well in multiple conditions and the breadth of our availability across channels also helps support that so all of those factor up to my confidence.
Confidence around our guide and our ability to continue to drive sustainable profitable growth over time.
Thanks, Eddie Yeah. Thanks, Scott.
Our next question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question Hey, Rob.
Hey, How's it going.
Hum I guess couple of questions.
Our first question.
Is EBITDA.
I'd like a little bit higher.
Long term algo for 'twenty three.
Apologies.
To go through all the prepared remarks, maybe if you could just explain.
Kind of what what is driving that growth relative to kind of longer term expectations.
Hey, Rob just to make sure. We heard you were a little bit garbled there for a second. Thank you said explain why the profitability slightly higher than the long term and I'll go on the guide.
Yeah, Okay, Yeah, sorry about that you were a little bit garbled chaps I'll, let you take that one yeah, hey, thanks for the question. So so first off we feel really good about our guide we're really proud of the results that we delivered in 2022 and and as you mentioned, we expect to deliver strong growth going forward. So you know as we.
Think about our growth from an EBITDA perspective, it's driven by the flywheel that we've talked about you know since Investor day, you've heard me talk so it's good top line growth and we're targeting and we're expecting and guiding to 4% to 6% top line growth and as Andy mentioned.
A lot of that is volume it's our continued.
Our focus I'm, sorry price mix rather.
Sorry, I misspoke.
It's our continued focus on productivity. So this is a productivity across.
Our entire business system. This is revenue growth management, and you've heard me talk about that as well.
Got good leverage.
You know across our our operating expenses, so our operating cost as a percent of net revenue is going to be relatively flat in 2022. So all of our our flywheel is humming and it's it's kicking starting from the top line, our keen focus on margins and getting our leverage.
Particularly in our operating costs are where we see that.
Okay, Great and then maybe just two quick follow ups in terms of gross margin cadence for the year and then volume on a year over year cadence for the year.
It sounded like you sort of implied that maybe in the back half the topline I'd be a little bit more volume driven which would suggest maybe positive volume in the back half I'm not sure. If that's kind of what the message is and then also just on the gross margin.
Is there anything we should be thinking about as we get through the year in terms of kind of accelerated ability. That's it. Thanks. So much yeah, let me reiterate the topline and Travis.
Come on top on the gross margin stuff.
Rob Your your your takeaway is correct as you look at.
Price mix more of a driver early as we lap the multiple pricing actions that we executed in 'twenty two as that flows out through the year, you'll start seeing our growth drivers around marketing and innovation and other things, becoming more and then you'll see that at and.
See that'll be a good way to get that so.
That all adds up and it aligns with our model. So that's the way to look at it I'll turn it over to Travis for the gross margin discussion.
Great question, let me talk a little bit about gross margins in Flint and frame this up a bit so our gross margins are essentially flat adjusted gross margin essentially flat versus FY 'twenty. Two now keep in mind, you know, we expect to deliver strong EBITDA growth, we've got flat gross margins, but were absorbing.
High single digit inflation in arkadelphia startup costs of which $5 million is essentially one time in nature now our gross margins still remain better than peers. We are committed to recovering those gross margins over time.
So as we think about FY2023 this is around the choices around timing, we're not prioritizing margin recovery.
And so long term profitable growth will continue to leverage our gross margin tool kit, which we feel really good about those capabilities are around revenue growth management and productivity to recover our margins and fuel our investments for growth.
You think about the cadence one of the things that you'll probably see on the Kansas We did have.
A tough Q2, so we I talked about that that was actually my my first earnings call. Also there was a lot around obviously inflation was high I there was supply chain for agility. So we do expect a better result in Q2 as we begin to lap some of that yeah.
Yeah, and just related to it I feel we've what's paid off really well for hostess brands is our continued focus on our consumer and customer first and sustainable profitable growth over time, and that's going to serve us well.
Travis mentioned, we're committed to recovering gross margins over time, and we'll do that and Phil will do that within the context of continuing to deliver consistent sustainable profitable growth.
Thanks, Rob.
Thank you.
Our next question comes from the line of Bill Chappell with <unk> Securities. Please proceed with your question.
Yeah.
Thanks, Good afternoon, Hey, Bill.
Can you just talk a little bit about the competitive landscape I know it just for the sweet baked goods.
Held share I guess for the year. After a couple of years of kind of gaining some share and I know, it's a little bit different than <unk>.
On the innovation standpoint, but guess.
One what are kind of your expectations for the category growth. This year and then two do you expect promotions I know it wouldn't be it on the single serve side, but kind of at the grocery level to come back as cost start to ease and as you move to the second half yeah.
A couple of things as I feel really good about our models about our ability to be able to run our play and really feel great about our guide.
You know it's.
It's a little bit harder to predict share mostly because we're in a category that is highly expandable for one so it's not it's not a complete set we're in a $65 billion snacking occasion.
Occasion map of which were in the $7 billion sweet baked goods category.
And that can access growth across it and Theres a lot of interest in.
And baked goods right now so that that I take that as a compliment that we're in a real good category and in the short term and a lot of disruptions and of course share to kind of go up and down over time, I really believe that our playbook, we'll execute that share better of time, it's a long way of saying, we don't really model share, but that doesn't give us that doesn't undermine our.
Confidence our ability to drive the number that we believe is in our guide we have a lot of confidence in that.
The timing of our pricing was all different in our category was that flowed through including now we have everything we need.
The timing of our execution on supply chain. They all have helped.
Contributed to a little bit of the distortions I've talked about in the marketplace all that being said our two year stack growth continues to be good and my confidence in our model continues to be good.
It related to promotions, we have Oh I'll I'll reiterate this.
I do think 'twenty three similar to the gating of the topline the pacing of the promotions is all contemplated in our guidance similar probably to historical patterns and I feel really good about the partnerships that we have with our customers with a.
Our partnership to drive consumer satisfaction, and overall growth and it's never been better it's fully in there. If you when you get a chance to listen prepared remarks, if you haven't already travels talked about our enhanced merchandising, which is multi tiered related to our focus on avere.
<unk> ability across the store displays merchandising.
We're activating our access to consumers through customers.
<unk> and a really good about I feel really good about the visibility we have in the partnerships we're forming.
Got it and so I'm, sorry, I missed category growth you expect for this year.
I did not model that so I'm not forecasting that are forecasting hours I wouldn't have a reliable number to give it to you, but I believe over time will do.
But will drive continue to drive share in the short term predicting a share number.
It's difficult for me to do given the fact of how great Sweet baked goods has been performing over time and the distortion that I talked about and that we've communicated in the categories in the short term.
Great. Thanks, So much you got it bill.
And our next question comes from the line of David Palmer with Evercore ISI. Please proceed with your question.
Thanks, a question for you about productivity.
And how much do you think the supply chain cost would be over time and what net effect. Those two things would have this year and perhaps even into next year in terms of gross margin improvement.
Hey, Hey, this is this is travis thanks for the question. So let me maybe.
Separate these things a bit so productivity I think I alluded to it a little bit earlier in the call our feet, we feel really good about our productivity and our ability to really keep the pipeline of initiatives tool, we've accelerated our investments and you've heard me talk about this in fiscal year 'twenty two we've accelerated.
Our investments to build this capability.
To develop scalable and repeatable processes to keep this pipeline of productivity for full and we feel very good about that and that's again part of our flywheel of growth and then allow us to continue to invest in growth and obviously rate recover our margins as we think about the supply chain as we sit here today the way we see it is that it's it's.
Improving Ah and you know in FY 'twenty to wheat that we arent alone in this is not unique to US there were a lot of supply chain challenges you might have heard us talk about in the context of supply chain for agility, but what came out of that was we strengthened our relationships with our key suppliers. So we feel really good going forward with that.
And those strategic relationships the partnership our ability to strengthen it during tough situations in 2022 and feel good if we have to if there are some shocks to the system as we move forward.
So building on that we've committed to recovering our gross margins over time. So we're communicating flat. This year now if you ladder up from that certainly we have a couple of things we've talked on our prepared remarks and trap as mentioned earlier in this Q&A section related to a onetime 5 million costs, obviously some of our inflation.
Is going to be double digits, you know, obviously, we probably skew a little bit more to eggs. So as we balance all of that with our focus on sustainable growth. We know we have that balance right. So we'll eventually get it but with all of that we're still in really high profit growth will recover them over time, but this year, we have it and we've really under Travis is leadership.
We've been doing great on the on building our pipeline of productivity and I believe as we settle that there that's going to be a real driver of fuel as we investing continue to invest in growth.
So your so your belief is that.
Sure.
Productivity will be a bigger benefit this year.
And that there will be some easing of the supply chain costs.
But price net of commodities and any other including promotion would bring you back to neutral is that what we are noticing about gross margin certainly all of that matter at the neutral because that's what we're doing is we are absorbed.
Some of the onetime cost of Arkadelphia and manage the balance of our consumer customers Act gross bottle to the timing of gross margin recovery. That's the conclusion you have to make.
And then one final question about innovation.
Okay.
And then the cadence of it how will.
The new product news and merchandise and benefit the first quarter versus the rest of the year.
Thank you.
As you know David.
Covering a lot of companies. We have we do have we launched bouncers back in the fall where now we will announce another innovation here later this week, which I know you are really like in some industry attendees will have a chance to sample so.
I look forward to that feedback as we looked at 'twenty two we drove 44% of the total revenue from innovation. So that's well above what they are category in the index was the pacing of the innovation and the trial phase. It takes about 12 months. So we expect our innovation contribution to be another really.
Strong year as we continue to get the benefit of the innovations. We've launched previously Bunge continues to grow. We also have wortman innovation, that's coming out with new packaging and zero sugar, we have another one on hostess, we're announcing and bouncers is still in the trial phase as well as the new ones. So I've actually feel as bad as.
Bettors are as good as I've ever felt related to our innovation pipeline and ability to drive growth. We will continue to I expect us to continue to be at a two times index maybe of the category our vitality of delivering at the high end.
Moving up to the high end of our 15% to 17% I'm very optimistic about so it'll be really good but the first half of the 23, we're still in that trial phase related to bouncers, the new products. We're launching our initial feedback from our consumers is really encouraging and our customers continue to be really excited about it and.
How excited they were about bouncers, obviously, they are a sneak peek under the innovation since they are selling it in and it's launching here later in March they are even more excited about the next one where lunch.
Okay.
Thank you.
Thank you.
Yeah.
Our next question comes from the line of Pamela Kaufman with Morgan Stanley . Please proceed with your question.
Hi, good evening.
I just wanted to ask about what you are observing and consumer behavior across channels I guess are you seeing.
Any difference.
And stopping habits across convenience first foes.
Mass and grocery story and then what are you seeing in terms of demand for single serve versus multi packs.
So related to let me take the last part first and then I'll talk about that a cross channel.
Our single serve business.
It does very well and it continues to do very well and matter of fact, it's.
Not only is our convenience channel continue to have strong consumption or we do very well where as you know we over index of single serve we also have an initiative of expanding our single serve business across more broader channels, leveraging the strength and the business model, we really spend convenience and the expansion of that availability with like plant.
Ram front ends at some really large grocery retailers is going well and I see that those numbers regularly and expanding much said the partnership we have with our customers to build.
That program on single serves is really doing well now and I expect to continue to continue to drive growth and do well in the future related to the channels as just as a headline you know one of the strengths of our business is the breadth of our availability, which is really enabled by our operating model and powered by.
Our investment in quality products throughout the entire shelf life, adding to the availability. So we strive to have the exact same quality at the end of our shelf life is day, one, which really neutralizes and it really empowers our ability to be able to.
Enact that but you asked about the channels. We've seen you know obviously some.
You know minor shifts, but not like a major shift across our channels, but we're positioned if that does happen. We have seen a trip suite, which were originally really high but they have moderated slightly recently, we continued the street see strong resilience within the convenience channel where.
Moving into our high season related to that and those trends are normal so related to consumer behavior and shop their shopping trends.
In our business anyway, we haven't seen a major move across they've been minor with continued strength within convenience and the breadth of our availability and access the consumer really doing our business as the consumer moves.
Oh by the way related to Aldi, Pam we continue to see really strong.
The addition of two times buyers to our franchise, which is the increase in loyalty over time at a rate that's.
Almost two times greater than two times. The total category. So I continue to track that because that's really a testament to our investment in our product quality.
Right.
And then get on board and so continue to have very strong growth in the fourth quarter.
Just give an update on what's driving the growth.
Scott.
You know where its distribution now and what are you targeting for distribution expansion over the next year one of the great things about Borkman as you know we when we originally bought it three.
Three we just passed the three year anniversary and it has been a margin accretive growth accretive it's added a new category to us we have a leading position within a reduced sugar segment with an $8 billion cookie category, that's growing at more than twice the rate. We immediately moved it to the warehouse to unlock the margin profile of it and then we.
Our focus on really driving the growth the distribute what's driving the growth now is not really the distribution, although our distribution.
It's not going down continues to be positive, what's really driving growth of the boardman.
Borkman has been velocity.
Velocity, mostly related to our ability to be able to provide more compelling and high product quality versus competition velocity driven by our execution of our merchandising model that we learned from hostess velocity driven by the macro trends behind reduced sugar within.
Within a cookie category now per preferred position.
And our innovation launches that when I look in di di.
Dissect our model that shows us that that's what's driving growth. Despite the fact that we've been aggressive with our price mix on this to protect the margins over time. So once again very similar to hostess I expect these macro trends that velocity continue investment as we continue to build this.
This sub segment of the cookie category into a larger piece of it and we lap the.
The elasticity impacts of the pricing there is nothing but good stuff ahead of wortman, but it's mostly almost completely due to the velocity drivers of the business.
Thanks.
Yep.
Our next question comes from the line of Robert Moskow with Credit Suisse. Please proceed with your question.
Hi, Thanks.
The Cagny conference right next to a big display of Jack Daniel's So if I become incoherent in the middle of this question.
Just let me know Bob that that's what you get for having a conference call at five o'clock, but we will see it tomorrow and youll be able to take some of our next innovation.
Well, if it's Jack Daniel's, let me know.
But I I want to know about shaping of the year like first quarter you have this really tough comp because of the distribution.
Picked up from a competitor.
It's reversing so first quarter, how should we think about volume.
And and topline growth.
Yeah, I'm trying to explain this concept the best way I can so.
If you look at the pacing of our bought our volumes and whatnot.
Revenue.
<unk> throughout the quarters Q1, two three and four the pacing of that revenue.
He is in line with if you take out.
A year ago, which was mostly in Q4 of 'twenty one in Q1 of 'twenty.
Follows those historical patterns.
And so that's why we feel good and theyre not as supportive when we cross tab that to our internal models.
I think innovation et cetera, we aligned with that.
That approach now, what's really distorting that as looking like it may be up or down is the comparison to the year ago, which was really the out.
Outlier was the growth now and we also still feel good about that when you normalize it it's not like we're declining because in Q4 here Here's a stat for you Ralph in Q4.
Two year stack.
Our.
Hi.
It's high in Q1 of 'twenty.
So it's not going to be as high but it'll be a really strong two year stack in Q1, and we'll be off to the races. Following that so that's the best way to think through how to get in the year.
Okay. Okay. So it's flat.
Benchmark versus historical.
Gating.
So does that mean, we should look at things on a three year stack. When we're forecasting <unk> is that the best way to look at it.
You can you can look at that for the pace for the yep compare the absolute number to to to the Q2 'twenty to growth and then gated based on the historical gating of a three year history from that okay, close and it'll take out the distortion.
Ah Okay. Okay and is there anything more you can tell us about whether the degree of the market share declines in for Q.
Was a surprise to you like it was a surprise to me you know we all knew this competitor is going to regain capacity, but the degree to which it came back was it the surprise I just wanted to know how how you thought about it when you looked at the <unk>.
The numbers actually came out.
So the share numbers different than our total now or where we came in in Q4 was within our guy.
So.
The share numbers impacted by way the total total baking baking caddick sweet baked goods category does specifically of which you can look at it two ways and one of the ways. We look at it as clearly we're in a very expandable category, we get a lot of news and interest from a lot of competitors interested in baking and frankly, I think we do it very well.
Well so.
The share number we do not forecast as precise as we do our number our own number within in our guide and the category performed better than we would've anticipated, which is driving the share, but still our models fit and our ability to be able to access new millennial consumers continued to drive penetration in households continue to increase.
The growth rate of our two times buyers always intact and make good about our growth going forward.
Okay makes sense. Thank you yep. Thank you thanks, Rob.
Our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.
Yes, Hey, good evening.
Just a follow up on the capacity investments.
Called out for 'twenty, three maybe if you could just provide a little bit more.
Color around exactly exactly what what parts of the business or are getting those those capacity increases and then based on your expected growth as you go forward.
Help us frame it.
Do you see more capacity you need.
<unk> 24, and beyond or is this really a.
Big step up in 'twenty three.
You build capacity for the foreseeable future.
Hey, this is Travis I'll I'll I'll start this the answer it's a great question. Thank you for that so what we're referring to is our new bakery in arkadelphia.
This will provide a 20% incremental capacity to our donut and cake lines and it will come online in AR in Q4 of 2023.
So we feel really good about our about this bakery, it's got a kind of a sustainability first concept lance feel to it which we feel really good about and definitely it's going to really help US you know what they don't accident and NK platform. So I would say.
Say you know as we think about investment in capacity and this is the big one on the way to think about let me, let me talk a little bit about capex here the way to think about this in the context of our capital you'll see that our guide is $150 million to $170 million that reflects the investment into.
This bakery.
And as we talked about in Investor day, and 2024, and 2025 and beyond we will ramp that down. So just to give you a little bit of more color here and 'twenty 'twenty. Two we had a capex spending of $135 million, which is about 10% of our revenue and that's kind of how we.
<unk> talked about it in the context of Investor day.
That will remain elevated at low double digits in 2023, given the guide.
And then I will be consistent with what we talked about in Investor day, but as you think about our capex as a percent of revenue yeah, Steve Let me build on that so I was talking about the financials industry first feel real good about it we're adding a new bakery footprint and at the way we were just going to add 20% capacity of donuts and our cake business.
We're Travis said, which are strategically important to us and they're growing and we've obviously you have to make these decisions two years in advance.
We need this capacity and what we're gonna do when we unlock it we're able to drive efficiencies within it as we sit here today as we've driven our growth over time, we talked about our total volume growth are stacked growth when we get back into the algorithm, we need the growth and there's not a time now that there's not a human.
Your line, either producing cake product sanitizing, our lines were up two upgrading them with either equipment or or preventive maintenance. So were 24 seven pretty much on these lines and if it's over time or would ever say anything when COVID-19 hit we run a complex network and we did a real nice job.
Of optimizing the network to drive efficiencies throughout we will do that when we unlock this new bakery will be able to reset our network, we will be able to optimize the line runs will be able to then manage to away. That's a lot less burdensome on her employees more playing for part of our pipeline of productivity includes our ability to be able to do that.
So first we need the capacity and second we're going to optimize it in a way that really drive successful sustainable profitable growth that we talk about in the in the first time and we're so confident in those long term growth algorithm, which is mostly volume driven as we get out of this period of hyper inflation, it'll really drive great success for us so feel.
Really good about them, but I feel really fortunate that the team made the decision to really get it online in the back half of the year. When we did because we will need it.
Yes, that's great.
You sort of anticipated part of my follow up.
As you as you get that flex in the overall production footprint.
On the line that you've been kind of running now for a while is there.
Are there investments to be made in those older lines as you are a little bit more freedom to upgrade them to automate them bring them into the.
The entity or is that is it more just get this new Dupont online optimize and the new footprint.
Carryforward, well I think I'd say, yes, yes, and yes, I think would be the maybe not trying not to be the flippant answer, but the honest answer we do a lot of things in our lives. We have in part of our productivity. We invest in automation for example, which is part of our lives we need to take down lines to be able to do that.
And then that unlocks really high ROI savings as we go forward. We've also when we're when we're launching arkadelphia, we have some forward.
Digital technology that we're able to implement right away, we're really but the train our our our team and our supervisors are different facilities and then bring back those learnings with investments back it's out and its so its not only yes. It gives us the freedom to be able to then without as impact to capacity to be able to update the line. It also.
<unk> provides as a really a foot forward testbed for.
Some of the I T and other Digitization technologies, and we plan to bring throughout the network, they're all contemplated in some of the pipeline that we talked about related to productivity and don't forget our quality investments so not only do that but those digital technologies, which were already implement they really allow us to focus on our quality.
And support our renovation.
Okay. Thank you very much.
Yes.
Our next question comes from the line of Ken Goldman with Jpmorgan. Please proceed with your question.
Hi, Thanks, two quick follow ups, if I can name a clarification I think it was a little bit of confusion about exactly what number you would sort of soft guide us to.
First quarter's topline I think some people are getting a little bit closer to that $340 million.
Lumber Im curious if thats reasonable for people to model again with the context, you might actually within the number I just want to make sure that we're not way off and modeling that and then the second question is.
Youre guiding to.
Around at the midpoint, 5%.
Top line growth this year, you're guiding two percentage points above that for EBITDA, but youre also seeing gross margin percentage will be flat and your operating expense as a percent of sales to be flat, but I guess mathematically the differences DNA I assume that the arkadelphia plant coming online, but I wanted to make sure I'm thinking about that.
Correctly. So thanks for your help there.
So we can follow up on the Q.
But it doesn't imply that at once you get out of Q1 with the 5% you're higher than that.
Yeah, the benchmark across the full year at a 5% growth.
Versus the quarter. So we can follow up offline on that Ken, but I think your math on Q1 did you.
What did you say.
I think that was slightly high thinking roughly slightly hot okay. I don't know what thanks for that.
And then let's talk about this.
Yeah. So we don't guide to specific quarters of that related to the profitability that you've talked about we do get some leverage throughout clearly throughout the P&L from the topline to the EBITDA to the EPS and if you go to the margin.
The bridge, we talked about that related to.
Mostly related to some of our fuel initiatives.
We're seeing some of our pricing flowing through in the first half and then our our growth in our price mix throughout the year. So.
That's where that's where we feel about that.
We'll follow up on that one too thanks guys.
And we have reached the end of the question and answer session now I'll turn the call back over to management for any closing remarks.
But that said you know I feel I'd like to thank the hostess brands team for what they do every day to deliver the results that we have sustainably shown that we can deliver year. After year. After year. We look forward to continue to take a long term sustainable.
Growth to this business and are confident that our position to drive.
Industry, leading growth will continue so thanks for your interest and we will see you next quarter.
Yeah.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.
[music].
Okay.
Okay.
[music].
Sure.
[music].