Q2 2023 Hostess Brands Inc Earnings Call
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Greetings and welcome to hostess Brands' incorporated second quarter 2023 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.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded.
It is now my pleasure to turn the conference over to your host Sumit Sharma. Thank you you may begin.
Good afternoon, and welcome to hostess Brands' second quarter 2023 earnings conference call Joy.
Joining me on today's call is Andy Callahan, hostess, Brands', President and CEO , and Travis Leonard Chief Financial Officer.
By now everyone should have access to the earnings release for the period ended June 32023.
Published at approximately four P M eastern time.
The press release and Investor presentation are available on wholesale peptide at wholesale brands Dot com.
This call is being webcast and a replay will be available on our 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 actual results may differ materially from these forward looking statements and we undertake no obligation to update or revise these forward looking statements.
Detailed list of these risks and uncertainties can be found in today's earnings release, and Leonardo SEC filing.
Management will make a number of references to non-GAAP financial measures that we believe will provide useful information to the investors.
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 .
Good afternoon, everyone and thank you for joining US today, let me start by thanking our dedicated and hard working team members across the hostess brands organization for delivering a good first half and positioning us well for the second half of the year.
I'll begin with a few highlights of our second quarter performance discuss key drivers of our attractive growth outlook and then Travis will provide a more detailed review of our quarterly financial results, we will close with a discussion of our higher full year outlook before opening up to your questions.
We delivered another quarter of strong operating results with double digit profit growth and higher margins, enabling us to raise our adjusted EBITDA and EPS expectations, which are both well above our long term growth targets, while maintaining our full year top line outlook.
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Now to a few highlights for the quarter net revenue increased by three 5% as we lap 16, 8% growth in the year ago quarter.
Net revenue for the second quarter was driven by higher price mix offset by expected volume declined due to the impact of carryover pricing and the lapping of year ago growth that said, our volume trends improved in the quarter. This positive trend accelerated in July where we are.
Seeing a meaningful step up in shipments versus the prior year behind customer support a favorable shelf resets and a strong merchandising FERC back to school programming, providing additional confidence in our second half volume expectations, our sweet baked goods point of sale dollars were up two point.
9% during the quarter and up by 18, 5% on a two year stack basis.
Turning to the Boardman brand Wartman P. O S increased seven 2% in the quarter, including $13, 1% growth for the recently rebranded Boardman zero sugar Cookie and wafers on a two year stacked basis Workman's Pos increased by 32, 2% as we can.
Continue to capitalize on our leading position in the faster growing zero sugar cookies sub segment with strong innovation, and our ongoing and increasing investment to drive brand awareness and penetration.
Second quarter profit trends highlighted the strength of our business and our continued focus on detail and operational execution as both EBITDA and EPS grew by strong double digits, along with a meaningful year over year increase in our quarterly gross margin.
In addition, we successfully refinanced our term loan and revolving credit facility during the quarter and are very proud of our team's ability to achieve very attractive rates in the current markets the ability to extend our debt maturity with minimal impact to our future interest expense, while gaining additional liquidity.
The new revolver is a testament to investors' confidence in the underlying strength of our business and our strong operating performance. We believe the successful refinancing provides us significant financial flexibility to execute on our strategic objectives and continue to drive strong shareholder return.
Yes.
Given the strong first half results.
We now expect adjusted EBITDA towards the higher end of our $315 million to $325 million range and adjusted EPS towards the higher end of our $1 eight to $1.13 per share range delivering above our long term algo.
A rhythm profit growth.
We now expect full year gross margins to be 40 to 50 basis points.
Higher than last year, while our top line guidance remains unchanged at 4% to 6% growth.
I am proud of the sustainability of our growth as we build a premier pure play Snacking company on the foundation of favorable positioning and growing snacking categories with expandable consumption occasions category, leading innovation focused investments and strong and growing execution capabilities.
I continue to believe that foundation of hostess brands has never been stronger.
Let me talk about a few of the key growth drivers in more detail, which provide me confidence in our ability to deliver another year of strong sustainable topline growth and above algorithm profit growth in 2023.
Consumer preferences for snacking, including Sweet snacks remains resilient, even as they adjust to the current economic environment. The number of snacking occasions throughout the day continues to increase and consumers are seeking out a wide range of options as they increasingly adopt a balance sheet approach when making decisions on what to.
Snack on from Savory Sweet from.
From the tuition to rewarding.
And from mindful to indulge it we have a deep understanding of these occasions and continue to refine our strategy to focus on five of the fastest growing indications with an addressable market of more than $65 billion in retail sales and more important where we believe our portfolio has a strong right to win.
Yeah.
Our prolific innovation continues to be a key enabler of our strategy to access these attractive occasions hostess was a number one innovator in sweet baked goods category, but 'twenty, one 'twenty two and with over one five times share of innovation dollars relative to our overall market share we continue to over index on.
Innovation in the second quarter, driven by the launch of hostess Casbah bars, which started shipping in late Q1 initial performance continues to be highly encouraging with both distribution and velocity is trending in line with our high expectations.
As far as also is receiving high praise from consumers with initial positive feedback that some of the highest levels. Among all of our recently launched innovations such as baby bonds and other highly successful in category expanding launches.
<unk> is the standout innovation in sweet baked goods category in 2023 and is getting strong support from our retailer partners as we continue to build on our track record of bringing excitement and news to the category in the first half along with Kashi bars, we have reduced old fashion Donuts and chocolate baby bonds under the hostess.
<unk> brand and rebranded our Workman sugar free cookie and wafer product lines to zero sugar expanding its appeal to a wider consumer demographic and increasing taste perceptions and initial results are terrific.
Hostess brands family packs are generating high velocities repeat purchases and instrumentality as we profitably deliver value to customers with strong support from our retail customers. We are extending patently packs to our other iconic brands, including coffee cakes and baby products.
We continue to support our innovation as well as core portfolio through high ROI marketing and advertising second quarter A&M was up nearly 30% as we shifted some of our planned spend to the second quarter behind <unk> in late June we launched our national digital campaign for <unk>.
Our focus on driving awareness through digital video social media E Commerce and retail media. We continue to believe that a N M investments are a key component of our growth strategy and critical to attract millennial parents to the hostess brand and increased share of overall snacking.
As we continue to bring growth innovation and excitement to the category I believe our growth partnerships with key retail customers has never been stronger.
Our multi tiered approach to drive greater availability throughout the store and win additional permanent and temporary temporary displays is beginning to pay off we are getting additional merchandising opportunities in gaming tdp's at a faster rate than the overall category.
Recent shelf space resets in many of our large customers are leading to favorable plan a gram changes and additional front end distribution for us, which is very attractive for our impulse driven snacking portfolio.
During the second quarter, the timing of the impact of our growth in customer initiatives varied across retailers.
We expect these initiatives to have a bigger impact on our sales in the second half our shipments are up meaningfully in July reinforcing our confidence in our second half volume expectations.
Though the timing and flow through of competitor pricing and merchandising is creating some short term noise I am confident that our year to go promotion and merchant merchandising activity will drive growth as a reminder, promotion levels in the back half of last year were below historical levels.
As planned our activities include a stronger back to school program and a return to more historical frequency in the second half we continue to monitor the competitive landscape and will adjust our programming and events as needed in this dynamic environment.
We continue to refine and optimize our rgs toolkit to make our overall trade spending more efficient and further strengthen our attractive value proposition for our consumers and seeing good initial evidence. These programs are working.
As I look to the second half we are executing at a high level I am very confident in our team's ability to deliver strong volume driven growth as our innovation higher advertising support and strong retail execution becomes more evident as we fully lap the volume impact from last year's multiple pricing actions.
And the distortion caused by strong execution and last year's dynamic competitive environment.
In addition, our dedicated and talented workforce is driving significant improvements across the supply chain and advancing our productivity agenda to enable us to raise our EBITDA and EPS guidance at.
At hostess brands, we remain focused on growing the right way over the long term, we are making good progress on our corporate responsibility initiatives and released our most recent corporate responsibility report in late June , which reaffirms, our tangible commitments to our stakeholders, including communities in which we live and work.
Attaining our key corporate responsibility goals is an important component of the strategic objectives of our executive team with direct oversight from our board of directors.
In summary, I am pleased with our first half performance, while the consumer environment remains dynamic we are confident of strong second half growth enabled enabling us to raise our full year adjusted EBITDA and EPS guidance, our strong execution of growth fundamentals and customer partnerships support.
Our second half volume expectations and enable us to reaffirm our full year top line guidance.
We continue to execute on our strategic priorities and are well positioned to deliver long term sustainable growth and shareholder value with that let me turn it over to Travis that goes through the quarterly financial results and our reaffirmed outlook in greater detail.
Thanks, Andy I will start with a review of our top line results.
Organic net revenue for the second quarter increased three 5% to $352 4 million driven primarily by price mix as we benefited from favorable net price realization.
Price mix contributed 10, 4% to the quarterly net revenue growth, partially offset by six 9% decline from lower volume.
Our net revenue growth was driven by four 6% growth in the sweet baked goods portfolio, which accounts for nearly 90% of our total net revenue, while our cookie portfolio declined by five 9% after lapping 27, 6% growth a year ago.
Switching to retail sales trends, our Nielsen measured sweet baked goods point of sale increased by two 9% for the 13 week period ending July one.
While our U S. Cookie point of sale increased by seven 2% in the period, both lapping last year's strong growth.
On a two year stack basis, our sweet baked good retail sales were up 18, 5% in the quarter and Boardman growth was even stronger at 32, 2% driven by our continued momentum and the zero sugar subsegment.
In the 13 weeks ended July one 2023, our share of the sweet baked goods category dollar sales declined by 93 basis points to 28%.
While bornemann share of the Cookie category was relatively flat at two 1%.
We have a strong foundation with the right capabilities to drive our category growth strategy, which provides us the confidence we can continue to grow market share overtime.
Our net revenue growth was ahead of our retail takeaway growth this quarter due to growth in our non tracked channels as well as timing of shipments, which expect to normalize over time.
Our single serve Pos increased by three 7% during the quarter, while our multipack offerings grew by two 2% as both lapped high teens growth in the year ago period.
Moving to the rest of the P&L.
Adjusted gross profit of $126 4 million increased by 12, 1% driven by favorable net price realization.
Normalizing supply chain versus the fragility, we experienced last year and productivity benefit was more than offset high single digit inflation and lower volume.
Adjusted gross margin of 35, 9% improved by 275 basis points from the year ago period.
Adjusted EBITDA increased by 16, 1% to $80.0 million in the quarter, primarily driven by higher gross profit adjust.
Adjusted EBITDA margin increased by 247 basis points to 22, 7% for the quarter.
Our adjusted operating expenses increased by 21% to $62 1 million due to the planned increase in advertising and marketing investments, partially offset by lower G&A costs.
Advertising and marketing spend increased by 29, 5% to $22 million in the quarter to support both our innovation and our core portfolio.
Our effective tax rate, excluding discrete items was 27, 3% consistent with the prior year quarter and largely in line with our 27% outlook for the full year.
Adjusted net income of $37 7 million for the quarter increased 23, 6% as compared to the prior year period, driven by higher EBITDA.
Adjusted earnings per share of 28 increased 27, 3% driven by higher profitability in the current quarter and lower average shares outstanding.
At the end of the quarter, we had cash and cash equivalents of $99 4 million and net debt of $885 6 million with a net debt leverage ratio of two nine times.
Our capital deployment strategy continues to include returning capital to shareholders through opportunistic share repurchases year to date, we repurchased shares for an aggregate purchase price of $19 4 million <unk>.
Additionally, as Andy mentioned during the second quarter, we refinance our first lien credit agreement.
The new agreement extends the maturity of our term loan which represents one of the most favorably priced loans recently issued for our ratings category and increases the capacity of our revolving credit facility.
We have also maintained our existing interest rate swaps as a result, there is minimal impact to our expected effective interest rate following the refinancing.
We believe this was a critical step in continuing that disciplined management of our capital structure and provides balance sheet stability as we continue to drive growth in the business.
Turning to our outlook for the year, given our first half results and visibility to the second half we are reaffirming our full year top line guidance and raising our EBITDA and EPS guidance towards the higher end of our previous guidance ranges.
Our full year net revenue growth outlook of 4% to 6% remains unchanged. However, we now expect full year volume to be down slightly relative to previous expectations of relatively flat, which is expected to be offset by stronger net price realization.
As Andy mentioned, our second half volume expectations remain largely unchanged.
Our growth in customer initiatives, which had a lower than expected impact and some retailers in the second quarter are expected to have a sequentially bigger impact on our second half volume.
Evidenced by meaningful step up in our July shipment trends ahead of the key back to school event.
In addition, we expect continued contributions from our category leading innovation.
The deployment of our brand building and M investments and benefit of lapping significant prior year pricing in the back half of the year.
We now expect adjusted EBITDA towards the higher end of our $315 million to $325 million range and adjusted EPS towards the higher end of our $1 eight.
Two $1 13 per share range delivering above our long term algorithm profit growth.
Given the strong contribution of revenue growth management and productivity initiatives in the first half we now expect our full year gross margin to improve by 40 to 50 basis points over prior year, including the anticipated headwinds from the Arkadelphia bakery startup.
Which approximately $5 million expected to be one time.
We continue to expect high single digit inflation for the full year was moderating headwinds in the second half.
Insistent with our forward buying strategy our market traded commodities are fully covered for the year.
Our productivity initiatives, which we refer to as fuel continue to be a key driver of our margin recovery, we have a pipeline of initiatives to drive efficiencies provide quote fuel for our top line growth, while supporting margin expansion to drive stronger profit growth.
As previously discussed we are committed to supporting both our innovation and core with higher advertising and marketing investments, which we anticipate will continue to increase faster than our revenue growth. We expect our full year G&A cost to be lower in 2023 driving positive operating leverage.
2023 capital expenditures are still expected to be in the range of 150 million to <unk> $170 million, including the investments in our new Arkadelphia bakery, which remains on track to begin production in the fourth quarter we.
We expect to return to our track record of strong free cash flow generation as our Capex begins to normalize in 2024 combined with continued profit growth.
Given our strong operating cash flow and absent any M&A, we continue to anticipate our leverage ratio to be below three times at the end of 2023.
I am proud of our team's ability to continue to deliver attractive long term growth as we build a premier pure play Snacking company.
With that I will turn it back to Andy for closing comments. Thanks.
Thanks Travis.
Once again, I would like to close by thanking and congratulating the talented hostess brands team, who put their hearts into everything they do and continue to execute at a high level.
We are well positioned to deliver another year of strong results with above algorithm profits and continue our track record of generating sustained profitable growth and leading shareholder value with that we're ready for your questions.
Thank you at this time, we'll be conducting a question and answer session.
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Our first question comes from Jim Solera with Stephens. Please proceed with your question.
Good afternoon. This is Jonathan on for Jim.
Okay.
Hey, David can you speak up a little bit.
Is that better.
Yeah perfect. Thanks.
Yeah on the Cosmos rollout could you maybe talk a little bit more about what the response has been from retailers.
Any color you can provide on indoors in store displays that would be great. Thanks.
Yeah, we feel really good in general we feel good about our back half in store display stepping up both in convenience and in.
And great growth all of our channels. So we feel good about that as we move into the back half program. You know innovation is a strength of this business as we activate our long term growth strategy, we've never stopped with that through the time CAD as far as another iteration of that the enthusiasm behind our customer base was extremely strong.
So to support was good distribution and velocities are as I mentioned in my prepared remarks are at our very high expectations. As we went in and Thats you know Thats just one of them, we rebranded our Boardman zero sugar line and velocities are performing.
Performing extremely well there we had old fashion Donuts weird chocolate baby bonds. So the portfolio of our business is performing extremely well and cast parts is another iteration of that as you think about the 65 billion dollar addressable market in which we compete innovation is a big part of that because understanding the attributes consumers are looking for.
For in a broader snacking universe is very important for our ability to be able to innovate give them those attributes and therefore expand the consideration sets of consumers in the baked goods in total and baking is performing extremely well and snacking that's going to continue our strategies are designed to capture that market and <unk> is a very good example of that that <unk>.
<unk>, she could work and it's working well.
Great. Thank you so much and then for the follow up could you maybe discuss some of the headwinds that are impacting that could keep part of the portfolio.
Is it primarily demand elasticity from pricing or are there other dynamics at play.
Well the cookie category, our cookie category continues to perform.
Our cookie business performed well in the overall category you know, it's an $8 billion category were about a $2 one share we're in.
Have a very strong position in the a reduced sugar zero sugar sub segment of that which is growing at a greater rate on a two year stack basis, our <unk> business is nearly 30.
Is 32%.
Growth and in this quarter, we grew at 7%. So we feel really good about our position within Borkman. We continue to drive awareness, we continue to partner with customers to drive its important within the category that is.
It is enhancing and is very strong and so I feel good about borkman now we have moved through some pricing there are some other things.
Obviously actively manage the portfolio, but the underlying health of the <unk> business is extremely strong as we continue to grow into a large eight.
$8 billion total cookie category.
Great. Thank you so much I'll pass it along.
Thanks, Jonathan.
Our next question is from Ken Goldman with J P. Morgan. Please proceed with your question.
Hi, Thanks, so much.
Just curious how you are looking at your consumption trends on shelf versus your expectations. You mentioned that shipments are doing great in June to July and I guess, that's really what matters, but just in terms of on shelf.
Market share I think.
Perhaps you might have.
I'm not trying to put words in your mouth hope that you'd be retaking share at least that your main competitor wouldn't still be taking share by now or at least that's the sense I got so just wanted to make sure I'm thinking about that correctly in the scheme of things in terms of end demand.
Yeah, Hey, Ken good to hear from you. Let me there is two parts of that once the share and the others. How do we feel about how we're working at the shelf. So I'll take each of them both of them separately, maybe I'll put them together a little bit.
At a macro level, we're coming through our customer resets.
Most of our program a partnership for the year in our category in Sweet baked goods, mostly happens in the spring. If you look at the data there we feel really good about coming out of there our share of the shelf. This the permanent shelf has increased as we come out of there as we mentioned in the prepared remarks, we did expect that.
Timing of some of those impacts would be greater we see some customers that are actually performing very well executed early some of them have lag, but overall, our partnerships with our customers their support and enthusiasm around our innovation.
<unk> support.
And finish Azzam ran the insights that we bring them our continued support of category growth via increasing in our advertising and our investments in quality. So our partnerships I think with our customer is broad based across channels is a strength of this business and has never been stronger and we see that from their support of increasing our share.
Of the merchandising so the timing of that we believe will be more impactful in the back half, but it is very strong now related to your comment on share absolutely as you know and I've mentioned before and I understand the spirit of bringing up share because I grew up in categories, where share was more important than potentially it is here, but I.
You always want to see a positive and you don't like to see it negative, but we compete in indulgent snacking and a $65 billion.
Huge user base, which is interchangeable and we can grow the pie and the fact that we're able to see sweet baked goods, who experience really high pricing and a sharper period of time that a lot of the category and grow overall, our percentage of dollars and that is really a testament to the strength of baking and therefore.
<unk> ability to get share of dollars within that total category. So it is important but it's not important in this category, we don't like to see it negative, but it doesn't undermined our strategies and our ability to be able to continue to grow which we're staying on top of we're growing the share of Tvs, we're going to be continue to be number one in innovation, we're going to invest in our.
Quality, and we're going to invest in high ROI advertising and underlying the partnerships with our customers. We believe that will play well over time. So yes, we won't share to grow but we believe we're in a good position to deliver our back half as we communicated and overtime. We expect if we continue to do that which we think we're positioned to do well share will take care of it.
<unk>.
I'll pass it on thank you.
Thanks, Ken.
Yes.
Our next question is from Rob Dickerson with Jefferies. Please proceed with your question.
Oh, great. Thanks, so much.
I guess I just have a question.
Around the back half in terms of price mix relative to volume I mean, clearly youre, stating pretty explicitly.
Shipments were very strong in.
In July you really expect a material thing you said that a couple of times improvement in the back half.
But then I also thought I heard you say maybe volumes for a little bit weaker in the second quarter, maybe pricing was slightly higher than you'd originally expected. So.
If we kind of think through.
The back half of the year is this kind of like if you're willing to provide some incremental color is this kind of two quarters, where we think on average you never getting kind of price mix, maybe around flattish, maybe slightly up but volumes, there's still get to that guy like it sounds like volume should should really accelerate like like nicely.
Positively accelerate so just trying to kind of get some definition on what meaningful means.
Yep.
So as you know we held on to the back half just a couple of things clarity on the second quarter. There was a lot happening in the second quarter related to that is when the customer resets where it happened in the TPP executions were happening we were coming off a large part of the.
Category disruptions on supply chain that hostess, but the category that we benefited from so that was difficult to forecast, but as we move into into July we are seeing strong positive shipments and we feel good about our partnerships with our customers on the back back to school, we will see we do expect to see.
Guide of 40 50 basis points I think it implies essentially.
You know clearly flat to down in the back half.
I'm, not sure kind of cadence of which which which quarter might see a little bit more pressure year over year I mean, it sounds like that's because of.
Preopening costs of Arkadelphia, maybe that's more Q4, and then kind of the core of the question is like if we think forward to you know.
A year excuse me.
Those are just one time costs right. This is in a.
Kind of margin compression dynamic in the back half because of higher promotional expenses. It sounds like it's mostly driven by the new facility.
Is that right.
Yeah, Yeah, that's right. So let me let me take this one and and Andy can chime in as well. So a couple of things. So we are really pleased with our productivity that we've seen in the first half, particularly from our fuel program that I outlined and also our revenue growth management. So as a reminder, these are.
Capabilities that we've been building and are really pleased to see their benefits coming through and the benefits that we received in the first half it's truly what's driving.
Our confidence and increasing our margin expectation for the full year to that 40% to 50 basis points and as you alluded to in the back half we do have our arkadelphia bakery. So that again is it's it's on track it's on time to be to come online in Q4, so that expense is.
Is out there in the back half and as I said in my prepared remarks.
5 million is onetime in nature.
Danny do nothing that's it and we're excited about getting Arkadelphia has come in right on time, we're going we're working to.
<unk>.
Utilizing additional capacity.
Right away.
Perfect. Thank you.
Our next question is from Pamela Kaufman with Morgan Stanley . Please proceed with your question.
Hi, good evening.
Hey, Pat.
Hi, I just have a follow up to Rob's question I wanted to clarify on <unk>.
Your expectations for volumes to be down slightly this year does that assume that volumes are still down in the second half.
No. It does not matter of fact, most for the most part we believe that the second half given the what we've learned as we've gone through.
Q2, we did see some with the consumer the transition timing of what we do lapping out of a lot of the distortion that we saw we saw the majority of that volume impacted a change was really in Q2 and that the enhancements that we've made and the changes that we've made in our program we made in the back half.
For the most part keeps acute back half closer to where we originally expected during our guide so that's the way we're looking at it.
Okay. That's helpful.
And then this quarter. It was obviously very strong gross margin performance that seems to be driving some of your confidence in getting to the higher end of your full year guidance.
How are you thinking about reinvestment into the business.
Got it.
Either marketing or promotional support.
Behind our topline growth.
Yeah, well, we stay we stay on that.
We've been very consistent and I have over five plus years.
This sustainable long term growth of the business and our ability to continue and we've done a nice job. If you take back if you take a step back and look at our two year.
Growth or CAGR on the revenue side is 8%.
Which is in line with top indulgent Snacking said the distortion. We're seeing is real that's right in line in stack with them I think I saw that on your report as well Pam and so we've protected margins very well in this last year as inflation went up probably at a more.
Shorter timeframe for our category versus others. So we're in a good spot for that you bring up a good point, though so how are we thinking that we're balancing long term, but we are taking some of that we've enhanced some of the program in the back half versus year ago, we have incremental frequency on our promotions.
We've invested in data so that we can sharper and including our GM. So we can sharpen our offers to our customers. We're looking at digital overlays that enhance those programs to increase the effectiveness, we partner, where they want and increasing our display activity in the back half. So all those are helping to give us.
As we come off the distortion driven by the customer and the high pricing that we're going to be leading off that in Q3. All of those are part of the equation that are incorporated into our guide.
Thank you that's helpful and just one.
One more question.
I think in the last couple of quarters. Your reported sales growth has been further ahead of what we've seen in the scanner data and I think there was a benefit from inventory movement or easier compares also some benefit from untracked channels.
This quarter it wasn't us.
GAAP. So just wondering if theres anything influencing that and if youre seeing any.
Differences in the performance and on track versus tracked channels.
No I think generally it does I.
I know you track this and we talk about this in a lot of the calls and it does vary from.
On sweet baked goods from quarter to quarter most of the time.
Normalized is we do have a good non tracked channel there are some little things. This year like we see been coming back a little bit higher and there is some benefits from some of our program within non tracked channels.
Over time, we expect the breath of our availability, including in some of the non track to be a strength of the business, but I wouldn't read too much into the variation from quarter to quarter.
Got it thank you.
Thanks Pam.
Yes.
Our next question is from Cody Ross with UBS. Please proceed with your question.
Hi, Thank you Hey.
Hey, how are you.
Thanks for taking our question I wanted to go back to Ken Goldman's question, just around the competitive environment you talked about this a little on the call that you know some of your competitors are getting more promotional than you have seen some share losses, albeit you're above where you were two years ago at what point would you guys consider ratcheting up your promotional stance to protect.
Market share and how are you looking at the competitive environment do you think most of your competitors are rational and do you expect them to you know in the back half of the year.
Yes, certainly is.
Difficult when some when we have such a large disruption due to the supply chain services and coming back into the business. It's difficult to forecast that was certainly true in Q2.
The competition I would say in our category I would say.
I think rational so fine, but very competitive when we take the competition.
Serious.
We want to do is continue to compete aggressively relative to value for the consumer and we believe over time that when we do that when we give them the innovation they want at the quality they want at the best price value. They want and we look at other ways to do that we're in a position we're going to win that is true for our single serve business that's true for our bag Donuts.
It's true for our multi packs and it's also true for our family packs, which are doing very well and we introduced.
About a year ago, and we're continue as we said on the prepared call to expand on that so.
With that being said, we do acknowledge the short term the consumers' appears to becoming more price sensitive in the back half of the year. So we do see that's good that we're kind of lapping the base price, where we are but based on that price sensitivity. The sharpening of the price points and making sure we have them right in the back half the adding the frequency.
The increase in display for a reminder, for everybody out there one of the highest impulse categories. So we expect our shipper shipper at least enthusiasm for our customers and our program is up versus year ago, we expect to be a benefit. So we've allowed in our toolbox to compete.
Both in the short term, but more importantly, continuing to keep our strategies that are going to drive the long term success of the business, but we do.
Similar to what Pam as we do take the short term and making sure we're delivering for our customers and our consumers meeting them, where they are today in the current environment and I think we've done that for the back half.
Got you and then one last question.
Broadly speaking in the industry, we've heard this from some.
On packaged food peers as well as some upped our upstream players.
What are you seeing from a retail inventory perspective.
Are you seeing any.
Retailers decide to lower their inventory levels in an effort to manage their working capital can you just discuss that in a little better I think you're the largest part let me talk about the sweet baked goods the largest part of our category Sweet baked goods has relatively short shelf life.
So for the most part it doesn't it doesn't impact us as much because went by the time, we get it and we manage the shelf inventory for the tern theres not a lot of room for them to manage large days of supply so.
Our Boardman business has a little bit bigger thing but.
The majority of our businesses.
It's not a it's not a it's not really a major factor for our business when I met the segment's bornemann has a larger shelf life, but for the most part for our business inventory is not a large part of our it's not a large part of our business.
Thank you I'll pass it on.
Our next question is from Steve powers with Deutsche Bank. Please proceed with your question.
Hey, great. Thanks.
Thanks, everybody Hey, so.
Just on the promotion discussion picking that up I think you used the word.
Historical frequency or historical cadence.
Your prepared remarks, returning to that historical frequency in the back half.
Well, it's a little perspective on.
Historical.
Depth or historical levels, and how you expect the promotional environment in the back half and going forward to compare not just on a on a cadence basis, but on a on a.
The depth of promotion does that is that also going to return to historical levels or do we think we normalize the slightly less kind of less deep equally equal breadth of promotion if that makes sense.
So theres a couple of things going on here, it's a terrific question.
When we think about merchandising, we're very focused on price point, but also driving display from that price point. So both of them matter, we have tools to be able to do that with <unk> with our partnership with customers on displays et cetera.
So we do have multiple tools related to making sure we are successful.
Merchandising programs.
Related to the frequency there is a there is a longer term frequency that I've referred to in my prepared remarks, and that's the amount of times that we promote during a season last year, we reduced the frequency in the back half mostly in Q4, we took out an entire event and we raised the promoted <unk>.
This points to higher to a higher level that.
Frankly was we.
We believed was too high and we've already adjusted some of that in the front half, but we're going to get the benefit of that where it is.
In the back half where rates. Additionally, by adding the frequency we're getting back to more historical now put this thing all context in a year ago. When we were in our Q4. When we were we were experienced the customer the category disruption due to a competitor.
Wasn't as required need it.
And so we're coming back and adding additional on top of that at more sharper price points that we believe is sustainable it's not going back to the price points.
The depth that we were pre the inflation types. So we're not spending that back we're just getting them to what we believe is the sustainable level.
Okay. Okay.
That's helpful.
Maybe for Andrew for Travis you talked about.
The.
The positive gross margin drivers principally being the productivity momentum and revenue growth management, I guess, I'm curious sort of what's in the guidance what you.
What you were able to achieve in the second quarter extrapolated forward or do you see incremental room for further.
Further productivity or further our GM benefits as time goes on is it are we kind.
Kind of guiding to what you've already achieved carried forward or is there a layer on top of that incremental benefits that you are expecting.
Yes, I think if I think about this year as a pull forward so an acceleration of these initiatives.
Is the way to think about it and but I will tell you as you think about our margins longer term.
Really productivity of our fuel program and revenue growth management are going to be the key linchpins and to driving our continued investment into our business as well as modest modest margin expansion over time.
The only thing I'd add to that is.
Let's put this in context for the maturity of our company. We're in the early stages of this and I'm very proud of the progress. The team has made but that's a good position for our investors because my experience in this industry. There's a long runway for us to continue to drive a pipeline of continuous improvement and efficiency programs at industry accepted margins.
That will drive fuel as we call it to invest into our proven growth strategies that history has proven will work and so we're at the early stages of that so I think there's a good runway for that both in our GM as well as in our productivity initiatives.
Very good thanks again.
Thank you Steve.
Our next question is from Robert Moskow with TD Cowen. Please proceed with your question.
Hi, Rob welcome back Yeah.
Yes.
It feels pretty good.
Good.
But I guess.
My question here.
On one hand.
Today, your marketers have more data than ever to make the right decisions on how deep your promos should go.
But that data is still based on historical patterns and the patterns are moving just really quickly and consumer sentiment is changing really rapidly.
You can't really look at that historical data and and.
Probably find the right price point that you need for these promotions so.
How do you continually adapt to that like are you able to move faster because of that.
The data analytics that you have.
And how do you know with confidence that you've got the right price points right now for the back half of the year.
While you are certainly right I've been doing this for 28 years and certainly as we sit here today, we have more data than we certainly did in every year the tools get sharper and better I.
I will tell you specifically this year, if I implied we looked at too far of a history.
That would be a bad takeaway because even with the agility. We have we've adjusted our enhanced some of our back half program just based on what we're seeing in the first half with both the consumer sensitivity to pricing as we moved in a response to what the customer need. It. So we're looking at that all of the time and trying to make sure that we get.
To the right price for our business that is going to drive us, both sustainably and providing value to the consumer so.
We're not going to say, we're probably any better than anybody else, but we use those tools with everybody else, what we may be better as being more agile and having the strength of our customer partnerships, but we're looking at that all the time, Rob what were seeing right now as I look to the back half of it that I think a consumer that is maybe even more price.
They were maybe even a year ago, I think that puts us positioned well as I said as we sharpen the price points that make sure they're at the right level and we're coming off the pricing, we're adding a frequency I think thats all.
Our family packs are doing well theres a lot of things that can address that sensitivity to the consumer so it's a real time process.
Okay, and just for forecasting can I assume that fourth quarter is when the volume turns.
Positive or do you think both quarters, you could be positive for volume growth.
Well as I said, we need to.
<unk>.
We expect that.
Both quarters to be close to positive and then positive for so and we expect a strong back to school programming and the enthusiasm of our customers as we see shipments early in July are our future to that.
Great. Thank you.
Okay.
Yeah.
Our next question is from David Palmer with Evercore ISI. Please proceed with your question.
Hey, good evening.
Hi, Dave question.
<unk>.
With regard to the volume guidance change is that related to that competitive pricing and promotional activity.
<unk>.
And the fact that hostess was just not going to chase volume and sacrifice profitability too much for that volume.
Well in the second quarter, there was a lot of dynamics going around some of those are forecasting some of those those are timing of a competitor coming back some of it was the consumer component.
And the retailer execution of some of the changes and the TDP. So it was a difficult time for us to forecast. It came out the way. It was when we saw it real time, we adjust it into the back half we didn't over adjust those programs to as you've talked David we're going to we're going to balance making sure. We continue to have the margins, we protect that very well invest back.
The sustainable growth and continue to manage through because we believe the whole portfolio of I won't go through it again of that are driving growth. Both long term and short term are important to keep in balance. So we've adjusted to real time, Q2, which was a little bit below where we expected for those factors and we believe we're set up for the back half.
Yeah.
Almost a.
In need of an education about how things might work in the sweet baked goods category in some categories like <unk>.
<unk>.
Candy for example, there's a lot of the programming that's really set maybe you might even know a full third or 40% of your of your volume what's going to happen with the programs that are in place maybe not even.
For almost the whole year, but is it possible that this category because you have a mixture of small and large DSD, a non DSD that theres a little bit more unknown here.
Or do you feel like maybe you're getting a handle around.
What's coming up yourselves and your competitors.
Such that you, maybe youre going to learn how to not be.
Surprised by what's happening by competitors, So love your thoughts on that.
Well there is this is a unique situation relative to having a.
Competitor with a large disruption in the category related to your customer comment on different categories work differently or the same I'd say they are generally the same but given the dynamics, we're seeing within the consumer or customers are always looking for ideas that how do we then they go to us increasingly I think we have a great partnership and the leadership.
Partnered with with our customers. So if we have the framework of our full year plan, which youre, referring to which every.
Category does in every brand does we certainly do but they are certainly agile as the year goes on as you continue to enhance and drive better merchandising by Brett better displays so any implication in any category and I've been in is that as you start to year everything with the customer is set in stone that's not the cap.
<unk> I've lived and it's certainly not the agility that we respond to with hostess when we see something that can enhance programming for our business and for our customer.
Got it thank you.
Thank you Dave.
We have reached the end of the question and answer session I would now like to turn the call back over to Andy Callahan for closing comments.
Thanks, everyone I appreciate your confidence that you've placed in our team to execute on our plan and drive sustainable profitable growth over time. So thanks for joining the call and we look forward to seeing you in next quarter, where we continue to work hard for everybody on the call and all of our investors and our team.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Today's conference has ended please disconnect your lines. Thank you.