Q4 Earnings Recap: TWNK

Now that Q4 earnings season is approaching its end and Q1 will begin ramping up before we know it, I wanted to provide a recap of earnings of stocks I’ve favorably mentioned here.

Hostess reported Q4 EBITDA of $58MM, in-line with street expectations. However, sentiment on the stock was very low and ~15% of the float was sold short which resulted in a significant pop in the stock. EBITDA guidance came in slightly light of expectations, at $225MM at mid-point, but part of the reason is due to a bolt-on acquisition which bring in Big Texas and Cloverhill brands to the current portfolio. The business will be initially dilutive by ~$20MM as the former parent was having operational and recall issues. It used to do sales of $175MM and $25MM of EBITDA. Hostess expects it to contribute $65MM while they turn it around and generate at least $20MM of EBITDA by 2020. Since they only paid $25MM for this assets  and since it provides them greater access to the vending, cash & carry and independent convenience stores channels, it seems like a solid strategic buy in an expensive market.

Bottom line: The core business is doing fine, Hostess continues to generate significant FCF, and it’s allocating capital in a smart way. I still think the stock is worth >$20, which is at least 40% upside to today’s levels.

Also note, based on my estimates, by year-end 2019 the company will have >$300MM of cash on the balance sheet. It won’t just sit on that cash, it will either do more acquisitions, buy back stock, or maybe further in the future, initiate a dividend.

Hostess Model Snapshot

One response to “Q4 Earnings Recap: TWNK

  1. Pingback: Poor timing on TWNK… Still see the light at the end of tunnel. Q2’18 Recap | Diligent Dollar·

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