Hostess Brands — Investor Presentation (June 2017)
50 slides from Hostess Brands's investor presentation, Jun 28, 2017
Slide 1: Hostess Brands June 2017
1 ® HOSTESS BRANDS June 2017
Slide 2: Disclaimers
® 2 DISCLAIMERS Forward Looking Statements This investor presentation contains statements reflecting our views about our future performance that constitute “forward-looking statements” that involve substantial risks and uncertainties. Forward-looking statements are generally identified through the i
Slide 3: Agenda
AGENDA 1 COMPANY OVERVIEW 2 SALES & DISTRIBUTION 3 MARKETING 4 OPERATIONS 5 INNOVATION & QUALITY 6 FINANCIAL UPDATE APPENDIX 3
Slide 4: Company Overview
COMPANY OVERVIEW Bill Toler, President & CEO 1 ® 4
Slide 5: Experienced Senior Leadership
Dean Metropoulos Executive Chairman Bill Toler President & CEO Tom Peterson EVP & CFO Michael Cramer EVP & Chief Administrative Officer Andrew Jacobs EVP & Chief Commercial Officer Stuart Wilcox SVP & COO Burke Raine SVP & CMO Jolyn Sebree SVP, General Counsel & Corporate Secretary Darryl Riley SVP,
Slide 6: Hostess Brands at a Glance
® 6 Kansas City, MO Product portfolio with numerous iconic brands #2 market position in $6.55bn Sweet Baked Goods category Modern and efficient national manufacturing system Direct to Warehouse distribution model driving industry leading profitability Proven platform with multiple avenues of growth
Slide 7: Strong Market Position in Key Segments
® STRONG MARKET POSITION IN KEY SEGMENTS 7 Pies, Bars & Other $452M $305M Blondies, Brownies $794M SBG Cookies Breakfast pastries, Danish $1.3B Danish, Honey Buns, Sweet Rolls Mini and Jumbo Muffins $492M Muffins Donuts $1.5B Donettes Snack Cakes $1.8B Twinkies®, Zingers®, CupCakes, Ding Dongs®, Ho
Slide 8: Trends in Sweet Baked Goods
® TRENDS IN SWEET BAKED GOODS 8 Total Sweet Baked Goods Category Trends are softer than year ago Category declined 0.2% in June; YTD category sales declined 1.6% to year ago Hostess was able to maintain positive POS even with significant category declines in May High year-ago volume hurdles ca
Slide 9: Sources of Growth
® SOURCES OF GROWTH 9 Innovation 2014 Whitespace 2020 Distribution 10%+ TPD Growth
Slide 10: Whitespace Opportunity
® WHITESPACE OPPORTUNITY In-Store Bakery (sweets) is an $8.2 billion category 10 Source: Note: Nielsen Perishable Group, In-Store Bakery, 52 weeks ending 12/31/16. Total In-Store Bakery was $11.6 Billion for 52 weeks ending 12/31/16. ISB – $ Share 30% Breakfast Bakery 70% Desserts and Sweet Snacks
Slide 11: Sales & Distribution
SALES & DISTRIBUTION Andy Jacobs, EVP & Chief Commercial Officer 2 ® 11
Slide 12: DTW Distribution Driving Channel Penetration
DTW DISTRIBUTION DRIVING CHANNEL PENETRATION Competitively advantaged business model Warehouse model Close partnerships with third party distributors Enhanced in-store merchandising capabilities Compelling retailer economics Expanded distribution reach ® 12
Slide 13: DTW Distribution Driving Channel Penetration: Share of Retail Sales
® DTW DISTRIBUTION DRIVING CHANNEL PENETRATION 13 Hostess Share of Retail Sales – Small Formats $88M $2.3B $324M 52-Wks Ended 6/17/17 OldCo Total Category Size 26.3% 0.9% 48.1% 22.1% 21.4% Total US Drug Total US Dollar Total US Convenience 20.3% 19.1% 1.7% 0.9% 17.0% 33.2% 12.7% Total US Club Total
Slide 14: Mass Channel
® 14 Nielsen LTM Dollar Share 17.0%, up +102 bps vs YA (OldCo 20.3%) Total Points of Distribution gain 9.3% vs YA Single serve racks at speedy check lane “PDQ” pallet program Frozen Ding Dong® Lava Cake Acosta retail merchandising Source: Nielsen Combined Mass Retailers, 52 weeks ending
Slide 15: Food Channel
® 15 Nielsen LTM Dollar Share 12.7%, up +106 bps vs YA (OldCo 19.1%) Total Points of Distribution gain +16.4% vs YA Full seasonal & LTO display program Single serve display racks Acosta dedicated retail team Growing ISB business Source: Nielsen, Total US Food, 52 weeks ending 6/17/17. FO
Slide 16: Convenience and Drug Store Channels
® 16 Nielsen LTM Convenience Dollar Share 21.4%, up +128 bps vs YA (OldCo 33.2%); Drug Store 48.1% share, up +102 bps vs YA Convenience Points of Distribution gain +12.4% vs YA; Drug Store Points of Distribution gain +2.4% vs YA Strong distributor partnerships support DTW in C-store & Drug H
Slide 17: Dollar & Club Channels
® DOLLAR & CLUB CHANNELS 17 Nielsen LTM Dollar Channel Share 22.1%, up +454 bps vs YA (OldCo only 0.9% share) Dollar Total Points of Distribution gain +28.5% vs YA Permanent displays in 17,000+ stores; Full Seasonal program Extended distribution on Twinkies® & Cupcakes Variety Pack in select
Slide 18: White Space
® 18 Cash „n Carry: Distribution in over 100+ Cash N Carry distributors International: Launched Dolly Madison® brand in Canada via DSD partnership with National Brands Expanding third party distribution with major retailers in Mexico & UK Food Service: Strong partnership with McCain; Long John
Slide 19: White Space: In-Store Bakery
® 19 Éclairs & Crème Puffs Madeleines Brownie Bites® Iced Cookies Hostess Bake Shop™ Introduced Hostess Bake Shop™ Providing “Made With” for retailer own labels Launching incremental innovation in new forms Fully integrated sales organization Utilizing Acosta Pies WHITE SPACE: IN-STORE BAK
Slide 20: Marketing
MARKETING Burke Raine, SVP & Chief Marketing Officer 3 ® 20
Slide 21: Innovation Is Central to Growth
INNOVATION IS CENTRAL TO GROWTH ® 21
Slide 22: Our Newest Ding Dong Innovation
® 22 OUR NEWEST DING DONG® INNOVATION: ® Business Insight: • White Fudge is a $200MM+ subcategory in SBG in which Hostess did not participate (1) Consumer Insight: • White Fudge Ding Dongs® scored in the top quartile of innovation concepts (2) covered GOLDEN CAKE with filling. (1) Source: AC Nielsen
Slide 23: Chocolate and Peanut Butter: Iconic Flavor Combination
® 23 CHOCOLATE AND PEANUT BUTTER: ICONIC FLAVOR COMBINATION Business Insight: • Peanut Butter is large subcategory within SBG where Hostess did not participate (1) Consumer Insight: • The #1 new flavor pairing we see in consumer testing is chocolate and peanut butter: iconic (2) CHOCOLATE CAKE and b
Slide 24: Twinkies Meet Chocolate in Two Delicious Ways
® 24 TWINKIES® MEET CHOCOLATE IN TWO DELICIOUS WAYS Business Insight: • Twinkies® is a peerless brand with significant potential to stretch (1) Consumer Insight: • Consumers love our limited time flavors and are excited to try new varieties of Twinkies® (2) • Chocolate scored very high on purchase i
Slide 25: Doubling Down on Our Leadership Positions in Breakfast
® 25 DOUBLING DOWN ON OUR LEADERSHIP POSITIONS IN BREAKFAST Business Insight: • Hostess has the #1 mini donut in SBG with the highest velocities in the set (1) • Hostess also has the top- selling Coffee Cake in the industry (1) Consumer Insight: • Cinnamon was a void flavor profile for Donettes® (2)
Slide 26: Coming Soon in the Freezer Aisle: Molten Lava Ding Dongs
® 26 COMING SOON IN THE FREEZER AISLE: New Hostess Molten Lava Ding Dongs® Business Insight: • Ding Dongs® brand is growing well above category (1) • Can create a brand block with our Deep Fried Twinkies® launched last year Consumer Insight: • Molten Lava cakes a well- known dessert item (2) • Micro
Slide 27: Operations
® 27 OPERATIONS Stuart Wilcox, EVP & Chief Operating Officer 4
Slide 28: Efficient and Scalable Manufacturing
® EFFICIENT AND SCALABLE MANUFACTURING Direct-To-Warehouse Distribution 28 (1) (2) ISB consists of Superior, which we purchased in May 2016, and which manufactures and distributes eclairs, madeleines, brownies, and iced cookies in the ISB section of grocery and club retailers. From 2013 acquisition
Slide 29: Operations Strategy: Asset Capabilities
~ 60% of Total Volume Highly Automated High Volume, lower cost Fill Plant Capacity Zingers® Fudge Covered Ding Dongs® Coffee Cakes Mini Muffins Eclairs/Crème Puffs Madeleine/Brownies Cookies ~ 28% of Total Volume Flexible Hybrid Flexible Packaging Over Capacity Outlet ~ 8% of Total Volume Peanut But
Slide 30: Operations Strategy: Beyond a Distribution Center
– Beyond a Distribution Center – Competitive Advantage – Significant amount of total Volume in “value-added” displays – High Volume, lower cost Display Pallets PDQs Turn warehouse within 7 days – New Product Speed to Market – Leverage External Partnerships – Minimize New Product Introduction Risk OP
Slide 31: Innovation & Quality
INNOVATION & QUALITY Darryl Riley, SVP Quality/ Food Safety and Research & Development 5 ® 31
Slide 32: Innovation & White Space Development
INNOVATION & WHITE SPACE DEVELOPMENT Driven by an entrepreneurial mindset Opportunity and demand from retailers, consumers, and customers fuels our strategic approach to innovation. Idea / Concept R&D / Product Development Supply Chain Sales & Marketing ® 32
Slide 33: Quality and Food Safety Management
QUALITY AND FOOD SAFETY MANAGEMENT Defined strategy focuses effort against structure, systems, and engaging the culture Hostess Brands Food Safety Audit GMPs HACCP Raw material control Pest control Hygienic design Sanitation Micro biology analysis Environmental monitoring Infrastru
Slide 34: Financial Update
FINANCIAL UPDATE Tom Peterson, EVP & Chief Financial Officer 6 ® 34
Slide 35: Capital Expenditure Outlook
CAPITAL EXPENDITURE OUTLOOK We continue to support our growth with capital expenditures and expect $30 - $40 million in each of 2017 and 2018: 2017 2018 ® 35 Packaging Flexibility ½ of New Cake Line Peanut Butter & New Product Support Cupcake Line Automation ½ of Emporia Warehouse Expansio
Slide 36: Margin Stability with Product Mix Challenges
MARGIN STABILITY WITH PRODUCT MIX CHALLENGES Have established an Operations Productivity Plan Continue to invest in Automation Opportunities ® 36 As Hostess pursues growth opportunities, we are focused on growing total EBITDA dollars Building on our established margin structure, we
Slide 37: Capital Structure Update – Q2 2017
CAPITAL STRUCTURE UPDATE – Q2 2017 ® 37 (1) Based upon information through June 26, 2017 Repriced First Lien Term Loan to decrease LIBOR spread by 50bps (second time in six months) Entered into interest rate swap to fix a portion of variable rate risk Expect 2017 interest expense to be between
Slide 38: Concluding Remarks
CONCLUDING REMARKS Differentiated Business Model Drives Continued Growth Hostess is well positioned for future growth… Warehouse distribution unique in SBG category Supports strength of innovation pipeline and speed-to-market Compelling opportunity for continued market share and volume gains across
Slide 39: Appendix
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Slide 40: Net Income to Adjusted EBITDA Reconciliation
$ in millions Successor 4-Nov-16 to 31-Dec-16 Predecessor 1-Jan-16 to 3-Nov-16 Pro Forma Combined, Year Ended 31-Dec-16 Year Ended 31-Dec-15 Year Ended 31-Dec-14 Net income (loss) ($8.5) $60.4 $82.4 $88.8 $81.5 Plus non-GAAP adjustments: Income tax provision (7.8) 0.4 32.9 – – Interest expense, net
Slide 41: Hostess Non-GAAP Reconciliations: Adjusted EBITDA Footnotes
HOSTESS NON-GAAP RECONCILIATIONS Adjusted EBITDA Footnotes from prior page: (1) For the Successor period November 4, 2016 through December 31, 2016 and pro forma combined year ended December 31, 2016, we recorded a gain on extinguishment of Former First Lien of $0.8 million, which consisted of penal
Slide 42: Hostess Non-GAAP Reconciliations: Adjusted Gross Profit
HOSTESS NON-GAAP RECONCILIATIONS Adjusted Gross Profit ® 42 $ in millions Successor 4-Nov-16 to 31-Dec-16 Predecessor 1-Jan-16 to 3-Nov-16 Pro Forma Combined, Year Ended 31-Dec-16 Year Ended 31-Dec-15 Year Ended 31-Dec-14 Net revenue $112.0 $615.6 $727.6 $620.8 $554.7 Cost of goods sold 73.3 346.9 4
Slide 43: Warrant Impact on Equity
® WARRANT IMPACT ON EQUITY 43 Note: (1) (2) (3) (4) All dilution and repurchase information is for illustration only. Actual could differ from illustration. Based on information through June 26, 2017. For any 20 trading days within a 30 trading day period ending on the third business day before the
Slide 44: Glossary
® GLOSSARY 44 Term Definition BFY Better-for-you ISB In-store bakery SBG Sweet baked goods SKU Stock keeping unit
Slide 45: Donettes Production Line: Emporia
Frosted | Crunch | Double Chocolate | Powdered | Glaze • 100% of Hostess Single Serve donettes come from these two lines • Historical donettes innovation focused on bag donut packaging format. New in 2017, extending seasonal program to Single Serve format with Counter Unit displays. • Valentine • Re
Slide 46: Donettes Production Line: Columbus
Powdered | Frosted • Limited changeovers on Emporia bag donut lines allow for long efficient runs to deliver cost performance. Powdered line never changes variety. • Donette innovation product development centered in the Columbus bakery which has two donut lines capable of making all donut varieties
Slide 47: Cake Line Production Capabilities
1,000 lbs. Capabilities includes swirled batter, pre-baked toppings, icings, post-bake toppings and structured for additional capabilities Coffee Cake | Brownies | SnoBalls | Zingers • Highly diverse and capable line that can produce the majority of our core cake items, including Twinkie and CupCake
Slide 48: Twinkie Production Line
Dedicated line for Twinkie® product form At any given time, 15K Twinkies are in the oven and 35K are cooling for a total of 50K Twinkies in the Autobake system Original | Chocolate | Banana 1,123 Avg. pieces produced per minute PRODUCTION LINE STATS KEY INVESTMENTS • Our first Autobake line, install
Slide 49: Cupcake Production Line
• High level of new item activity as every seasonal LTO offering has at least one Cupcake flavor. 1,038 Chocolate | Golden | Orange Avg. pieces produced per minute KEY INVESTMENTS • Two phased investment for Cupcake automation to deliver cost savings. • Phase I: Automated carton packing, case packin
Slide 50: Distribution & Transportation Capabilities
DISTRIBUTION & TRANSPORTATION CAPABILITIES • Distribution Locations • Fresh -- Shorewood, IL • Frozen --Carthage, MO • Frozen ISB – Worcester & Westfield, MA • Direct ship capabilities from bakeries and co-manufacturers • 100% common carrier utilization---no corporate-owned assets • Flexible and Sca