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Wait For A Pullback At Hostess

Beulah Meriam K profile picture
Beulah Meriam K


  • Management changes won't affect the company's focus on deleveraging.
  • Debt ratio is on the decline, and the approach is to deleverage through increasing cash flows.
  • Acquisitions may still be the only way to justify the growth argument, but recent performance has also been impressive.

After coming out of its bankruptcy troubles in 2013, Hostess Brands (NASDAQ:TWNK) has slowly but steadily improved its position in the market. Though the brand's history dates way back to 1919, a lot has changed in the last five years, especially in terms of the management of the company. Other things afoot include a renewed focus on bringing down debt leverage, but by increasing cash flow rather than paying off debt. The key point is that the executive chairman, Dean Metropoulos, is heavily invested in the company and is as focused on deleveraging as the current CEO who is stepping down.

The question: Is Hostess as an investment considering what's happening with the numbers and management? I think it is, at a slightly lower price point, and I'll show why recent performance and the leadership's approach to debt management are a big part of that recommendation.

Hostess is now one of the largest packaged food companies in the U.S. focused on developing, manufacturing, marketing, selling and distributing fresh SBG (sweet baked goods.) The company has now climbed the ladder to become the number two brand in the US SBG category.

Source: Hostess Annual Report 2017

Let's take a look at the market conditions surrounding Hostess Brands' business, and how that plays into the company's future growth prospects.

As is the case with much of the packaged goods segment, the top three brands walk away with nearly 60% of SBG retail sales, according to data from Nielsen.

Though there is a huge shift in consumer preference towards healthier products, the market for SBG still exists, and it's not going to vanish. Hostess notes in its annual report:

"According to a July 2016 study by Mintel, convenience and brand preference continue to influence snack selection, as over half of U.S. consumers rate portability as a

This article was written by

Beulah Meriam K profile picture
I do deep-dive analyses into the top companies in multiple segments, including retail, consumer goods and technology.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (3)

I think I read in the past somewhere that Hostess was looking to expand their portfolio of healthier baked goods. Is there any progress that has been made on this front?
Just a comment and maybe you can help me. I’ve invested in Hostess in the past and made a small profit, but I got out when I heard that they had given up their distribution rights outside of US markets and only marketed in America. Is this correct?
Wait for a pullback! When has there been any kind of stock appreciation?
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