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Hostess Brands, Inc. (TWNK) Q1 2020 Earnings Call Transcript

By Motley Fool Transcribers - May 9, 2020 at 6:30PM

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TWNK earnings call for the period ending March 31, 2020.

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Hostess Brands, Inc. (TWNK 0.78%)
Q1 2020 Earnings Call
May 9, 2020, 8:30 p.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Greetings and welcome to the Hostess Brands' First Quarter 2020 Earnings Conference Call. I would now like to turn the call over to Katie Turner for opening remarks. Please go ahead.

Katie Turner -- Investor Relations

Thank you. Good morning and welcome to Hostess Brands' First Quarter 2020 Earnings Conference Call. Joining me on today's call are Andy Callahan, Hostess Brands', President and CEO; and Brian Purcell, Chief Financial Officer. By now, everyone should have access to the earnings release for the period ending March 31st, 2020 that went out this morning at approximately 7:00 AM Eastern Time.

The press release and an updated investor presentation are available on Hostess' website at This call is being webcast and a replay will be available on the Company's website. Hostess would like to remind you that today's discussion will include a number of forward-looking statements. If you refer to Hostess' earnings release as well as the Company's most recent SEC filings, you will see a discussion of factors that could cause the Company's actual results to differ materially from these forward-looking statements.

Please remember that the Company undertakes no obligation to update or revise these forward-looking statements. The Company will also make a number of references to non-GAAP financial measures. The Company believes these measures provide investors with useful perspective on the underlying growth trend of the business and it has included in its earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures.

And now, I'd like to turn the call over Andy Callahan.

Andrew P. Callahan -- President and Chief Executive Officer

Thank you, Katie, and good morning. We appreciate you joining us today. Before I get into our first quarter 2020 results, I would like to comment on the COVID-19 global health crisis. First and foremost, our thoughts go out to all of those affected by the COVID-19 virus.

On behalf of the Hostess Brands' Board of Directors and leadership team, I would like to offer our support for safe recovery of everyone impacted. Additionally, I would like to extend my sincerest thank you to everyone on the frontlines in this battle against COVID-19, including those in the healthcare community helping those affected, as well as the many people that are working tirelessly to keep essential business going and keeping us all safe and nursed [Phonetic] physically and emotionally.

I've witnessed this truly remarkable dedication and commitment from the incredible, talented Hostess team and partners. This includes our devoted employees working in our manufacturing and distribution facilities and our retail supply chain partners on the roads and in the stores with our valued customers.

We appreciate the sacrifices and dedications of so many who are hoping to serve our consumers and communities in which we live. In mid-February, we charted a COVID-19 task force headed by me, meeting daily, with a goal of staying nimble and informed as we navigated this pandemic.

One of our first task was to reinforce our values and priorities to guide decision-making. Our number one priority has been ensuring the health and safety of our employees, their families and the communities we serve.

Our second priority is to continue serving our customers and consumers. And third, positioning Hostess to emerge as stronger and more resilient Company. We have a tremendous responsibility at Hostess to our employees, their families and the communities we operate in. This is a responsibility we do not take lightly.

Over the past 12 weeks, we have been steered by the CDC guidelines and industry best practices and have consistently implemented procedures and work practices in line or before these recommendations are released. Our manufacturing and distribution facilities have remained operational to serve our customers and bring consumers to comfort and joy of Hostess during this difficult and uncertain times.

The changes we made across our network are significant. We continue to actively monitor and develop action plans to ensure we are appropriately adapting to the current environment. We have implemented additional safety protocols and procedures to support the health and well-being of our employees, including incremental sanitation breaks and COVID-19 cleaning protocols above our already robust traditional food sanitation protocols, installed additional sanitation stations within the bakeries, provided temperature and health surveys readings at every facility in our network, provided base coverage for all employees, installed safety glass, plexiglass dividers at critical locations on the lines and break facilities and modified production schedules to support distancing and eliminate density.

We are also supporting our team by paying for COVID-19 tests, providing supplemental payment benefits to support our workers during this time and extending leave of absence job protection for 30 days. Each of our facilities has been impacted differently based on the mix of demand, local variations in policies and the degree of COVID-19 impact in the community.

For example, our Chicago facilities lines are physically closer together and require more people as compared to our highly automated Emporia Bakery, resulting in more impactful changes to our operating procedures, modifications to the facility to ensure the safety of our employees.

We are continuing to modify our manufacturing supply chain and merchandising priorities to respond to the changing market dynamic. We have prioritized key SKUs and worked with retail partners to minimize out of stock, while also adjusting the timing and nature of trade programs.

We are also making adjustments to our marketing programs to increase our e-commerce footprint, capture consumers digitally during planning and best target anticipated consumer changes. The changes we've made to this point are meaningful and implemented quickly to appropriately address the changing needs of our business.

The timing and magnitude of change for the next phase is uncertain. We are continuing to stay on top of consumer customer changes coming out of this pandemic, and will adapt to meet those future needs. The situation continues to evolve so rapidly that it's difficult to predict the future with reasonable certainty and there are many factors at play. However, we are nimble and informed as the situation progresses to ensure we are appropriately positioned to protect our employees and service our customers.

As we look ahead, we are confident that we can leverage our category leading distribution and availability and our warehouse model to address the changing consumer behaviors to drive accelerated growth as we emerge from the stay at home phase.

Despite the dynamics that developed from COVID-19 outbreak, our team made impressive progress against our stated objectives and I am confident we will emerge an unmistakably stronger and better Hostess. We discussed three focus areas during our February call and despite the disruption, we are at or ahead of all three.

These include executing on the continued growth of core Hostess, completing significant integration activities for the recently acquired Voortman business, and implementing operational improvements. The progress made against these objectives has enabled us to exceed our financial targets for the first quarter.

The initiatives we advanced have strengthened our foundation, and will continue to fuel our sustained profitable growth. A few of the key accomplishments achieved include, net revenue growth of 14.4%, excluding the in-store bakery or ISB business sold in August.

While the Voortman acquisition contributed 8.1% to this growth, our Hostess branded products drove the majority of the 6.3% Sweet Baked Goods net revenue growth in the quarter. And this represents the fifth consecutive quarter of 5% or more growth, further demonstrating the strong health of our iconic Hostess brand.

Hostess growth was driven by strong base growth, innovation expansion and COVID-19 related growth during the last two weeks of the quarter. Point of sale increased 5.1% and market share was at 18.5%, up 17 basis points, representing continued growth ahead of Sweet Baked Goods category.

Adjusted EBITDA increased 6.4% for the quarter, excluding ISB. Keep in mind, we expected Q1 adjusted EBITDA would be down mid single digits from prior year, Q1 performance was primarily due to the strength of our Sweet Baked Goods revenue growth and strong Voortman results which were both performing ahead plan before the end benefit of the COVID-19 stock up in March.

The Voortman integration is going very well. We executed key integration activities, including transitioning Voortman's distribution model which remains on track, as U.S. shipments under the warehouse model were successfully executed in April.

Importantly, Voortman is accretive to adjusted EBITDA in Q1, and generated solid point of sale growth up 9.4% during the quarter, further solidifying our optimism for the future profitable growth potential of Voortman when fully integrated. We have an experienced team that has proven they are up to the task of successfully accomplishing this complex transition, like they did during the relaunch of Hostess.

We also successfully executed against key operational initiatives during the quarter, driving incremental efficiencies and increased capacity across the network. The transition of our new, larger primary distribution center has proven instrumental in supporting the increased volumes from both the Voortman acquisition and the increasing consumer demand for Hostess products.

Throughout the first quarter, the team worked tirelessly to implement system and process enhancement to improve productivity and accuracy at our new distribution center, while also adding in the complexity of Voortman, and the unexpected March spike in demand from COVID-19. Their substantial efforts and weekly improvements are paying off as we had a very good warehouse efficiencies in April.

Focusing on the recently acquired Voortman business in a little more detail, we are increasingly excited about the opportunities it provide to drive meaningful profitable growth. During the first [Phonetic] quarter, we completed key customer sell-in activities, reaching agreements for item distribution, self set -- shelf sets, pricing terms and much more. We established our go-forward team that is successfully executing our transition from DSD to warehouse delivery model.

This effort included reengineering primary product cases, specifications, pallet patterns for warehouse distribution as well as an ERP transition. We have completed this significant shift to the warehouse model in April for the US customers and began shipping through the warehouse last week in Canada.

Our transition costs are now estimated to be $25 million to $30 million better than the initial estimates of $30 million to $35 million, and we have made meaningful progress against achievement of planned cost synergies, given the confidence that we will secure at least, if not more of our $50 million synergy targets.

We continue to believe that there is significant opportunity for growth in Voortman business and are excited by the progress that we are making as we leverage Hostess broad based distribution model, focused and tailored customer approach, innovation and promotion expertise and our scaled merchandising capabilities.

As we reflect on the last four months, we executed against key milestones supporting our strategic initiatives, including the Voortman integration and operational changes that are foundational to supporting the profitable volume growth we are achieving.

True to Hostess, we remain nimble and agile as we reacted to the swiftly changing market dynamics delivering results ahead of expectations. Our Q1 results represent another strong quarter of consumer driven demand, broad based channel growth and enhancements to our capabilities that we will continue to leverage growing categories.

We have been a tested improvement playbook, which has driven sustained growth over the last five years and are continuing to grow the consumer and customer as we strategically invest in the business to more deeply fuel future profitable growth.

Today, and into the future, our team remains grounded in five pillars, grow the core, grow through innovation, improve through agility and efficiency, cultivate talent capabilities, and leverage our strong cash flow. Although the current impact to COVID-19 is meaningful, it is also temporary, and I am confident that the progress we have made will result in a much stronger Hostess that continues continued industry leading revenue growth and industry leading margins.

Now, I'll turn it over to Brian to go through the details of the quarter's results.

Brian Purcell -- Executive Vice President, Chief Financial Officer

Thanks, Andy. I would like to echo Andy's sentiment to thank all of our employees for the perseverance and keeping our essential manufacturing facilities operational during this pandemic. We could not have achieved our first quarter results, nor continue to execute our strategic initiatives without their consistent efforts. I also hope all of you listening today are staying safe at healthy.

Today I will review our first quarter 2020 financials, including key commentary on our results from the impact of COVID-19 and other data from today's release as we think about our business moving forward.

Net revenue for the quarter was $243.5 million, a 14.4% increase excluding the impact of the sale of the ISB business in August 2019. The acquisition of Voortman contributed net revenue of $17.1 million for the quarter. Excluding the impacts of Voortman and ISB, the net revenue increase was driven by higher sales of core Hostess branded multipack products as a result of strong demand, particularly in the grocery and dollar channels, aided in part from increased store traffic in response to COVID-19 and in C-store prior to the COVID-19 impact.

Gross profit was $79.3 million for the first quarter of 2020 and gross margin was 32.6%. Excluding ISB, gross profit increased 8.5% from the first quarter of 2019. Adjusted gross profit was $84.3 million or an increase of 12.8%, excluding ISB, representing an adjusted gross margin of 34.6%.

Adjusted gross profit improved year-over-year due to higher revenue, partially offset by increased distribution in labor costs. As expected, operating costs were higher in the first quarter, primarily due to the transition costs incurred, to transition work and distribution from the DSD to the warehouse model. This resulted in operating costs of $64.2 million or 26.4% of net revenues.

Net income was $2.6 million and diluted EPS was $0.02, primarily due to the higher operating costs I just mentioned associated with Voortman. Adjusted EPS was $0.14 consistent with the prior year quarter, reflecting increased depreciation, amortization and interest expense as a result of the Voortman acquisition, in addition to less income due to the sale of ISB.

Adjusted EBITDA for the quarter increased 6.4% to $51 million or 20.9% of net revenue, excluding a $1.5 million decline due to the sale of ISB. The increase was primarily driven by higher volume and the addition of Voortman which was slightly accretive for the quarter, partially offset by increased distribution and labor costs.

Our effective tax rate was 8.6% compared to a benefit of 4.6% in prior quarter. The current year effective tax rate was impacted by the write-off of deferred taxes related to Voortman, which resulted in a discrete tax benefit of $0.5 million. We had cash and cash equivalents of $96.2 million and net debt of $1 billion as of March 31st, with a pro forma leverage ratio of 4.5 times factoring in the expected 2020 EBITDA contribution from Voortman and a reduction of ISB.

We are committed to effectively reducing this ratio over the course of the year and have a proven history of successfully reducing the Company's leverage following acquisitions, while continue to make disciplined investments for growth. We remain focused on achieving our long term leverage ratio in the range of three to four times. We believe we have sufficient financial flexibility to support our expected future cash needs, utilizing our cash on hand and operating cash flows.

Now moving on to our outlook. As we stated in our press release this morning, due to the rapidly evolving operating environment and a high degree of uncertainties caused by the COVID-19 pandemic, we are suspending our 2020 annual guidance. However, given the recent volatility in results beginning in mid-March associated with COVID-19, we wanted to provide some additional details on our performance for Q1 and our start for Q2.

First, through January and February, our consolidated business results were tracking slightly ahead of our stated expectations provided during our Q4 earnings call, including both for Hostess and Voortman.

Our Q1 point of sale for the quarter was up 5% with March up 12% and April up 4%. This demonstrates that point of sale key takeaways spiked in March with consumer pantry-loading and subsequently [Phonetic] declined, albeit still growing during the stay-at-home orders. We estimate this surge in consumer demand adds approximately 2 points to 3 points to our net revenue growth in Q1.

In March with a higher rate of consumer purchases, we began to see a product mix shift toward our multi-pack business. Our higher margin single serve products have historically represented approximately 30% of our revenue mix. While recent week-to-week sales trends have been volatile, over the last few weeks on average this portion of our business has been down 10% to 15%, while multi-pack have increased 10% to 15%.

We believe a large portion of this shift in product mix reflects a temporary change in consumer shopping habits during stay at home orders which has resulted in less store traffic in our highly developed C Store channel and increased pantry stocking with other channels.

We are optimistic that this shift will begin to reverse as stay at home orders lift and there is an increase in convenience store traffic this summer as more people may drive versus fly. We expect the impact from this shift in mix, as well as the rising COVID-19 cost to be more pronounced in Q2 than we experienced in Q1.

However, the timing and extent of the COVID-19 impacts of consumer behaviors in the near-term is uncertain and we are continuing to work to mitigate impacts to the extent possible. In addition, to these impacts on margin due to mix, we also anticipate step-up of costs in Q2 as we implement additional safety measures in our facilities, as Andy mentioned. Given the changes we are seeing in our business, Voortman has less risk of significant negative impacts from consumer driven changes due to COVID-19 given they are predominantly sold in multi-packs within the grocery channel.

As you may recall from our last call, Q1 Voortman revenue and profit was impacted by the transition and integration activities taking place, which included a temporary pullback on sales as distributors cleared out their inventory in supporting two sales models temporarily.

Voortman EBITDA contribution is expected to improve meaningfully in the second half of the year, as we begin to realize synergies and drive incremental revenue with our proven Hostess model. Despite the temporary uncertainty created by COVID-19, we remain confident in our underlying business fundamentals which support our ability to achieve our long term financial objectives, including organic revenue growth, adjusted EBITDA margins and free cash flow conversion in the top quartile of our peers.

With that, I'll turn the call back to Andy for closing comments.

Andrew P. Callahan -- President and Chief Executive Officer

Thanks, Brian. We are pleased with our strong start to the year in light of the tremendous challenges and uncertainty created by COVID-19 pandemic. We believe our ability to execute, manage the controllable aspects of our business in this environment will create a stronger Hostess.

As the economy reopens, we are well positioned for growth and success long term. Across the team, we are working together to further advance our high performance based culture to consistently win with all stakeholders. The resiliency of our people, the strong consumer awareness and loyalty to Hostess Brand, as well as our agile efficient distribution model will continue to be key competitive advantages in the marketplace to drive strong long term financial performance in the top quartile of our peers, as we create value for our shareholders for many years to come.

And with that, Brian and I are available for questions, and I'll turn it back over to the operator.

Questions and Answers:


Thank you. [Operator Instructions] And our first question comes from the line of Rob Dickerson with Jefferies. Please proceed with your question.

Robert Dickerson -- Jefferies -- Analyst

Great. Thank you so much. Good morning. Happy Friday, everybody.

Andrew P. Callahan -- President and Chief Executive Officer

Good morning, Rob.

Robert Dickerson -- Jefferies -- Analyst

How are you? Hope you and the family are doing well.

Andrew P. Callahan -- President and Chief Executive Officer

Yeah. Same to you. Stay safe.

Robert Dickerson -- Jefferies -- Analyst

Okay, great. Thanks. So I guess, you know, I just wanted to touch on some top line relative to cost and margin. Some companies pulled out and some companies haven't. You pulled guidance understandable, obviously. But, you know, it sounds like it's a little bit potentially more kind of cost margin driven on the uncertainty of the mix that sells.

And I just say that because I think you had a comment in the prepared remarks, where you said that mix shift -- March basically saw more of a mix shift toward the multipack, that was up about 10% or 15%, where as the single-serve will be down 10% to 15%.

So it sounds like on the revenue, you know, on a revenue basis, the top line seems to be somewhat balanced there and the category pre-COVID seem to be doing well, but then obviously there's a little bit of a margin shift and you don't know what the COVID related costs would be. So if you could just try and maybe give a little bit extra color and perspective around kind of that revenue piece relative to cost margin, that'd be helpful. And then I have a follow up.

Andrew P. Callahan -- President and Chief Executive Officer

Yeah. So Brian, why don't you take this and fill [Speech Overlap]

Brian Purcell -- Executive Vice President, Chief Financial Officer

Rob, I think you have it right. So on the consumption side, you're right, prior to COVID, we were at or ahead of where we expected to be. Hostess was up, think about in the 4% range. C-store is growing share. We're also growing meaningful share in the C-store channel with single-serve up, I think 4% range. When COVID hit, we had an immediate spike in those channels where stock up activity was more prevalent. We did not see as big of an impact on our single-serve business initially, because we continue to shift growth.

As we look at April, we continue to grow meaningful share in our C-store channel. Our single-serve across the board has been down in the 10% range on our impulse shares, our impulse sales. Now C-store in total we continue to do well. And matter of fact some of the other items we have within C-store, our donuts are doing particularly well. Our bread and our buns business are also doing particularly well. Our other channels are going very well. Our single-service business is more profitable than our multipack business.

So that mix has an impact on our margins, as we look at it in April. Now we have started to see some of that come back in traffic. The faster it comes back, I think the better -- the more we're getting consumers back out, but we do see a temporary impact on mix.

Robert Dickerson -- Jefferies -- Analyst

Okay, super. Very helpful. And then I guess, kind of a potentially more broadly, if I think about some of that single-serve product not being sold, how would you say you know, what's occurred over the past month or so, two months would change any near-term distribution strategy or marketing strategy, what have you for this Hostess and Voortman as a total Company? I guess, basically, is there a way for you to react to try to place more align or shift into other channels, potentially and promote more versus less, just anything on a shift in strategy. And that's all I have. Thanks.

Andrew P. Callahan -- President and Chief Executive Officer

Yeah. We are looking at that. We've seen our e-commerce sales which is typically think about in a 2%, maybe slightly ahead a 2% of our sales. We've seen that spike more at some retailers and others we've seen it quadruple, think about it double, we're looking at reinforcing and some of the marketing efforts around their intercepting consumers, around the planning timing of where they shop, so that's going very well, to realign some of our lines of production, some were channels in multipacks, Andy Jacobs and his team are working with our customers related to merchandising strategies.

We're looking at things like Halloween merchandising, which has raised [Phonetic] up Hostess a sweet spot of entertaining at home versus going out there and figure out how we can turn this into a positive. Also we're not missing the opportunity as more stronger and C-stores, there's some positives here as well. Some of our C-store customers are doing less around fresh bakery and doing more packaged. So areas that used to be fresh donuts and pick and mix are now pre-packaged. We're expanding our shelf sets during the time because we're there, but maybe some other suppliers are not there.

And so coming out of it, we're going to be stronger when consumers are driving more and may be flying less. So there's a lot of opportunities we're taking, we're taking advantage of where we're doing really well on penetrations up 2 percentage points, we expect to keep those consumers because [Indecipherable] and then we're reestablishing a very strong base within our single-serve business. So there's a lot more thinking about as we go forward. And I fully expect to come out even stronger despite the temporary short term mix.

You know, if can make one more comment, I know we have other questions. You mentioned Voortman as well, Rob. Voortman, I -- is not as -- is not exposed to single-serve or impulse purchase, the majority of it is in groceries. And the majority is in full packages. And we've seen that as a positive, we do not see any loss. As we see it just as really great tailwind coming out of our app. It's very well-executed distribution change. Thanks, Rob.


Our next question comes from the line of Steve Strycula with UBS. Please proceed with your question.

Steven Strycula -- UBS -- Analyst

Hi, good morning. I hope everybody is doing well. So I have a quick follow up question to Rob's and Andy if I'm hearing you correctly without getting into the nuances of pack size or channel, but if we just take a step back and just look at total volumes across the system, should we think with all the impacts from COVID in like late March and in April from what you see is total volume just net growing. Again, forget about what's happening underneath in the currents, but just like at the high level are we just seeing net consumption still remain positive and encouraging and maybe the reason for pulling guidance is more of like call it below the top line dynamics. I'll get into that a moment with a follow up. I just want to make sure I understand the holistic revenue piece first. Thank you.

Andrew P. Callahan -- President and Chief Executive Officer

Holistic, yeah. No, thanks. There's a couple of things that impacted not all of our impact on some of our sales were related to -- there's some uncertainty in supply chain. So certainly on the timing related to the mix there's certainly uncertainty related to costs. So hidden underneath here, Steve, for example, some of our customers' distribution centers have shutdown disruptive supply chain.

We've had some distribution centers that prioritize other products versus normal flow causing some out of stocks. You know, it only takes one of our customers' distribution centers. So there's a lot of uncertainty on the supply chain. So that's one related to get product to stores. The other areas, we expect as the economy opens up, we expect a very quick rebound and maybe even more positive, I said, on the single-serve mix coming back, I can't predict the timing with the magnitude of when that will happen.

The shorter it is, the better for us and we will then come back stronger than when we went into it, but if it gets delayed longer or there's a -- there's a opening and then maybe a pullback, and that will impact us more. The level of those uncertainties related to mix and that also impacts our manufacturing facility. We continue to work to keep our employees safe. We're doing a really good job about that. That's our number one priority, but it still comes with uncertainty.

So the combination of the certainty of the timing of the cost and the timing of the mix impact is just too typical for us to predict right now. Brian, you have something to add to that? [Speech Overlap]

Brian Purcell -- Executive Vice President, Chief Financial Officer

Yeah, I would just say to kind of follow-up on that, we're seeing to kind of address the revenue in total, I think we are seeing growth. And I do think that you know, from a price per case, we'd sell single-serve relative to multipack mix shift, there maybe a little bit of a headwind depending on how that shaped out week to week and it's changing by the week, as we look out at the future.

But I think to your point, it's a little bit more of below the revenue line on the mix side than on the cost side [Speech Overlap]

Andrew P. Callahan -- President and Chief Executive Officer

Yeah. We have greater than 91% consumer availability related to our distribution, you know, greater than 10 points better than anybody in our category. We do very well, and our stores are doing very well, our distribution is going very well. So we expect to continue to grow, come out stronger, but the mix is uncertain. Availability of our supply chains with uncertainty, cost is uncertain. All positive over the long term, uncertain in the short term related to COVID-19.

Steven Strycula -- UBS -- Analyst

Understood. And then just to follow on that. Are you trying to say though when you -- when you reference a supply chain really, clearly, consumptions are, at least, doing well through April, so what I'm trying to understand is there a disconnect between the shipments and what we're seeing at retail sale, are you trying to say that the supplier or retailers out there have some of their DCs closed. And so there might be some gap between shipments and sell-out? I'm not talking on a week to week basis, just trying to look out you know, as you think through the next few months.

And then separately related to the integration for Voortman, how do we think -- it seems like you're hitting a lot of key milestones. At what point will we be able to say that we've cleared the hurdles and you've secured the warehouse and slotting space that you were seeking and then investors can kind of rest assure that this integration has been executed well and is behind them. Thank you. I'll pass it along.

Andrew P. Callahan -- President and Chief Executive Officer

U.S. transition is complete, knocked it out of the park. Canada transition is happening right now. We've secured the warehouse space in majority of our customers, even some of the -- in some distribution that wasn't available via the DSD route. Canada is happening now. So we have been coming out. We're now establishing the shelves of vehicle and we're fully operational through the warehouse in the United States.

So Voortman, think about that within the U.S. We're now in the process of driving forward some of the additional synergies and get into the growth phase of Voortman. Related to the shipments, we did see -- as you know the majority of our C-store goes to our distributor partners. So some of the impact of the decline in consumption lagged in the shipments in Q1.

We'll see it more in Q2 than we did in Q1 just because there is a slight -- a couple of weeks lag given the fact that there's a distributor partner versus a direct to our customer warehouse. But as Brian mentioned, we're seeing that mix around down 10%, plus 10% on the multipack side.


Our next question comes from the line of David Palmer with Evercore ISI. Please proceed.

David Palmer -- Evercore ISI -- Analyst

Thanks. Good morning. I just wanted to follow up and thank you for your comments on Voortman's and on your mix shifts lately. For tracking purposes, is your business do you think in this next quarter going to roughly track with what we're seeing in our tracked IRI channels you know, obviously there could be differences in terms of channel mix what we don't see, but also the shipments. But how useful do you think IRI or Nielsen is going to be for this next quarter? And then I have a follow up.

Andrew P. Callahan -- President and Chief Executive Officer

Yeah. David, thank you. You know, the tracking within the food channel is traditionally a little bit more accurate. We have a large distribution base independent. We're very good at it in this non-tracked channels within C stores, which is less accurate. We do see -- with all of that being said, directionally when we look at some of the pluses and minuses and look at our shipments to customers, not just to distributors and also look at our distributor, we do believe it's directionally correct and that 10 to 15 range currently in April of single-serve range of being down into the long term is pretty -- is fairly close.

What's difficult for you to track is our distributor inventory which on the declining thing can go up and down, depending on the timing of things going down and coming back up. So that's a little bit of more uncertainty, the 10% to 15% is a good range I believe C-store five points off, our food channels is probably close.

David Palmer -- Evercore ISI -- Analyst

Got it. And you know, you made a comment about how you think things will get better as markets reopen. We have seen some reopening in places like Georgia, Texas, Tennessee, Oklahoma and more recently, Florida. Are you seeing improvement in these markets or even stories of improvement that would validate your hunch that reopening will help this summer?

Andrew P. Callahan -- President and Chief Executive Officer

To be honest with you, I don't have a precise answer on the mapping. It's a good question. What I have seen is over the last week or so some improvements in single serve and some of that channel specifically. I don't have one week does not make a trend, but we have seen some recent improvements.

David Palmer -- Evercore ISI -- Analyst

And then lastly, as to the $20 million of -- we at least were thinking $20 million of synergies of well, profit incremental, profit from Voortman's inclusive of synergies I should say that way by next year, you know, as you were thinking about all the puts and takes, you mentioned, some of the costs associated with the Voortman's integration. But in terms of the timing and the synergies of that, is there any changes that we should be thinking about with regard to that Voortman's acquisition? Thanks.

Brian Purcell -- Executive Vice President, Chief Financial Officer

Yeah, I can take that one. So overall we're pulling our guidance. You know, so we're not commenting specifically on forward-looking, but with respect to Voortman and kind of echo Andy's comments we feel great about you know, how the acquisition is going. The synergy number that we committed, so previously we stated $20 million in EBITDA from Voortman. And previously, we stated $15 million of synergies between 12 months and 18 months. We feel great about our progress on synergy initiatives.

The transaction costs that Andy had mentioned, obviously you know, those are I believe show adjusted EBITDA those we added back. But we will see a cash flow save with those this year. So which is good, and -- but overall I think, you know, the progress on the synergies, the line of sight to the synergies and the integration overall is still going very well.

Andrew P. Callahan -- President and Chief Executive Officer

We gave the guidance at 20 in February, I agree with Brian and I think Voortman relative to the risk equation we're talking about single-serve, it's not exposed to that and everything is positive. So I'm very comfortable that there's more, less risk and more potential positives related to Voortman than the rest of our portfolio. [Speech Overlap] given the uncertainty of the DSD to warehouse transition in the US which is 80% of that business.


Our next question comes from the line of Pamela Kaufman with Morgan Stanley. Please proceed.

Pamela Kaufman -- Morgan Stanley -- Analyst

Hi. Good morning. I hope you're all doing well. I was wondering if you can elaborate on how the channel mix shift is impacting your marketing and innovation plans for the year and is there any entity to change the timing of promotional events?

Andrew P. Callahan -- President and Chief Executive Officer

Yeah, specifically I'll take the last one first. We have modified some of our promotional events, we pulled back some on the merchandising where we didn't need it. We're still looking at heavy displays. We're looking at reestablishing some of the merchandising activity of what we do very well related to LTOs and events to take advantage of the changing consumer behaviour.

We think we had some focus on consumers around specific strategy. We're now reshifting that around potential e-commerce, the potential change of eating at home and entertainment at home. So we feel really good about that.

Related to innovation, we're keeping the innovation going. The majority of our -- some of our customers are suspended relative to resets in innovation. Some of us are -- some of them are -- were ahead. We are looking at some of the activities that require some more implant engineering activity that we have or been we've minimized any [Indecipherable] in the plant other than -- and there are bakeries and other than essential. So there are some things relative to projects that would have required more capital and more engineering work within our facilities.

We pulled back a delay, but we replaced that with some other innovations. So I feel that when we go talk to our customers toward the end of the summer about our reset, I believe we're going to have a very good innovation slate. But it's going to be -- we're going to be focused more on the core and some line extensions here in the short term.

Pamela Kaufman -- Morgan Stanley -- Analyst

Thanks. And then can you comment on whether you're seeing any impact from changes in consumer behavior on demand across various pieces of the portfolio, like breakfast versus snacking versus Voortman? And then I guess as a follow up, aside from the impact to margins from channel mix shift, is there any impact to profitability due to a shift in the product mix across those categories.

Andrew P. Callahan -- President and Chief Executive Officer

Yes. So a couple of things. So the consumer shopping across different breakfast versus snacking, so and then -- it's been more, it's been more multipack, it's been more impulse buy driven versus breakfast versus snack. We've seen our breakfast and snacking multi type business benefit and also Voortman benefit. Voortman's business was up 9%, continues to drive strong takeaway as we move into it.

So Voortman, very positive. Sweet goods and also comfort foods, we see not slowing down a continued elevated. The impact is more related to impulse purchase and single serve. So as a matter of fact, even though the channel in C-store is down, we still see relatively strong and growing performance in our bread business, for example and our bun business, as well as our donut business in that channel.

Now it's not as -- so that's down. So it's more the impulse purchases of single serve versus breakfast and snacking which in our multi packs forum are both doing very well.


Our next question comes from the line of Bill Chappell with SunTrust. Please proceed with your question.

William Chappell -- SunTrust Robinson -- Analyst

Thanks. Good morning. Hope you're well.

Andrew P. Callahan -- President and Chief Executive Officer

Stay safe, Bill.

William Chappell -- SunTrust Robinson -- Analyst

You too. A couple of quick questions on back on Voortman's, you know, did you quantify or can you quantify what the kind of COVID impact was on that business? I mean, certainly since it's more of a less of a C-store business, I imagine it had some stockpiling and then as we look at this year also with the change to the dollar versus even other currencies. Is there any change to expectations? I've forgotten how much of that business is already in Canada.

Andrew P. Callahan -- President and Chief Executive Officer

Yeah, Bill. We saw a -- a takeaway of the Voortman business in Q1. We saw benefit of about 4 points to 5 points just in takeaway. It was tracking at I think about plus 5 or so plus 5.5 and then this quarter of about plus 9 in the back. So we saw real big spike. And that was just before the COVID impact and ironically, I know a lot of you were and myself included what they can avoid is supply chain disruption happening just during the transition. Could that be a risk? It was actually a benefit because we accelerated the inventory out of our DSD partners onto the shelf because the takeaway was strong. And then we're able to come right back in with our warehouse shipments and fill the shelf. I think the reality is we probably lost. The out-of-stocks were a little bit greater than we planned but we're quickly catching that up in April. But that was the -- so the Voortman impact was positive. We see continued strong takeaway as we're getting out into the stores and expanding distribution.

Now remember, we cut 40% in the SKUs in that business to go through the warehouse and now are moving forward with the strongest SKUs and expected strong transparent, strong focus, strong efficiencies in our plans for doing that and then accelerating through the growth as we get into the back half, I'll let Brain deal with the exchange rate, the US is about 80% of the takeaway.

Brian Purcell -- Executive Vice President, Chief Financial Officer

Yeah. So the US business for Voortman is roughly 80% of sales. So the Canadian sales, the remaining 20% broadly, just kind of looking at the puts and takes, the cost base that sits in Canada roughly offsets that. So the currency exchange rate in fact is not meaningful.

William Chappell -- SunTrust Robinson -- Analyst

Okay. Thanks. And then just following up again you kind of comment on the recovery of the C-store channel. I understand more people staycations or not flying, but I mean, is that really -- is families and stuff like that really the core C-store customer, or do we really need more kind of people getting back to work and traveling for work purposes to get that business back to normal?

Andrew P. Callahan -- President and Chief Executive Officer

No we need people getting back to work, Bill. That's -- the people cars, lower gas prices over the long-term normal situations, static comparative situations. Those are positive benefits for Hostess which also by the way does well in the boom economies and [Indecipherable] at very accessible price point, relative low private label penetration.

We've seen private label move up in some categories, not in this category, so we're well positioned, regardless of the speed of the economy pull back. But that was on top of -- we need to get the economy back that's the core of the C-stores. So I didn't mean to say that would offset it. We need to get the economy back for those impulse C-store purchases.


Our next question comes from the line of Ken Goldman with J.P. Morgan. Please state your question.

Kenneth Goldman -- J.P. Morgan -- Analyst

Hi, good morning. You mentioned that you pulled back on merchandising. We're getting some mixed signals on where the promo environment goes from here. You know we can see in the data feedbacks across the industry are lower than they were a year ago, right grocers are saying there's no need to discount this environment, but we're also starting to hear about some grocers you know, maybe who have their act together a little bit more getting frustrated, as vendors rescinded events that maybe that didn't -- that weren't supposed to happen.

So I'm asking, I guess, what are you seeing today in that promo environment in large? And is there any appetite from your customers to build sort of that whole structure, whether it's discounting or features to display back again?

Andrew P. Callahan -- President and Chief Executive Officer

I think the mixed signals that you're commenting on Ken are related to our customers are all different. And as we go forward, I think one of our strengths at Hostess and Andy Jacobs' teams is our collaborative relationship with all of customers. So we're reevaluating all of the programming to make sure that we do it as efficient as to profitably grow for all of our customers.

We have some programming that in fact [Phonetic] didn't make sense. We're realigning and we have some programming that were called back. So we're not a 100% full. We are now going through a dramatic change. We're talking to each customer and figuring out how to best profitably grow. If you remember, our -- just in general, our -- we had planned as we had gone through the transition to -- we weren't as strong merchandising in the -- as planned in the first quarter as we come out. So I think each of our customer relationships is a different discussion. I think that's way, the best way to say it.

Kenneth Goldman -- J.P. Morgan -- Analyst

Okay, so that's helpful. But from a follow up, I can only imagine how hard it is to run a business, let alone give guidance in this environment. But you do seem to have a good grip on a number of items, right. You know what your margins are on a per product basis. You know, what your sales are right now for multipacks and single serve. You know the Voortman's integration has gone well.

So, as we think about modeling the second quarter, I know you're not giving guidance, but I'm going to poke around this area anyway. Can you give us any sense of where you think your margins might be, even if just broadly I mean, I think you're making it very apparent that they need to come down versus expectations for this quarter, thanks to mix and costs.

But you're also excluding your direct COVID costs from your EBITDA. So I'm not quite sure even that's a big swing factor. Just any help on that line and the EBITDA margin line would be I think very helpful to avoid some uncertainty as we think about the second quarter.

Brian Purcell -- Executive Vice President, Chief Financial Officer

Yeah. As it pertains to the second quarter, I think we are seeing, we have visibility in those items, some that Andy [Phonetic] already mentioned. But there's a lot of things that are moving week to week on the cost side you know, even some of the channel mix is moving week to week.

So it's too difficult to kind of pin down and give you an accurate range for Q2. But I do think that you know, with respect to Voortman in particular that Andy highlighted, I think that's going great. We -- you know, in terms of the benefit of Voortman, they're really going to hit the stride in the second half, but we do -- we will see a better impact from them on the bottom line as we move into Q2 as well. So just overall in terms of visibility, it's too difficult to quantify right now.


Our next question comes from the line of Brian Holland with D.A. Davidson. Please proceed with your question.

Brian Holland -- D.A. Davidson -- Analyst

Yeah, thanks. Good morning. Most of my questions have been answered. So I'll just ask. Do you have any insight into what kind of the household penetration trends were? Because if you're -- maybe if you're losing some high touch customers in the C-store channel, but you're still kind of consumption growing, maybe that means, you know, more trial, more households just buying a little less frequently.

I'm just curious and obviously there's positive implications that if you're growing household penetration for ability to retain customers, etc. So that'll be my first question. And then just kind of a separate one, I'll ask and you can tackle this is, to what extent have you seen benefit from kind of the in-store bakery, more or less been shut down certainly in grocery stores and maybe to some extent C-stores, I understand that there's some traffic pressures there weighing on that, but I'm wondering to what extent that may have given you a lift in the quarter? Thanks.

Andrew P. Callahan -- President and Chief Executive Officer

Hey, Brian. Thanks for the questions. The household penetration is up nearly 2 percentage points over the last four weeks, which I feel great about we all know how difficult it is to get household penetration products and consumers love high brand awareness, get an opportunity to be reintroduced with high loyalty. I feel great about that over the long term and how do we-how do we continue to engage them.

So with related to in-store bakery you know, in short, bakery within the grocery stores they have other alternatives [Indecipherable]. I think we've also seen within the C-store, our -- Andy Jacobs, Scott Ward, Matt team to the best C-store team in the business. They've been sending me tons of photos related to having packaged bakery potentially sitting in donut sections that used to be fresh, because consumers don't want to come in and mix and match where they don't want the customers to be handling it.

Now how that changes over the long term, that could be one of those structural changes that would benefit, you know our business if there's less of a -- less of a trend around the fresh bakery baking within stores. I think that's potentially more of a convenience of smaller store opportunity where we're very strong by the way, versus potentially grocery which already has established in-store bakery business.

So that's what I'm thinking about now, obviously you know, we're getting our hands around a fast change, but it does look like a potential positive of prepackaged baked goods versus the historical fresh out exposed, high handle bakeries. But there's a lot -- a lot of opportunity to understand and learn more from that, and our teams are all over it looking at way we can better serve those customers in the current and post-COVID environment.


Mr. Callahan, I'll turn the call back to you for closing remarks.

Andrew P. Callahan -- President and Chief Executive Officer

Good. Thank you so much and I appreciate everybody's interest in Hostess. We are proud of the dedication and resilience of our team, as they react quickly and efficiently to the changing environment we are all facing. Hostess capabilities, agility and performance culture give us confidence Hostess will emerge from this time, stronger and better positioned for the long term sustained profitable growth. Thanks for your interest in Hostess and stay safe and healthy. Have a great day and great weekend.


[Operator Closing Remarks].

Duration: 55 minutes

Call participants:

Katie Turner -- Investor Relations

Andrew P. Callahan -- President and Chief Executive Officer

Brian Purcell -- Executive Vice President, Chief Financial Officer

Robert Dickerson -- Jefferies -- Analyst

Steven Strycula -- UBS -- Analyst

David Palmer -- Evercore ISI -- Analyst

Pamela Kaufman -- Morgan Stanley -- Analyst

William Chappell -- SunTrust Robinson -- Analyst

Kenneth Goldman -- J.P. Morgan -- Analyst

Brian Holland -- D.A. Davidson -- Analyst

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