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Hostess Brands, Inc. (TWNK) Q2 2021 Earnings Call Transcript

By Motley Fool Transcribing – Aug 5, 2021 at 9:01AM

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TWNK earnings call for the period ending June 30, 2021.

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Hostess Brands, Inc. (TWNK 0.77%)
Q2 2021 Earnings Call
Aug 04, 2021, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, and welcome to Hostess Brands' second-quarter 2021 earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Amit Sharma, vice president, investor relations at Hostess Brands. Thank you.

You may begin.

Amit Sharma -- Vice President, Investor Relations

Good afternoon, and welcome to Hostess Brands' second-quarter 2021 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 ended June 30, 2021, that went out at approximately 4:00 PM. Eastern Time.

The press release and an updated investor presentation are available on Hostess' website at www.hostessbrands.com. This call is being webcast, and a replay will be available on the company's 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. The company's actual results may differ materially from these forward-looking statements, and the company undertakes no obligation to update or revise these forward-looking statements.

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A detailed list of these risks and uncertainties can be found in today's earnings release and in the company's SEC filings. The company will make a number of references to non-GAAP financial measures that we believe will provide useful information to the investors. A 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.

Andy Callahan -- President and Chief Executive Officer

Thank you, Amit. We are very excited to have you on board as our new Head of IR, and good afternoon, everyone. I'd like to begin by offering a few highlights from our second quarter performance to underscore the ongoing strength of our business. I will then turn it over to Brian to discuss our financial results in greater detail, and we'll wrap it up with a discussion of our higher sales and earnings outlook for the back half as we continue to gain more confidence in the sustainability of our growth model before opening it up to your questions.

We had an excellent second quarter with our 14th consecutive quarter of attractive top line growth and solid momentum heading into the second half, even as we lap last year's high single-digit growth. This yet again accentuates Hostess Advantage branded portfolio and its increasing share in the faster-growing high-margin subsegments of the snacking category. Now to some of the key quarterly highlights. Adjusted net revenue grew 10.8% in the quarter with growth accelerating sequentially from the first quarter on both a one-year and a two-year basis, as Sweet Baked Goods business led by the Hostess brand posted 12.9% growth in the quarter, our highest growth rate in over two years.

Our Sweet Baked Goods point-of-sale trends accelerated sequentially as well at 11.4% growth, led once again by our Hostess branded growth of 12.4%. This growth drove over 200 basis points of market share gains in measured channels, demonstrating Hostess' outstanding execution in a fluid environment, an increasing payoff from our investments in innovation, consumer-facing marketing and talent throughout the organization. Even on a two-year stack basis, our Sweet Baked Goods point-of-sale growth accelerated to 19.3% versus the category growth of 9.8%, showcasing the sustainability of our growth trends before, during and in the normalizing COVID environment. Voortman posted another quarter of strong POS growth with one-year and two-year stack growth rates of 23.7% and 23.9%, respectively.

Both are well ahead of the cookie category. Voortman continues to execute on five building blocks of growth, greater depth of existing distribution, expanding in the new channels of distribution, activating Hostess' proven merchandising model, building brand awareness and finally, impactful innovation. Now our Hostess single-serve and multipack subsegments both posted solid double-digit two-year stack POS growth in the second quarter, highlighting the unique strength of our brands. Our share of Sweet Baked Goods sales increased in convenience, grocery, dollar, club and drug channels as we leverage our deep broad-based distribution footprint across both large and small format retailers.

In fact, our convenience store market share increased by nearly 325 basis points to 29.9% for the quarter, positioning us exceedingly well to benefit from the positive impact of improving consumer mobility on C-store sales. At the same time, our market share in grocery channel increased by nearly 180 basis points in the quarter to 15.7% as we posted mid-single-digit point-of-sale growth in the channel, despite lapping strong COVID-driven growth in the year ago period. We are very pleased with our first half performance. Brian will take you through our revised full year outlook, but I want to reiterate that I am confident of our ability to maintain this momentum in the second half, even as the cost environment becomes more challenging.

Let me touch on a few key themes as to why our portfolio is indeed advantaged. First, the majority of our sales come from our Hostess and Voortman brands, which command a good price premium and our higher margin. Next, we have strong positions in subsegments of indulgent snacking that are growing at a faster rate than overall snacking. Additionally, our overall brand assets position us to grow faster in these subsegments.

And third, we are uniquely positioned to benefit from both improving mobility as consumers return to work or school as well as from the sticky elevated level of at-home snacking consumption even as a broader at-home food consumption trends moderate from the year ago COVID-driven spike. This is evidenced by our strong one- and two-year stack top line trends as our single-serve POS was up over 19% in the quarter, while multipack business was up mid-single digits versus the year ago period and over 24% on a two-year stack basis. In summary, we're advantaged because we can grow more profitably and faster in not only overall food but also the snacking aisle. To fuel this growth, we are rapidly improving our understanding of our key consumers, not just their purchase behavior, but also what leads to that decision, the path to purchase, enable us to create a very detailed, granular snacking occasion map, the key to intercepting consumer behavior in the impulse-driven snacking category.

This directly fuels our innovation pipeline and is already starting to bear fruits evidenced by the strong success of our recent new products. For instance, recently launched Baby Bundts, one of our key innovation items in breakfast is off to a very strong start across multiple channels. In fact, Baby Bundts Lemon and Baby Bundts Cinnamon were one and four fastest-growing SKUs and in the category across total Nielsen universe over the past four weeks ending July 17. We expect our new product momentum to continue as we extend new Baby Bundts single-serve sales and launch new flavors.

We will also be launching a number of other new products, including on-the-go versions of Crispy Minis in the coming months. We are supporting our innovation through incremental advertising and marketing support. I am very excited about our new Live Your Mostest campaign launched during the quarter, our first national ad campaign in nearly a decade, to highlight the moments of joy our brand brings, drive engagement across multiple digital platforms and position us to win with both consumers and our retail partners. With a full pipeline of new consumer-facing initiatives, we firmly believe that sustained investments in advertising, capabilities and our people will drive sustained growth and long-term shareholder value creation.

We are also laser-focused on execution. We continue to execute at the highest levels, particularly in light of the volatile retail marketplace and challenging operating environment. Our demonstrated excellence at retail is best exemplified by the strong success of our Hostess partnership program, which is fueled by our investment in data and capabilities and continues to drive our share in the C-store channel. These investments are clearly elevating our competitive positioning within key channels.

Our small format success is simply remarkable. We continue to gain market share in C-store, dollar and drug channels with year-over-year gains of 300 to 800 basis points in just the second quarter. Given our improving in-store execution, I firmly believe that these share gains will serve us well as overall on-the-go channel trends improve from last year's depressed levels. I am also extremely proud of our agile supply chain, which has continued to execute at the high levels in the face of heightened volume, mix volatility and the exceedingly tight labor market.

Our flexible manufacturing footprint, which has enabled us to successfully manage increased complexity and launch highly incremental new products such as Baby Bundts and Crispy Minis, along with our advantaged lower-cost distribution platform, has been a key enabler of our strong market share performance over the last 12 to 18 months. More importantly, we believe that our ongoing initiatives will make our supply chain even more efficient and nimble and a source of sustained competitive advantage in snacking. Rising inflation and access to labor remain two of the biggest challenges across the CPG landscape in the near term. As included in our revised 2021 outlook, our input and labor inflation are going to be higher than our initial estimates due to commodities, freight and packaging inflation, incremental costs from stronger-than-expected volume growth and tighter labor markets.

We expect to continue to incur higher labor costs as we have higher over time, attrition and elevated hiring needs given the increased consumer demand. We are actively working on a variety of programs to attract and retain our workforce to support our continued growth. With that said, we're confident we will mitigate these higher costs by continuing to drive additional productivity initiatives, utilizing our revenue management toolkit and as we benefit from higher prices in the second half. Pricing is never easy, but our pricing conversations with our retail partners have progressed as expected, with higher realized prices beginning to flow through our P&L in July.

We are closely monitoring elasticities as shelf prices begin to move higher and early indications suggest that they are largely in line with our expectations. We also continue to make great progress on our ESG initiatives with the launch of our first-ever ESG report in June. We've embedded ESG goals into our operating model and are committed to operate with higher and consistent standards of transparency, fairness and integrity for all stakeholders. We view this report as a meaningful start and important milestone on our perpetual journey toward sustainable, profitable growth.

In summary, we had a strong second quarter and first half. More importantly, we remain confident about our second half outlook, enabling us to raise our full year sales, EBITDA and EPS guidance. With that, let me turn it over to Brian to go through the quarter's financial results in greater detail.

Brian Purcell -- Chief Financial Officer

Thanks, Andy. It's a privilege to speak to another outstanding quarter at Hostess, underscoring the power of our brands, strength of our business model and excellent execution. Net revenue for the quarter was $291.5 million, an increase of 10.8% on an adjusted basis. The increase in adjusted net revenue was primarily due to continued strength in Sweet Baked Goods, which increased by 12.9% during the quarter, more than offsetting the expected 4.6% decline in Voortman due to the lapping of last year's inventory pipeline and fill ahead of its shift to the warehouse distribution model.

Stronger POS growth in our single-serve portfolio continues to drive favorable mix in the quarter. We are clearly benefiting from increased consumer mobility as sales and traffic trends rebound in the C-store channel. Our 325 basis point share gain in the convenience channel during the quarter also highlights our strong execution and improving capabilities that Andy alluded to in his comments. Our multipack and bagged donut business grew 5.4%, despite lapping of last year's COVID bump, driven by continued growth in the dollar, convenience and grocery channels.

Adjusted gross profit of $105.3 million increased by 7.3% for the quarter, while gross margin came in at 36.1%, down from 37.3% entirely due to the expected headwinds from lapping elevated Voortman margin in the year ago quarter when we transition to the warehouse delivery remodel. Gross margins were flat on a year-to-date basis as increasing contributions from favorable mix and productivity initiatives are offsetting higher inflation. Adjusted operating income of $54.2 million increased $5.2 million or 10.6% from the prior year as higher gross profit dollars were partially offset by higher A&M and G&A investments to support our top line momentum. Adjusted SG&A as a percent of revenues declined from the year ago quarter, but SG&A dollars increased as we are increasing our A&M spending and investing in talent to drive innovation and growth.

Adjusted EBITDA for the quarter was $68.4 million or 23.5% of net revenue compared to $65.1 million or 24.8% of net revenue in the prior year quarter, including $7.5 million EBITDA contribution from Voortman in the quarter. The increase was driven by strong Hostess branded volume and favorable mix, slightly offset by lower Voortman EBITDA due to the aforementioned lap and increased A&M spending. Year-to-date EBITDA increased 12.7% to $130.8 million for the first half. Our effective tax rate, excluding discrete items, was 27.3% compared to 24% in the prior year quarter.

The effective tax rate for the prior year period benefited from the allocation of the noncontrolling interest, which was eliminated in fourth quarter 2020. Net income was $29.8 million and diluted EPS was $0.21 per share. Adjusted net income of $32.2 million for the quarter increased 10.1% from the prior year, while adjusted EPS of $0.23 per share increased 5% as the second quarter adjusted diluted EPS assumes average fully diluted shares outstanding of 139 million versus 123.8 million in the year-ago period. At the end of the quarter, we had cash and cash equivalents of $218.8 million and net debt of $878.3 million, with a leverage ratio of 3.4 times, down from 3.9 times at Q4 2020, driven by our strong operating cash flow growth.

We repurchased approximately 1.5 million shares for $25 million through July and now have $67 million available under our previously authorized $100 million share repurchase authorization. Turning to our outlook. Given our strong first half performance as well as solid momentum and visibility to the second half, we are raising our full year guidance for net revenue growth from 3% to 4.5% to 7.5% to 9%, as well as raising our adjusted EBITDA expectations from $255 million to $265 million to $260 million to $268 million and adjusted EPS from $0.80 to $0.85 per share to $0.83 to $0.87 per share. Our updated guidance continues to include Voortman sales and EBITDA approaching $120 million and $38 million in 2021.

Our new EPS guidance assumes an effective tax rate of 27.5%, up from 27% in our previous outlook, and average shares outstanding of 139 million. Our updated guidance assumes full year inflation of mid-single digits, up from our initial guide of 2.5% to 3.5%, reflecting incremental costs to support stronger volume growth as well as higher inflation in our non-hedge costs, including certain commodities, freight, packaging and labor. Inflation is indeed expected to be higher in the second half. However, we remain confident in our ability to continue to be able to offset rising costs with higher realized prices and additional productivity initiatives.

And as our updated EBITDA guidance implies, we plan to reinvest some of the volume and pricing-driven upside into the business to sustain our top line momentum. Our 2021 capex guidance remains unchanged at $60 million to $65 million. And given our solid year-to-date cash flows, we remain confident that our leverage will approach three times by year-end, absent M&A or any material buyback. As we delever almost a full turn in 2021, we remain committed to executing against our key capital allocation priorities, including investing for growth, making strategic acquisitions and returning cash to shareholders.

We are really proud of the team's abilities to grow not only top line but also achieving growth in EBITDA and EPS above our initial expectations during this exceedingly volatile and challenging environment. With that, I will turn the call back to Andy for closing comments.

Andy Callahan -- President and Chief Executive Officer

Thanks, Brian. We are emerging from the pandemic in a stronger position. Each quarter builds more confidence that Hostess will deliver sustained top quartile growth through the remainder of 2021 and beyond. We are enabled by our strong branded portfolio, over-indexed exposure to attractive categories, breadth and depth of our distribution, increasing growth investment and excellent execution.

Our increased outlook for the back half and the full year in an increasingly challenging operating environment clearly demonstrates our ability to deliver sustainable, profitable long-term growth. With that, Brian and I are available for your questions.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from David Palmer with Evercore. Please proceed with your question.

David Palmer -- Evercore ISI -- Analyst

Thanks. Great quarter and nice guidance. I wanted to ask about the guidance. You actually had some very specific numbers on Voortman's.

Did you say you expected almost $40 million in EBITDA from Voortman's and over $120 million in sales. I mean did I get those numbers right? And then I have a couple of other clarifying questions.

Brian Purcell -- Chief Financial Officer

David. Yes, you heard correctly. So we said approaching $120 million in net revenue for Voortman, and approaching $38 million in EBITDA. That's the guide that we actually gave at the beginning of the year, and we're basically just reiterating that.

So it's a subset of the overall guide. We're bringing up our overall guidance. And we're basically reiterating what we said at the beginning of the year for Voortman.

David Palmer -- Evercore ISI -- Analyst

Great. And the recent scanner trends in July were pretty high. I know there's volatility in any given week. But they were looking like they're mid-teens on a 1-year basis.

Your guidance looks like it implies 6% to 8% in the second half of the year. Maybe you can confirm if that math is right. But are there things that you're thinking about in the recent trends that's not sustainable? How are you looking at the comparisons and the plans for those of us tracking your progress in the scanner data?

Andy Callahan -- President and Chief Executive Officer

Yes. So David, it's good to hear you. A couple of things on the scanner data. Overall, we were a couple of weeks early on our back-to-school promotion.

It's about at equal level that it was a year ago, which is a little bit early. So I think what we're seeing now is going to a little bit moderate, I'd say, as we go through the year. I think your math on the full year number feels generally good. But I think what's most important is we feel terrific about the underlying consumer trends that we're seeing that supports the sustained growth.

As we went through COVID, we had the decrease in mobility, the increase in home snacking as we get to a more normalized rate, what we're seeing is increased mobility, improving our on-the-go and immediate consumption sales. And even with the return of that mobility, we're still seeing an elevated level of consumers in the home. And when consumers are in their home more, they're snacking more. So we have a portfolio, as I mentioned in my prepared remarks, that are -- is well positioned for what we believe are some sustained consumer trends around indulgent snacking and how they snack.

The majority of our portfolio is individually portioned. It's portion controlled, but it's available in the home and on the go, and we're well positioned for sustained growth there. But I believe you have your numbers correct.

David Palmer -- Evercore ISI -- Analyst

Yes. I mean just a comment, just given the fact that we're seeing such sustained strength in Voortman's. It just seems like you're being conservative there on that particular brand, keeping that guidance the same. I'm wondering if you're seeing comparisons there.

But one thing I wanted to ask before I let you go is the instant consumables, you cited that it was a positive mix driver. What was the relative growth of convenience or on-the-go packaging, if you wouldn't mind?

Andy Callahan -- President and Chief Executive Officer

Yes. Just give me a second, and I'll give you the exact numbers because we have that in our presentation. It just got released. But if you go to Page 6 of our investor deck, you'll see that...

David Palmer -- Evercore ISI -- Analyst

There it is.

Andy Callahan -- President and Chief Executive Officer

It just got released. But Q2, our single-serve was up 19%. That's lapping, obviously, with mobility down. But if you look at the two years, it's very good, and then you can see multipack just continues to perform just over three -- any way you look at it.

David Palmer -- Evercore ISI -- Analyst

OK. Great. Yes. Thank you.

Operator

The next question is from Ken Goldman with J.P. Morgan. Please proceed with your question.

Ken Goldman -- J.P. Morgan -- Analyst

Hi. Thank you. I just wanted to ask about the increased sales guidance, which I think is $46 million at the midpoint, if my math is correct, and then $8 million for EBITDA. I think that implies an incremental revenue versus your prior guidance carrying only about a 16% EBITDA margin, which is obviously much lower than the corporate average.

So I know you have higher costs. I know but you had higher costs in the first half as well. It just feels a little conservative to me on the EBITDA line, even if you are investing more, as you said. So I'm just curious if there is an element of sort of, hey, let's wait and see where our costs and pricing elasticity really come in or whether, no, you're actually going to invest that much more in the business beyond what you initially thought?

Brian Purcell -- Chief Financial Officer

Yes, Ken, it's Brian. So if you look at our guide, we're taking up both the top line and the bottom line. Relative to our initial guide, I think there's kind of two different things going on. We've got better visibility on flat.

And from that standpoint, our story in the second half is going to be similar to what we're seeing in the front half. We feel good about our ability to offset that inflation with pricing and productivity. It's different in the front half where we have mix as a big favorability along with productivity. But the net outcome is the same.

We're basically flat from a margin standpoint to prior year in the front half. We expect that to be the same in the back half. Relative to SG&A, I think the back half on a total SG&A basis will probably look directionally more like Q2 on an absolute basis than Q1. So it implies a little stepped-up investment versus the first half, and as we're driving our business with advertising and marketing and you have things like incentive compensation like that, that are going up as well as some talent that we brought into the business.

So I think from an overall standpoint, we've got better visibility to inflation, and we've got better visibility to how we want to invest behind our brands with advertising and marketing. And so we're bringing up both top and bottom line, but the EBITDA contemplates that.

Ken Goldman -- J.P. Morgan -- Analyst

OK. No, that's helpful. And then I guess, my follow-up, I hate to pick on this one channel because you're obviously killing it in most channels. But I'm just curious, Andy, when do you expect -- what's your latest on when we should start seeing the market share losses in the mass channel turn -- flip on their head and turn into market share gains.

I'm only asking because we're starting to see losses on top of year-ago losses now. So not a big deal, obviously, you're doing great besides that. Just trying to get a little sense of that particular factor.

Andy Callahan -- President and Chief Executive Officer

Yes. So as you know, I don't discuss specific channels, but you're right in the sense that not all channels are to the potential that they have or where they will be. I'm not going to communicate specific timing on when they all get there. But what you're seeing, really, most importantly, is the strength of our broad-based distribution and the availability we have across it.

You mentioned we're up. Despite not all channels being to their potential, we're up 10 points in availability to the next closest competitor, and our brand is really strong, and that's what's driving nearly in the first half, nearly two points of share growth. So I don't have a timing, but I know that we will have them all working. It will be choppy as we go in the back half, but I feel good about where we're at.

Ken Goldman -- J.P. Morgan -- Analyst

Thank you.

Operator

Our next question is from Rob Dickerson with Jefferies. Please proceed with your question.

Rob Dickerson -- Jefferies -- Analyst

So I just wanted to ask about '22 a little bit. I realize, obviously, you can't provide too much color. Obviously, the question is coming up, I think for a lot of companies now, especially for you just given some of this cost inflation vis-a-vis the pricing dynamic. I'm assuming there are some hedges you still have on.

I'm assuming at some point, some of those hedges roll off and then there will be a mark-to-market cost impact. But the way you're speaking now is that essentially for this year, you're able to offset productivity with pricing. But I just want to kind of hear you say it, like if you think about that pricing that would be entering the market, from your perspective at least, unless things further inflate, then you should be in still a decent position on a profitability basis as you enter next year, if that makes sense.

Andy Callahan -- President and Chief Executive Officer

Yes. I think, overall, I think that's right, Rob, the pricing. We've got good visibility into inflation in the back half. It's obviously rising.

And the pricing that we're enacting in the second half has contemplated that. So we'll get a wraparound benefit as we're going into next year. And from a '22 standpoint, we've got a playbook that we typically run in terms of locking in commodities. We started to do that.

I don't have specific guidance for you on '22. But the pricing that we are enacting in the marketplace in the second half does contemplate kind of our outlook on inflation. And as I mentioned, the back half. We feel good about offsetting that inflation with pricing and productivity.

Rob Dickerson -- Jefferies -- Analyst

OK. Perfect. And then I guess maybe just coming back to Ken's question a bit, again, don't want to nitpick, but I kind of view it as more upside than further downside. Just something seems to kind of be going on in that mass channel.

I realize maybe some of the back-to-school shipments pulled forward just a little bit. But then there's kind of non-back-to-school resets and kind of those broader conversations. So I'm just curious now, kind of where you sit with some of the new innovation, some of the renovation on Voortman? How do you feel -- or let's say, how are some of those conversations going with some of those mass retailers with respect to increased distribution points, shelf space, what have you. That's all I have.

Thanks.

Andy Callahan -- President and Chief Executive Officer

Yes. Hey, thanks, Rob. Yes. No, I'll just reiterate the breadth of our distribution is really showing through.

We're gaining two share points across. I like the productive conversations we have with all of our customers regardless of channel. Even in the channels where we're not performing well, I feel good. Voortman is doing very well across all of those channels, when you look at point of sale that's coming through.

We're in subsegments that are growing. I feel really good about some of the news with the front-end resets and the strength of our single-serve business that we will see coming through as we get through the end of the summer. And specific to Baby Bundts across all channels, including some of the channels where we're not performing well, we're some of the No. 1 new items.

So we're really positioned for the long term especially given the affinity of our consumers and the strength of our brands over time. So a lot of these plannings, they don't happen just overnight, and I feel really well where we are positioned across all of our channels.

Rob Dickerson -- Jefferies -- Analyst

Great. Thanks. Fair enough. Thank you.

Operator

Our next question is from Ryan Bell with Consumer Edge Research. Please proceed with your question.

Ryan Bell

When we're thinking about the pricing that you're taking, we're trying to get maybe a broader sense of the percentage or the mix of the pricing that's coming from frontline pricing versus mix. I think that could be helpful to understand the dynamic. And then when we're just looking at the scanner data, we're seeing sort of mid-, maybe even to high single-digit price/mix increases on a weekly basis. In July, is that roughly in line sort of with the expectations over the balance of the year?

Brian Purcell -- Chief Financial Officer

So just so I'm clear, Ryan, I think you said you're seeing single serve? Is it the single-serve mix you're referring to is higher than multipack. Is that what you're saying?

Ryan Bell

No, no, sorry. I was just saying that right now, in July, we're seeing mid- to high single-digit price/mix increases. Is that just the overall year-over-year pricing? Is that something that we'd expect over the balance of the year? And then I know you talked about there being benefits from mix shifts potentially versus some frontline pricing? And I was trying to see how that would play out over the balance of the year.

Brian Purcell -- Chief Financial Officer

Yes. So Ryan, so just directionally from -- if you think about the front half of the year and then kind of the back half. On the front half of the year, we've got a lot of mix benefit, particularly driven by a single serve. So Andy alluded to in our investor deck, there's a slide where we showed that we were actually down in single serve in Q2 last year, we're up substantially this year.

That's helping drive our mix favorability that helps our margins and it helps offset inflation in the front half, a lot of productivity. As we move to the back half, I think that mix upside starts to wane, and it transforms more into pricing upside as we have pricing in the marketplace more in the back half. So in the interim, where you're talking about July, specifically, I think I won't comment like for one month. But I think over the back half, I would expect from a margin standpoint and pricing in the marketplace that you're seeing, you're going to see that more from over the second half, it's going to be more pricing-driven than mix-driven relative to the front half, if that answers your question.

Ryan Bell

Yes. That's helpful. And then when I'm thinking about the potential volatility in demand across channels, given the unknown to the Delta variant, would you be able to frame your ability to manage around that. I know you did a good job last year when things came up.

And then have you noticed any slowdown in heavier hit regions in terms of the mobility and how that relates to demand?

Andy Callahan -- President and Chief Executive Officer

Yes. Thanks, Ryan. I'll take that. And I agree with you.

I feel confident on our team to be able to execute in multiple challenges. I mean, we ramped up our Edgerton distribution center, integrated Voortman, dealt with COVID. And in each of them, the agility of the team and the excellence and execution has resulted in a sustainable growth model. And so now we have history on COVID.

And we have a pretty good feel for how consumers behave when different things happen. And I feel confident that we're well positioned to capitalize and to service our consumers and customers in a changing environment, as we have over the last 18 months with COVID. So I don't anticipate, although I could be off a little bit of a "lockdown" or a dramatic change like we saw before. However, if that does happen, we'll be ready.

So I feel really, really good about that.

Ryan Bell

Thank you. That's it for me.

Operator

Our next question comes from Ben Bienvenu with Stephens. Please proceed with your question.

Ben Bienvenu -- Stephens Inc. -- Analyst

Thanks. Good afternoon everybody. I want to ask, in light of the deleveraging going on in the business, I know it was not overly significant, but you did buy back some stock in the quarter. Just how you think about utilizing the cash flow coming in the door and that concurrent with deleveraging presumably providing you some increased flexibility.

Just how do you think about capital allocation as you get through the year?

Brian Purcell -- Chief Financial Officer

Yes. So from a capital allocation standpoint, we always think investing in the business is a good use of our cash. So investing in the business like we've done, as evidenced by additional donut line, our cake line that's going to be coming on in the back half of this year, our move to Edgerton. Those are all good high ROI projects.

So investing in the business is always a good use of cash for us against these good projects. M&A we've called out as a use of cash. Obviously, that's a little bit more opportunistic when that comes available for the right company. And as you mentioned, we're delevering almost a full turn this year, absent any significant M&A or additional buyback activity will be around three times at the end this year.

We were close to four times when we started the year. And we just bought back 1.5 million shares, that's through July. The majority of that was in Q2, but that's up through July, we spent $25 million on a share buyback. So we've said that returning capital to shareholders was in our playbook, and we just demonstrated that.

And as we're thinking about the balance of the year, all those options are still on the table for us. We've got $67 million still available under our share repurchase authorization. And those are things that we talk about on a consistent basis. So that's generally how we think about prioritizing our cash allocation.

And I do feel like we're in a good spot as we continue to delever, as you mentioned.

Ben Bienvenu -- Stephens Inc. -- Analyst

OK. Great. And I know there's been some commentary on pricing, some color you've given. You talked about the receptivity from the market as it relates to demand elasticity.

To the extent we get further labor tightening in the workforce and that drives or necessitates increased pricing beyond even what we've contemplated. Where do you think we stand on the demand elasticity front to enable incremental pricing on top of what we're contemplating now?

Andy Callahan -- President and Chief Executive Officer

Yes. As you know, we're very data-driven, analytically driven. We have very detailed models related to elasticity. We've passed it through.

But more importantly to your question is I feel really good about our equity. Our consumer loyalty is extremely high. Our ability to be able to pass through pricing when needed, which we're now demonstrating now, I feel good about. You also said, we have a pipeline of revenue management that we talk about that we monitor all the time.

It's always integrated. We look at it all the time, not just in these high inflationary environments, but it's a daily part of integrated the way we run the business. And I feel good that we have a good pipeline of revenue management and productivity initiatives to be able to manage our margins over a sustainable period. That's a capability, not just a onetime event.

So I feel good about where we are.

Ben Bienvenu -- Stephens Inc. -- Analyst

OK. Very good. Congrats and best of luck.

Andy Callahan -- President and Chief Executive Officer

Thanks.

Operator

Our next question comes from Pamela Kaufman with Morgan Stanley. Please proceed with your question.

Pam Kaufman -- Morgan Stanley -- Analyst

Hi. How are you? Thinking about the sustainability of consumer demand, given you're benefiting from a combination of continued elevated at-home consumption as well as improving mobility. Do you see this as a sustainable dynamic? And would you expect top line to grow next year as consumers transition out of the pandemic?

Brian Purcell -- Chief Financial Officer

Yes. Pam, good to hear your voice. I do, I would expect us to continue to grow. I think before the pandemic opened up, I believe we were in good indulgent categories that we're growing.

And what we're experiencing now when early in the pandemic on the go business, we were able to expand our distribution and our share of shelf. We saw penetration within the convenience channel, for example, increase. And now we're holding on to those increases, and mobility is increasing. So that's a good positive tailwind.

Within the in-home snacking or the carried away from home, it's really interesting because it opened up a little bit, so consumers were maybe back at home, they're still in home more. And even though they may eat out at restaurants more, being in home more means snacking at home more, and we're benefiting from that. And I think that's going to be a sustainable shift. So I think we're well positioned for our on the go business, and I believe we'll continue to be able to grow in our in-home snacking business because of that dynamic, that we're a snacking business, not necessarily a center of the plate business.

Pam Kaufman -- Morgan Stanley -- Analyst

Great. Thanks. And also, you highlighted some of the new products that you've launched that are targeting younger consumers. You've talked a lot about your strategy to expand into new occasions like breakfast, but do you also see opportunity to increase penetration within certain demographics? And how are you incorporating this into your innovation strategy?

Andy Callahan -- President and Chief Executive Officer

Yes, we do. We test our innovation. First of all, thanks for the question. I love this question because we've invested a lot of really understanding our consumer.

We've invested a lot to understand the occasions in which we compete. We've also looked at where those occasions are fastest growing, who's our core target and demographic. And that underpins how we test them, how we develop. Tina and Dan, who are on our growth side, do a great job of really threading the consumer target, which is younger, the new products that are going to capture their imagination and fit their needs.

And then our advertising does that as well. So we expand not just our frame of reference around who's going to come into the occasions in the snacking, but we also make sure we're talking to them not only directly through our advertising, but also with products that fit their needs. That's why you see things like our Crispy Minis that are more around an occasion where those consumers are looking for. It's a combination of baked and crunchy.

Baby Bundts is just absolutely doing really well and it's doing well across the demographic spectrum. So it's inherent in the way we understand our consumers, their occasions and then develop new products and communications to them.

Pam Kaufman -- Morgan Stanley -- Analyst

Great. Thanks. And then can you just give an update on the investments that you're making into the breakfast category and what you're seeing broadly in terms of growth in eating occasions for Sweet Baked Goods.

Andy Callahan -- President and Chief Executive Officer

Well, as you know, breakfast is a growing subsegment of Sweet Baked Goods. It's growing in total. I think consumers at home eating breakfast a little bit more in home. When we invested -- when we originally went and talked about accelerating our growth in breakfast, to put it in perspective, we were underdeveloped by five share.

Our share of development in breakfast versus our overall share within Sweet Baked Goods was about five points below. We're now at or slightly above our total development. So the initiatives we're taking have been extremely positive. I'm looking at some of those initiatives.

We entered Hostess with our Danish business and expanded within that with Jumbo Donettes. We now have Muff'n Stix out this year. Baby Bundts is doing extremely well. We've also expanded space and some customers.

We've segmented specific shelves related to breakfast, so that consumers could really understand how it fits within their usage occasion. So we're seeing that not only from a consumer standpoint that the breakfast is increasing penetration in sweets to get this to a positive start to their day but also the repeat purchases, and we're giving them products that they want within that occasion, both for on-the-go and within the retail space. So we thought about it three years ago. We have been successful with that strategy, and we actually believe that there's a long way to go that we're just really getting started.

So I feel really good about that strategy. On Page 7 of our investor presentation, you'll see some headlines of total breakfast and how we're performing well quarter-to-date.

Pam Kaufman -- Morgan Stanley -- Analyst

Great. Thank you.

Operator

We have reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to Andy Callahan for closing comments.

Andy Callahan -- President and Chief Executive Officer

Well, I just want to thank everyone for your participation and continued interest in Hostess. As you can hear, we're excited about the continued strong execution of all of our teams against our priorities as we drive growth and continue to focus working hard for our shareholders to continue to increase shareholder value. So thanks for participating today. We'll continue to work hard, and see you next quarter.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Amit Sharma -- Vice President, Investor Relations

Andy Callahan -- President and Chief Executive Officer

Brian Purcell -- Chief Financial Officer

David Palmer -- Evercore ISI -- Analyst

Ken Goldman -- J.P. Morgan -- Analyst

Rob Dickerson -- Jefferies -- Analyst

Ryan Bell

Ben Bienvenu -- Stephens Inc. -- Analyst

Pam Kaufman -- Morgan Stanley -- Analyst

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