Hostess Brands, Inc. (TWNK) Q1 2022 Earnings Call Transcript

Hostess Brands, Inc. (TWNK)
Q1 2022 Earnings Call
May 04, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, ladies and gentlemen, and welcome come to brands -- Hostess Brands, Inc. first quarter of 2022 earnings conference call. At this time, all participants are in listen-only mode. A brief question-and-answer session will follow the formal presentation.

[Operator Instruction] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Mr. Amit Sharma, VP of Investor Relations.

Amit Sharma -- Vice President, Investor Relations

Good afternoon, and welcome to Hostess Brands first quarter 2022 earnings conference call. Joining me today on the call is Andy Callahan, Hostess Brands president and CEO; and Mike Gernigin, chief accounting officer and interim CFO. By now, everyone should have access to the earnings release for the period ending March 31, 2022 that was published at approximately 4:00 PM Eastern Time. The press release and 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. A detailed list of the risks and uncertainties can be found in today's earnings release and in our 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'll turn it over to Andy Callahan, our president and CEO.

Andy Callahan -- President and Chief Executive Officer

Thanks, Amit. I would like to begin by offering a few highlights from our first quarter, which we delivered exceptional topline and bottomline results. I will then offer a few comments on the long-term health of our business, before handing it to Mike for detailed review of our quarterly financial results. We will wrap up with a discussion of our raised guidance for the full year before opening it up to your questions.

We laid out a compelling vision at our March Investor Day of Hostess Brands as a differentiated snack company with an advantage business model to deliver sustained, profitable growth. We're off to a strong start on delivering that vision. Our outstanding first-quarter results highlight many of the key factors that make us confident in our ability to catapult into the next phase of growth even as we continue to navigate an environment of heightened inflationary headwinds and supply chain volatility. Now, to some of the key quarterly highlights.

Adjusted net revenues grew 25.1% in the quarter, the ninth consecutive quarter of at least 9% sales growth, and the highest quarterly sales growth in our history, as we delivered strong volume growth and benefited from higher pricings and favorable mix. Higher volumes accounted for nearly 15 percentage points of our quarterly sales growth, reflecting strong innovation and consumer demand, as well as the continued excellence of our supply chain, as we execute well in a dynamic environment. Price mix contributed 10 points to our quarterly growth as we benefited from planned pricing actions in response to rapidly escalating input costs. Sweet Baked Goods and Cookies both posted impressive broad-based growth in the quarter.

Our Sweet Baked Goods point-of-sale, led by the Hostess Brand, posted its second consecutive quarter of more than 20% growth. Our focus on large, growing snacking occasions, and investments in the innovation and marketing continue to drive the category and enable us to capture a greater market share. Our share of the Sweet Baked Goods category increased 135 basis points to 22% during the first quarter, the sixth consecutive quarter of market share expansion in the Sweet Baked Goods category, as we continue to drive overall category growth, as we have consistently done over the past three years. Turning to the Voortman brand and its continued growth momentum.

Voortman grew point-of-sale 29% in the quarter, well above the 9.5% growth of the overall Cookie category. Expanding distribution continues to be the key driver of Voortman, fueled by increasing brand awareness and the positive impact of innovation, particularly focused on the fast-growing sugar-free subsegment, where Voortman grew its share by eight points in the quarter. Our portfolio continues to be very well-positioned for evolving snacking behaviors as consumers adjust to the post -COVID world. Hostess Brands single-serve and multipack point-of-sale each increased by more than 20% during the quarter with two year stacked growth of 32% and 34%, respectively.

Additionally, we grew across all channels demonstrating the strength of our broad based distribution and agile model. At the same time, our successful and differentiated innovation remains a key driver of our impressive top-line trends. We are leveraging our deeper understanding of key snacking occasions to create more impactful, breakthrough innovation that brings incremental households into the franchise. Our systematic approach has enabled us to create a robust, multiyear pipeline of new products to continue to refresh our portfolio and target profitable, high priority retail customers, and churns.

For instance, Baby Bundts targeted at the sweet start occasion continued to be a standout innovation in the Sweet Baked Goods category, as lemon and Cinnamon Baby Bundts are the number one and number three SKUs across all multipack in terms of innovation sales over the last 52 weeks. Recently launched Boost, our jumbo donettes innovation with the caffeine equivalent of one cup of coffee in each donut has garnered over 1 billion consumer impressions in just a few weeks, enabling it to gain rapid penetration with on-the-go consumers. Continuing on momentum, we are launching our next big innovation, Bouncers. Bouncers will hit the market in late summer, and provides consumers with a smaller, single-serving poppable version of our iconic Twinkies, Ding Dongs, and Donettes brands.

Bouncers is designed specifically to bring incremental consumers to our brands, particularly millennial parents, by targeting the lunchbox occasion, and making it easier for kids to enjoy our iconic snacks. As we outlined at our Investor Day, we continue to invest in innovation and growth initiatives, particularly advertising and marketing to support mid-single digit topline growth over the long-term. Our brand activation initiatives are increasing top-of-mind awareness while driving greater engagement with consumers, which is an important measure for long-term success as 61% of the consumers that do not buy us report the top reason is because they do not think about us. We're changing that.

In the second quarter, we're launching our first national digital video advertisement and plan to ramp up additional A&M investments over the course of the year. This will support our core portfolio and the launch of Bouncers in the second half. As we continue to increase our advertising investments, we will be highly disciplined in our ROI focused approach. And, our 100% focus on digital will enable us to be more efficient and nimble compared to larger peers with a higher mix in traditional media.

While the strong awareness of the Hostess Brands, our innovation, advertising, and in-store execution are driving strong trial and increase in household penetration. Our investments in product quality are bringing consumers back. Hostess repeat consumers have grown at a faster rate than the category leading to increased loyalty and sustained growth. As proud as I am of our top-line momentum, I'm equally proud of our dedicated workforce, which has enabled our supply chain to execute at high levels even during the period of unprecedented volatility.

The CPG industry, like many, continues to face a dynamic commodity, labour, and freight environment. And the recent macro events are leading to additional and rapidly increased cost pressures and supply constraints. We're not immune to many of these challenges also faced by our peers in the industry. We're revising our inflation outlook, which is now expected to be in the high teens for the full-year versus our previous double-digit outlook as we experience broad-based cost increases.

We continue to execute on our revenue growth management toolkit, productivity initiatives, and multiple inflation driven pricing actions to manage inflationary pressures. As we face additional cost increases, we're planning to take an additional price increase later this year across most of our portfolio. We continue to work closely with our retail partners on these pricing actions to ensure that we maintain Hostess and the overall category momentum. We have built a long track record of delivering excellent results in challenging operating environments.

And we remain confident in our ability to successfully manage through this latest iteration of escalating headwinds in a timely, responsible manner, while protecting the long-term health and profitability of our business. Additionally, we will continue to drive sustainable, profitable growth, the right way, as we make great progress on our ESG initiatives. As I outlined at our Investor Day, we have added achievement of ESG goals into the strategic objectives of our executive team, and created a formal structure for the Board to provide oversight of our ESG programs. We look forward to sharing more on our progress in our next corporate responsibility report to be published in a few weeks.

Another milestone in our journey to building strong, sustainable corporate culture that values nimbleness, integrity, tenacity, inclusivity, and a commitment to quality. In summary, we had a very strong start to 2022. Our structural advantages and excellent execution is enabling us to manage a very dynamic and challenging operating environment and raise our full-year guidance. More importantly, we remain highly confident in the new and exciting long-term growth algorithm that we laid out in March.

Over the next few years, we expect to deliver mid-single digit organic revenue growth, 5% to 7% EBITDA growth, and 7% to 9% EPS growth that we believe will establish us as a best-in-class snacking company that generates top-tier total shareholder returns. Now, I'll turn it over to Mike to go through the quarterly financial results, and our revised outlook in greater detail.

Mike Gernigin -- Interim Chief Financial Officer and Chief Accounting Officer

Thank you, Andy. It's an honor to be a part of the Hostess success story and to speak to another quarter of outstanding performance. Organic net revenue for the quarter increased 25.1% to $332.1 million, a record for both quarterly sales growth and total net revenue for Hostess Brands. Our top-line was driven by continued strength in our consumption trends as higher volumes accounted for 15 percentage points of the quarterly growth, with the rest attributed to price mix as we continued to benefit from our planned pricing actions and favorable product mix.

Our Sweet Baked Goods portfolio nearly 90% of our total revenue grew 24.7% during the quarter, while our Cookie portfolio grew 28.9%, demonstrating growth across our entire portfolio. Our Nielsen measured point-of-sale trends continue to accelerate. For the 13-week period ending April 2nd, our Sweet Baked Goods sales increased by 24.7%. This growth drove 135 basis points increase in our market share up to 22% of the category with continued broad-based momentum.

Voortman POS increased by 29% in the period, three times faster than that -- than the 9.5% growth for the overall Cookie category, driven by strong growth in the sugar-free subsegments. Voortman share of the Cookie category increased by 34 basis points to 2.3%. Andy touched on the solid growth of both our single-serve and multipack offerings. Our breakfast portfolio also continues to significantly outperform the subsegment with 33.9% growth in the quarter, nearly twice that of the total breakfast subsegment.

Our strong momentum breakfast is driven in part by our impactful innovation, particularly Baby Bundts, which continues to be the top new product in the Sweet Baked Goods category. Adjusted gross profit of $115.8 million increased by 21.3% for the quarter, driven by strong volumes and higher prices. Adjusted gross margin for the quarter declined by 113 basis points to 34.9%, as the benefit from higher prices and our productivity initiatives was more than offset by 16% inflation due to higher input, transportation, and labor costs. Adjusted EBITDA increased by 24% to $77.4 million, up from $62.5 million in the year-ago quarter.

Our strong quarterly EBITDA was driven primarily by higher gross profit. Our SG&A spend increased with planned investment in our people and our capabilities. While A&M was largely flat during the quarter, as Andy mentioned, it is expected to increase over the remainder of the year. Adjusted EBITDA margins were largely flat at 23.3%.

Our effective tax rate, excluding discrete items was 27.1% compared to 27.2% in the prior year quarter and in-line with our 27% outlook for the full year. Adjusted net income of $38 million for the quarter increased 41.3% from prior year period. Adjusted earnings per share of $0.27 increased 35% as current quarter EPS reflects average fully diluted shares outstanding of $139.6 million versus $137.2 million in the year-ago period. At the end of the quarter, we had cash and cash equivalents of $238.4 million and net debt of $850.4 million, with a net debt leverage ratio of three times at the bottom end of our targeted range of three to four.

During the quarter, we repurchased $10 million worth of shares under our previously announced $150 million repurchase program. Turning to our outlook for the year. Given the strong start, we're raising our full year guidance. We now expect full year net revenue growth of at least 12% up from previous guidance of 5% to 8%.

Our updated revenue guidance assumes low to mid-single-digit volume growth relative to our previous flattish outlook. Full-year adjusted EBITDA is now expected to be toward the higher end of the initial $280 million to $290 million range, while EPS guidance remains unchanged at $0.93 to $0.98 per share. We expect full-year capex in the $120 million to $140 million range, including spend for the new Arkadelphia facility. And a tax rate of 27%, both unchanged from our original guidance.

With average shares outstanding of $139 million to $140 million, updated from previous guidance of $137 million to $138 million. Additionally, we now expect our full-year COGS inflation rate to be in the high teens as we continue to invest in our workforce and absorb inflation across commodities, packaging, and transportation, which also includes the impact of our stronger than previously expected volume growth. We are fully hedged for our coverable commodities in the second quarter, and now nearly 90% for the full-year. As Andy described earlier, we plan to take additional inflation-driven price increases across most of our portfolio later this year.

However, given the rapid increase in inflation above our initial forecasts, and the timing of our pricing actions and realization of productivity initiatives, we now expect our full-year gross margins to be down approximately 150 basis points from last year with the largest decline expected in the second quarter. Over time, we expect our revenue growth management toolkit, including pricing and our productivity initiatives, to fully cover higher costs from insulation. Consistent with our message at Investor Day, we will continue to invest to drive growth and manage our gross margins over the long run. It was a very strong quarter of top and bottom line as we continue to drive sustained profitable growth.

With that, I will turn it back to Andy for closing comments.

Andy Callahan -- President and Chief Executive Officer

Thanks, Mike. I want to take this opportunity to thank Mike for his very strong partnership to me, and contributions to Hostess over the past six months as we -- as he took on the additional responsibilities of chief financial officer. At the same time, we are all very excited to welcome Travis Leonard to the team who will formerly join Hostess on May 11th. I will close by reiterating our Investor Day message.

The foundation of Hostess Brands has never been stronger and I've never been more excited of our capabilities to catapult to our next phase of growth. We are operating in a very dynamic environment, but our strong start and increased outlook for the full-year clearly highlights the strength of our portfolio and our advantaged business model driving our ability to deliver our attractive long-term growth algorithm and leading shareholder returns. And with that, we're open for your questions. Hold on.

[Commercial break]

So everybody heard the prerecord but they haven't heard us go live.

Questions & Answers:

Operator

Thank you. Apologies for that. Ladies and gents, we will now be conducting a question-and-answer session. [Operator Instructions].

First question comes from Ben Bienvenu of Stephens.

Jim Salera -- Stephens, Inc. -- Analyst

Hi guys, its Jim Solera on for Ben. Congrats on the great quarter. I wanted to ask on pricing power, how do you guys feel your position if the inflationary trends we're seeing now continue into the back half of the year than potentially even in the 2023 relative to the consumer capacity to take more price increases?

Mike Gernigin -- Interim Chief Financial Officer and Chief Accounting Officer

Hey, thanks for the question and appreciate it. Let's -- let me start with this pricing environment at a macro level. First of all, for Hostess Brands, us within the whole snacking complex, we're relatively good value snack, even with the pricing and the contemplated pricing we're putting in the marketplace. We're in a category with low private label.

We compete in a broader occasion-based snacking market. That's demonstrated by the fact that our brand at regular prices has good distribution, good sales across all channels, whether it's a value channel, whether it's a high-end retail grocery store. So we're well-positioned as a value snack in an occasion that's growing and growing very well. With that being said, I also feel we're in a good place, relatively speaking, to continue to put our pricing into the marketplace.

Now pricing is a last resort for us, but we're committed to maintaining our margins over time, and we're going to grow by attracting new consumers within growing occasions. But I believe we're in a good position relative to the whole marketplace. Last point on the consumer. The consumers experience a lot as we move forward into the back half of the year.

They'll continue to see inflation, they're going to -- their support level relative to other government subsidies are moving down. So there is a lot of chain, so it's a difficult market to predict. But with that being said, what I do continue to see as what's really booing our growth both on the volume -- mostly on the volume side is that the macro trends that the consumers are having, being that they're home more, snacking more, being more mobile, they are really driving our business and our ability to increase our penetration, and then our investment in quality. So we're getting repeat.

Our consumers are repeating at a greater rate than the category, which is really driving the sustainability. That growth is really going to carry us through. So that's a long answer, but I believe we're in a really good position relative to the entire snacking complex entering good locations that are growing.

Jim Salera -- Stephens, Inc. -- Analyst

No, that's great. I appreciate the initial color. Technically speaking one more. Given the success you guys have had with recent acquisitions, especially Voortman is outperforming for and above the category does, do you have any thoughts on acquisitions right now, given the environment? I mean, obviously you're at the low end of your leverage range and you've just got to hit a home run with Voortman, is anything like that on your horizon?

Andy Callahan -- President and Chief Executive Officer

Yeah, you're right. Voortman it's home run and it's a testament to the team, their ability to be able to execute it and integrated, but then also invest and grow it. And we've grown it. It was margin accretive right away.

We were going to hit our targets and it continues to grow at a great rate. We feel really great about it and the runway is long. I don't comment on specific M&A targets, but it continues to be -- our capital allocation priorities continues to be the same as we invest in our core that we're doing, because we have a great runway on our core growth which includes both our Hostess Brand and Voortman. -- And scaling our platform for M&A, which could be even a greater amplifier above our long-term algorithm value creation model that we have talked about at Investor Day.

The great news about that is we're in a really good position. We can create -- differentiating total shareholder return given our position in the marketplace and the categories we're in and able to grow. So we can be disciplined and find the right target at the right time that's going to create value like we did at Voortman. Without commenting on specific targets, we continue to be focused on it.

We believe it's an amplifier above shareholder return. And when we do it, we've demonstrated our ability to be able execute it with excellence.

Jim Salera -- Stephens, Inc. -- Analyst

OK. I appreciate that guys, I'll pass it along.

Amit Sharma -- Vice President, Investor Relations

Thanks, Jim.

Operator

Thank you. The next question comes from Pamela Kaufman of Morgan Stanley.

Pam Kaufman -- Morgan Stanley -- Analyst

Hi. Good evening. Good afternoon. So on the top-line guidance, I know that you increased the outlook for -- to be at least 12% growth, but given the strong top-line performance in Q1 with sales up 25%, what's driving the outlook for moderating growth over the course of the year? And you mentioned that guidance assumes mid-single-digit volume growth, but given price mix was up 10% in Q1, and you're planning to take more pricing, is the implication that your top-line outlook is notably higher than 12% for the year?

Mike Gernigin -- Interim Chief Financial Officer and Chief Accounting Officer

So I'll take that. We put the guide of 12% out there, which we believe is a responsible representation of where we see the business. All of the factors you said were true. That's a great number to have out there.

Obviously, we had a very strong Q1, but as we move forward in the year, there is a lot of -- that the consumer is going to witness. We're going to be lapping continued strong growth. And certainly,there's a wide range of variability on what the consumers would see. And I think our guide is -- acknowledges that.

And that's why we said at least 12%. The factors that the consumer will see will be more pricing, reduction in some of the support they had. However, the employment is very high as I said in the previous question. I believe we're positioned very well given the macro trends of the consumer in the environment, and our ability to execute with the customers.

So -- but there's just a large variability that unchanged that the consumers are going to see over the back half, and our guide -- acknowledges that high level of variability.

Pam Kaufman -- Morgan Stanley -- Analyst

Great. And how much additional pricing do you anticipate taking? What are you observing from a competitive landscape on pricing? And then, I guess related to that, how are you thinking about the sustainability of your market share performance over the course of the year?

Andy Callahan -- President and Chief Executive Officer

When you look at dollar shares, one of the things that we've done extremely well is balancing, as we got pricing through to continue to drive unit share growth. And a lot of that has to do with the -- our investment in quality so we're getting repeat consumers when we -- when they try us at a greater rate than the category, our fundamentals and our execution with our customers, and obviously, our innovation and our brand quality. So that will sustain us over time and why we will consistently grow greater than the category because we're accessing consumers outside the category as we focus on occasion. So all that's being true.

We don't get -- we don't overly manage quarter-to-quarter on this, but there's a timing of when maybe dollars or price increase can come through to the quarter. But fundamentally to your question, I believe we'll continue to price to value in the marketplace, be competitive, and be the best value for consumers. And as a result, behind our innovation, our brand, and our execution, we will drive share consistently over time.

Pam Kaufman -- Morgan Stanley -- Analyst

Thanks. Any color on the price -- the additional price increase that you've had?

Andy Callahan -- President and Chief Executive Officer

I'm sorry. The price increase -- the majority of -- we are -- have an additional price increase that will go through in the -- beginning in the back half. The majority of the pricing that we'll see recognized in '22 is already in the marketplace, but there is additional in the back half. We don't want to breakout the specific amount, but we do see it flowing through in the Nielsen data now, and it will flow through now for mostly through the remainder of the year, probably through Q3 and then start moderating in Q4.

Pam Kaufman -- Morgan Stanley -- Analyst

OK. Great. Thank you.

Operator

Thank you. The next question comes from an Anoori Naughton of J.P. Morgan.

Andy Callahan -- President and Chief Executive Officer

Hi, Anoori.

Anoori Naughton -- J.P. Morgan -- Analyst

Hi, good afternoon. I have a quick clarification. The incremental pricing, you're going to pass in the second half, is that embedded in your guidance?

Andy Callahan -- President and Chief Executive Officer

Yes, it is.

Anoori Naughton -- J.P. Morgan -- Analyst

OK. Great. My question is, do you believe that the strength that Hostess is enjoying in the convenience channel is sustainable at these levels if gas prices stay where they are, are these elevated levels and what are you assuming for the channel in your guidance?

Andy Callahan -- President and Chief Executive Officer

Yeah. So obviously, we execute extremely well in the convenience channel. We have great relationships with our distributors and customers. We innovate within the -- for that consumer and that need, that's demonstrated by our Boost Donettes that's moving into the marketplace right now.

We invested in data. So that's a headline of saying, "Our share growth and our sustainability of the growth within that channel." And more importantly, from the consumer that's on-the-go, immediate consumption. The front end of grocery stores, including that channel is sustainable, and we'll continue to -- we expect to continue to grow share within that channel. More acutely, we do look at the purchases within, as consumers go to fill up their tanks for gas.

We do have, not proprietary to us, but look at some of the data related to the industry. And we have yet to see a meaningful softness in the behavior of their purchases within the store. And when they do reduce those purchases, they're not always their snacks first, we also have seen through the data historically that there may be more of the -- either the higher-price items or maybe drinks or something beforehand -- before the snack. We have yet to see a softness in that area.

We will get it very closely. I think there may be -- we'll just continue to monitor it. But in the macro level, we feel well-positioned versus the alternatives for those consumers within that space, and we'll grow -- continue to grow it over time. And then the short-term, we have yet to see a meaningful softness with the higher prices.

Anoori Naughton -- J.P. Morgan -- Analyst

Great. Thank you.

Andy Callahan -- President and Chief Executive Officer

Thank you, Anoori.

Operator

The next question comes from Robert Moskow of Credit Suisse.

Robert Moskow -- Credit Suisse -- Analyst

Hey, thanks. Getting back to Pamela's question about how you came up with the guidance for sale, Andy. Mathematically, I think it comes back to high-single-digit for the next three quarters. And you said it has to do with possible responses in the elasticity from consumers, I think that was the biggest driver for that, but you haven't seen any of it so far.

I guess my question then is, let's say I take the view that consumer demand is going to remain strong because of the higher prices. If that happens, is there -- what's the gross profit flow-through from that incremental sales in your model, like is it -- did it all dropped to the bottom line? Or does it come at a higher cost, because I think in your guide you said all the raw materials are costing more too and that's part of the reason for the higher volumes leading to higher inflation too. What could be the flow-through of incremental sales if it comes in better than you think?

Andy Callahan -- President and Chief Executive Officer

Yeah. There is -- obviously, when inflation goes up, a lot of that inflation hit is a variable cost, and then we recover that over time. Obviously, there is part of that, that's a fixed cost with our overhead and we're not going to increase our advertising or add cost to it. I don't know if we're going to break that out, but the headline on that would be we're seeing Mike called out a 16% inflation in Q1, and we're seeing that much higher as a year ago.

That's going to -- those variables and costs are going to flow through, but they're fixed costs, obviously if we would get leverage on it would be an improvement.

Robert Moskow -- Credit Suisse -- Analyst

So there would be leverage on incremental sales if your last decisions continue to remain benign?

Mike Gernigin -- Interim Chief Financial Officer and Chief Accounting Officer

Hey, Rob. This is Mike. Yeah, I think that's true. The other thing to consider, we talked about in the prepared remarks our coverage levels, right? And Andy talked about our guide is as we see the business today.

And when we look at our coverage levels and plan around that, that also contemplates how we see that guide as well. So I think you've got to keep that in mind when you think about the possible variability costs in there as well.

Andy Callahan -- President and Chief Executive Officer

Sometimes, when we go over the volume levels, then we're buying at whatever the market is at that time on some of the variable things.

Robert Moskow -- Credit Suisse -- Analyst

You would need to go on spot, you mean?

Mike Gernigin -- Interim Chief Financial Officer and Chief Accounting Officer

Yeah.

Andy Callahan -- President and Chief Executive Officer

Yeah. So we'd be at the -- little bit on the market if it was meaningfully different.

Robert Moskow -- Credit Suisse -- Analyst

OK. Last question. Speaking of spot, stock markets in freight seem to be falling now. I can't remember if you are exposed to that or not.

Does that impact your -- is there any good news in that front or is it not really impacting you?

Andy Callahan -- President and Chief Executive Officer

I'm looking at a similar chart on the market. So it's not -- we don't buy 100% on the spot nor do anybody because you have relationships with carriers, and we have agreements with them, and that loop keeps the whole system working, and that's true for everybody. So there is a component that if you go onto the spot that, that would be a variable component to it. So there is some upside, but relatively speaking, it's not as meaningful until you really get through it over time.

It's not an immediate favorability or unaffordability as, say, more so that diesel or some other things would be.

Robert Moskow -- Credit Suisse -- Analyst

Thank you.

Andy Callahan -- President and Chief Executive Officer

Yeah. Thanks, Rob

Operator

The next question comes from David Palmer of Evercore ISI.

Andy Callahan -- President and Chief Executive Officer

Hi, David.

David Palmer -- Evercore ISI -- Analyst

Hey, Andy. Just a follow up on that, what are the biggest reasons for the increase in your input? You said double-digit before, I had assumed it was low double-digit and now we're talking high teens and it sounds like it's even ramping up from the 16% in the first quarter. What are the biggest variables that are causing that to go higher?

Andy Callahan -- President and Chief Executive Officer

I'll let Mike take this.

Mike Gernigin -- Interim Chief Financial Officer and Chief Accounting Officer

Yeah, thanks. It's across our COGS basket. It's in all of our core commodities. It's in our packaging, it's in our transportation.

It's in our transportation costs, including diesel, right, which is at high today. In addition to that, we continue to invest in our workforce in this dynamic environment. And so, it's across labor and packaging in all core commodities in transportation.

Andy Callahan -- President and Chief Executive Officer

Yeah. So we have obviously covered commodities, but our volume was above some of what was covered as we talked about before. And so in some of those areas like wheat and eggs, we did see the increase. And then also corrugate was large as well, which is not covered, so we did see it across a lot of places.

We feel like we're in a pretty good spot [Inaudible] on it now, given as we move through the year and we're executing our model, but that's -- it's probably where we saw it.

David Palmer -- Evercore ISI -- Analyst

And then just a couple quick follow-ups. I wonder if you would give a comment about Bouncers, if you could talk about the retail acceptance for that, or how you're thinking about maybe the magnitude of that versus some past other platforms like Baby Bundts or Crispy Minis or how does that compare? And then I missed your channels slide. Any sort of insights about how you're maintaining the mass share gains that you are starting to get or the rebound there? And how are things going in the convenience channel in terms of share as well. Thanks.

Andy Callahan -- President and Chief Executive Officer

Yeah. I'm looking at -- on the channels. There's the -- everything is good. We're growing share across all channels.

We're basically just on a dollar flat in one. Grocery share is up 1.5 points, mass channel is up, convenience is up, club is up, drug is up. We're good. We just communicate what we think is most represented by our business, which is more within our occasions and our forms.

And then your -- and then the Bouncers. I've nothing but great news to say about that. Innovations obviously an uncertain science on the hit rate. We've been really successful track record recently, and I expect Bouncers to continue that momentum.

We're really excited about it. It hits really an occasion we feel great about. And to get to the heart of your question, our retail customers are equally highly enthused about it, and the acceptance been really good. I expect as we get to the end of the summer to see a lot of good support.

We're going to be putting consumer support behind it as well. Our retailers are enthusiastic to get behind it equally. So I'm optimistic about it. We researched it, Tina and Dan and that team do a great job.

They have -- are establishing a very good track record. [Inaudible] really good results from it. You know the consumer response on Boost. Just let's not forget Voortman sugar-free mini cookies are rolling out now.

There's a lot of acceptance on that. Our peanut butter relaunch is going extremely well. And obviously, our buns are now moving into the convenience channel. So we have a lot of really good things to be optimistic for within the innovation space.

David Palmer -- Evercore ISI -- Analyst

That's great. Thank you.

Operator

Thank you. The next question comes from Ryan Bell of Consumer Edge research.

Andy Callahan -- President and Chief Executive Officer

Hi, Ryan.

Ryan Bell -- Consumer Edge Research -- Analyst

Hi. Just looking at some of the private-label trends that we're seeing in scanner, it would appear from what we see is that private-label continues to lose share on a year-over-year basis, would you be able to touch on why you think that branded players are doing so well within your core categories despite some of the pricing and expectations about how that would play out over the balance over here?

Mike Gernigin -- Interim Chief Financial Officer and Chief Accounting Officer

There's one thing I'll speculate. First of all, private label is relatively low when you look at our category, depending on what you'd look at, Ryan, just a heads up. If you look at some of the just syndicated data, it would include [Audio gap] some of the bakery stuff from the fresh bakery and the retail stores, which sometimes throws off the private label number. But one of the things that goes a little bit under the radar that I bring up every once in a while and I brought up on the call, our team has invested a lot of energy both from our manufacturing side, as well as our R&D side with our marketing team to make sure that we give consumers the best experience and invest in that quality.

And the quality of the goods that we're putting out, whether it's Konik Twinkie or our brand new Baby Bundts and everything in between. I feel really proud about it. And I think it's showing in the consumer repeat rate. And that's hard to duplicate at scale.

It's hard to do where you go through. And then as we've mentioned earlier, I believe we're a terrific value within the broader snacking space when you get that quality for the price that we give them. So I think there's a lot of factors going on. Additionally, we're supporting our customers not just with great products, but also with great innovation.

We're investing in the categories that drive category growth. We've been responsible for the majority -- a lot of the category growth over the last three years, the majority of it last year. So we feel all of those factors really put us in a good position to make private label not as needed within our category because we're delivering a lot of those category needs with the value proposition we give and the focus on innovation and growth within the category.

Ryan Bell -- Consumer Edge Research -- Analyst

Thanks. And I think you've talked a bit about the overall opportunity from the sugar-free Cookies for Voortman. Is there anything you could talk about how that could broaden potentially the demographics for your brand and the opportunity potentially within Hostess trademark? Or how do you think about that opportunity within the more dietary side of that spectrum?

Andy Callahan -- President and Chief Executive Officer

Yeah. Well, that's a strategy for the Voortman brand. Now you bring up to two good questions I just want to bring it up. What -- we are really doing a nice job with some of our innovations, Crispy Minis comes in line.

I think that our balance is also that we're really going to attract younger consumers to refresh the franchise. And when they come in, I mentioned out it now for the third or fourth time, our consumers repeat at a greater rate than the category in total. And so, I feel good about that. Related to Voortman, our Sugar-Free business is growing at twice or more than twice the rate of the total category.

We continue to expand the consumers. They're not just diabetics, but it also we're attracting other consumers into that franchise. And when you try them, they taste extremely good and it's not as big of a trade-off for sugar. Sugar is one of the primary -- for that consumer, primary needs.

We have two brands that do what they are intended to do very well. One in an indulgent snack without a compromise, but a moment of joy that we do responsibly and our Voortman Sugar-Free business specifically which has -- is also doing extremely well.

Ryan Bell -- Consumer Edge Research -- Analyst

Thanks. And the last one from me quickly, in terms of the innovation, where do you see from an occasion standpoint, the largest opportunity in the near-term?

Andy Callahan -- President and Chief Executive Officer

Well, we outlined five occasions during Investor Day. And so, each of those occasions are, once again, the Morning Sweet Start, Lunchbox, Afternoon reward, Immediate consumption, and Afternoon sharing. They're all target opportunities for us, and we don't highlight one or the other. But it gives us a $50 billion addressable market that's growing at a greater rate than total food.

So that's where we focus our innovation. We've mapped our consumers to that. We, therefore, attract them from other alternatives they have in the marketplace. And we believe the composite of those five occasions to give us a really great focus on where we can grow our core, which is why we're so enthusiastic about our ability to continue to grow over time.

Ryan Bell -- Consumer Edge Research -- Analyst

Great. Thanks for the context.

Andy Callahan -- President and Chief Executive Officer

Thank you.

Amit Sharma -- Vice President, Investor Relations

Thank you, Ryan.

Operator

Thank you. The next question comes from Rob Dickerson of Jefferies.

Rob Dickerson -- Jefferies -- Analyst

Great. Thanks. So I'll keep this quick. I guess this first question on the gross margin.

I think you said you expect gross margins out to be down 150 basis point for the year, and then worst in Q2. Maybe just providing color as to maybe how you're thinking about the back half or just as some of the incremental pricing flows through, could we potentially get our hope at least that gross margin to be like flattish? Or a better as we reach year-end, such that the pricing is hopefully sufficient enough. The start to offset some of the incremental costs and inflation.

Andy Callahan -- President and Chief Executive Officer

Yeah, I'll let Mike take this.

Jim Salera -- Stephens, Inc. -- Analyst

Yeah, Rob. No, thanks for the question. Right now, Andy talked about the rapid acceleration or the rapid increase in inflation. A lot of what's driving the -- what we called for Q2, and then the balance of the year, that Q2 being the harshest but the balance of the year being down 150 has a lot to do with the timing of our pricing and productivity initiatives.

So our pricing action is going to place hitting in the back half, catching back up with that inflation. As we look to those things, obviously we target managing that margin and sustaining that over time. As we see the business today, I don't think we would call the potential for flattish margins based on where the inflation outlook is today. But a lot of that difference between Q2 and the balance of the year is driven by the timing of our pricing and productivity initiatives -- our pricing actions and our productivity initiatives.

Rob Dickerson -- Jefferies -- Analyst

Fair enough. And then just secondly and very simplistically, look, in the quarter and I believe it's played out too in Q4. Your reported results from are in top-line and are coming in fairly closely relative to what we're all seeing in attract channel data. Is there anything that we should be aware of as we go forward that could create a delta? Or is the expectation here going forward is that, you should just essentially be shipping to consumption and as you pointed to, we should see the priced delta year-over-year as move forward too? That's it.

Andy Callahan -- President and Chief Executive Officer

Yeah. It's a little bit. We could track that, Rob, because we want to help you out with your models. We did have a little bit of the non-track that it's usually a couple of 100 basis points delta over time.

Let us go -- with we did look at that. We didn't make it a huge science this year, we'll try to take it offline to maybe give you a little bit of help. I think I would instead of trying to take an exception for just this quarter, I would probably look at it historically as probably the best guide over time, so that anyone, again new customer shipment or something may mess up a quarter, but the headline is it's usually going to be a little bit lagging of the -- of where it has over time.

Rob Dickerson -- Jefferies -- Analyst

OK. Great. Good work. Thank you.

Amit Sharma -- Vice President, Investor Relations

Thank you, Rob.

Operator

Thank you. The next question comes from Bill Chappell of Truist.

Stephen Lengel -- Truist Securities -- Analyst

Hi, guys. This is Stephen Lengel on for Bill Chappell.

Andy Callahan -- President and Chief Executive Officer

Hi, Stephen.

Stephen Lengel -- Truist Securities -- Analyst

How's it going? Thanks for the additional color on the sales results. Would you guys be able to parse out some of the growth that you saw in the quarter and to-date coming from the breakfast category, as well as how much was coming from innovation? And then to that, could you guys also talk about any major competitors that you may have started to see move into the breakfast category? Thank you.

Andy Callahan -- President and Chief Executive Officer

Yeah. So, let me take -- let me just make sure I get the -- let me get to the breakfast first real quick. But we continue to do extremely well in breakfast as we've identified -- back in my year one back in 2016 or 2017, that was a real priority for us. We now call it sweet start for the day.

And back then, we were underdeveloped in share and now our share position within the breakfast segment is on par and continue to grow. With that being said, we're always cognizant of competition. So I'm just looking at a chart right here. So within the -- within the last quarter in Q1, we grew our share within the breakfast on the way we look at it, three points, and we're up to a 23 share position.

So we're in a pretty good position related to breakfast, we'll continue to innovate within that space. Competition is always going to be trying to get in there, but it's one of our priority Sweet Start occasions and we feel really good about that. You had another question, I'm sorry.

Mike Gernigin -- Interim Chief Financial Officer and Chief Accounting Officer

Innovation.

Andy Callahan -- President and Chief Executive Officer

Oh, Innovation. We don't breakout specifically our innovation, but I will give you a couple of facts. Our innovation contribution to the category is -- continues to be above our total share of the category. It's one of the reasons why we drive category growth.

We contribute more absolute revenue to the category than anybody else in innovation. As we mentioned at our Investor Day, our vitality target continues to be very good. We target that over time at 15% to 17%. And I believe our pipeline going forward, as we talked about earlier, is as good if not better than the innovation slightly launched last year.

And that's saying something because we had a very healthy innovation slate that we're getting dividends as we continue to drive growth today.

Stephen Lengel -- Truist Securities -- Analyst

Great. Thank you so much for the color, guys.

Operator

Thank you. The next question comes from Steve Powers of Deutsche Bank.

Steve Powers -- Deutsche Bank -- Analyst

Hey, everybody, good evening.

Andy Callahan -- President and Chief Executive Officer

Hey.

Steve Powers -- Deutsche Bank -- Analyst

Just a follow-up on Rob's question on gross margins. So the incremental pressure that you're feeling are embedding in the down 150 call. As you look to rebuild that, I guess, is there a way you can frame for us, number 1, how much of that rebuild comes from the pricing initiatives versus incremental productivity? Number 2, on that productivity front, what are the sort of main buckets of where you see the opportunity to go after? And then number three, is the call that bill back to -- of the overall margin can happen over the course of between now and end of '23? Or is the timeline to rebuild gross margins more elongated from where we are today. Thanks.

Andy Callahan -- President and Chief Executive Officer

Yeah. So obviously, I'll come into just on that last piece and then I'll get into the other. We're going to maintain our gross margins slightly expanding over time as we mentioned at Investor Day. I'm not going to speculate into '23.

We're calling what '22 is and we'll come out with the '23 guidance the right time, but we're aggressive about that. What we're not aggressive about is compromising our long-term sustainable growth model at those margins. We'll continue to invest in innovation, we'll continue to invest in growth. We're not going to pullback short-term growth given our confidence and conviction on our core and ability to be able to grow at the margins for -- because of a short-term ramp up in the cost.

That's a choice we've made. And we feel really good about that choice because of the conviction we have and our ability to be able to capture that growth. Related to recapturing the margin, given the magnitude of the inflation price up, the majority of our recovery is really in the price mix because of -- in the short-term and that's why when it ramps up quickly, if there's a squeeze on our ability, we're able to capture it quickly. Over time and normal times, what we'll do is, our projectivity initiatives over time and our management of mix and our ability to bring new innovation into the marketplace and just efficiency allows us to operate the model more consistently over time.

We're in an -- a little bit unchartered territory given the magnitude of the inflation over sustained two periods of time. But that's why in the short-term, and that's why you just can't get it through as fast. Now, with that being said, relative to our productivity, fueling growth, we've outlined at Investor Day four really big areas of that. We're reducing complexity within our network.

We've already done a real good job by the way, and our agile model when we -- COVID hit, we were really aggressive about our SKU mix. The team -- our supply chain team did a great job of aligning some of our manufacturing networks. So we've done a nice job about that, but we continue to do that, whether it's harmonizing formulas and others. The other network and distribution, just simplifying our scheduling, planning optimization within our transportation system.

Our team does a great job at that. We're moving to more of a strategic sourcing. And then we're also putting in a more complex continuous improvement, not complex, but a more focus continuous improvement in digitization of our facilities. All of those are key work streams as we look at our future, so the savings.

We have a team dedicated to -- at making sure that execute with excellence. I feel great about that. We also have some automation that's going in. Some of those timelines are being impacted by the supply chain, but those are really, really good savings projects that I feel great about.

But those are some of the programs. And then Arist Mastorides and his team do a great job on our continuous revenue growth management. So we are -- one of the -- our focuses are we're not just focused on growth, we're focused on our flywheel of sustained growth. And we have very good focus on not taking quality out or not just taking costs out, but driving efficiencies into the way we operate every day.

And then investing in innovation that's consumer-centric and guided. That's a long answer but it allowed me to get some key points out from Investor Day, so I appreciate it.

Steve Powers -- Deutsche Bank -- Analyst

Sounds great. It was a long question with three parts. You did a good job. Appreciate it.

Thank you.

Andy Callahan -- President and Chief Executive Officer

Thank you.

Amit Sharma -- Vice President, Investor Relations

Thank you, Steve.

Operator

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the call over to Mr. Andy Callahan for closing comments.

Thank you.

Andy Callahan -- President and Chief Executive Officer

Awesome. Well, we got off to a great start. I want to start by just apologizing for a little bit of technical difficulties when we started. So thanks for sticking with us for the Q&A.

We're off to a great start the of the year. We really like our position in the marketplace as we outlined in Investor Day, of our ability to be able to continue sustainable profitable growth. And that will turn into the differentiating total shareholder return. The team's executing very well.

We love what we do. We love bringing joy to consumers every day. Q1 is off to a rough chart -- a terrific start, and we're moving into a dynamic environment that our agile model will be able to execute extremely well in, as we historically have. So, I appreciate your interest, and we'll see you next quarter.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Amit Sharma -- Vice President, Investor Relations

Andy Callahan -- President and Chief Executive Officer

Mike Gernigin -- Interim Chief Financial Officer and Chief Accounting Officer

Jim Salera -- Stephens, Inc. -- Analyst

Pam Kaufman -- Morgan Stanley -- Analyst

Anoori Naughton -- J.P. Morgan -- Analyst

Robert Moskow -- Credit Suisse -- Analyst

David Palmer -- Evercore ISI -- Analyst

Ryan Bell -- Consumer Edge Research -- Analyst

Rob Dickerson -- Jefferies -- Analyst

Stephen Lengel -- Truist Securities -- Analyst

Steve Powers -- Deutsche Bank -- Analyst

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