Hostess Brands, Inc. (TWNK) Q2 2022 Earnings Call Transcript

Hostess Brands, Inc. (TWNK)
Q2 2022 Earnings Call
Aug 03, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the Hostess Brands second quarter 2022 earnings conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Amit Sharma, vice president, investor relations. Thank you, Amit.

You may begin.

Amit Sharma -- Vice President, Investor Relations

Hi. Good afternoon, and welcome to Hostess Brands' second quarter 2022 earnings conference call. Joining me on today's call is Andy Callahan, Hostess Brands' president and CEO; and Travis Leonard, chief financial officer. By now, everyone should have access to the earnings release for the period ended June 30, 2022, that was published at approximately 4 p.m.

Eastern Time. The press release and investor presentation are available on Hostess' website at hostessbrands.com. This call is being webcast, and a replay will be available on our 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.

Actual results may differ materially from these forward-looking statements, and we undertake no obligation to update or revise these forward-looking statements. A detailed list of these risks and uncertainties can be found in today's earnings release and in our SEC filings. Management 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. First off, I would like to publicly welcome Travis to the Hostess Brands family. We are excited to have his leadership, talent and experience as we continue on our journey as a leading snacking powerhouse. Moving on to our results.

We delivered another quarter of strong top line performance, highlighting Hostess Brands' position as a differentiated snack company with iconic brands and an advantaged business model. Consumption trends in our core categories remain resilient, and we continue to drive category growth. Our strong first half results and the strength of our business gives us the confidence to raise our full year revenue guidance to at least 15% growth on top of last year's 11.6% growth. The strength of our revenue performance is meaningfully offsetting high inflation and supply chain inefficiencies due to heightened levels of volatility in the global markets.

Our full year EBITDA and EPS outlook remain unchanged, even as we continue our increased investments behind our brands, innovation, and people to support our sustained profitable long-term growth strategy. First, a few highlights from our solid second quarter results and then a few comments on why I feel confident that Hostess Brands is well-positioned to successfully navigate the current operating environment. I'll then turn it over to Travis to provide a more detailed review of our quarterly financial results and our revised outlook for the full year before taking questions. Now on the quarterly highlights.

Net revenue grew 16.8% in the quarter. We are growing revenue quarter after quarter, year after year. The second quarter marks the tenth consecutive quarter of at least 9% growth and fifth consecutive quarter of double-digit growth. In this increasingly dynamic environment, we benefited from our advantaged business model and strength of our brands with favorability in pricing, mix and volume.

At the retail sales level, both our sweet baked goods and cookies posted impressive broad-based growth in the quarter. Sweet Baked Goods point of sale led by the Hostess Brand grew 15.6% in the quarter. Our focus on large, growing snacking occasions, insight-driven innovation and increasing advertising and marketing investments, continue to drive the category and enable us to capture greater share of category volumes. Highlighting our unique access to both on-the-go and at-home consumer, Hostess Brands single-serve and multipack point of sale each increased more than 15% during the quarter, with two-year stack growth of 35.9% and 20.6%, respectively, both well ahead of the underlying category trends.

We believe our continued investment in product quality amplifies our ability to retain more consumers, which is reflected in higher repeat rates that are significantly above others in the Sweet Baked Goods category. Turning to the Voortman brand and its ongoing growth momentum. Voortman growth continues to be driven by expanding distribution, fueled by our investments in advertising to increase brand awareness as well as the positive impact of innovation and a continued focus on improving SKU mix. These actions resulted in Voortman in gaining five points of share in the fast-growing sugar-free subsegment during the quarter.

I am proud of our top line momentum and our long track record of strong organic growth. Underlying volume trends in our core snacking categories continue to hold up better than overall food even in the current economic environment, highlighting the impact from our focused investments supporting our attractive growth potential over the long term. To fully realize our growth potential, we will continue to make targeted investments across the organization, including investments in our people, capabilities, products and brands. As planned, we are investing in higher advertising and marketing support behind both our core portfolio and new product innovation.

Our high ROI marketing investments include the recent expansion of our first national advertising campaign in over a decade and the upcoming support for the launch of Bouncers, our latest innovation platform. As we mentioned at our March Investor Day, our iconic brands enjoy more than 90% brand awareness at par or even higher than many of the largest snack break. However, Hostess is not top of mind for 60% of consumers. Our rising advertising and marketing investments are designed to build top-of-mind awareness for Hostess snacks in order to create a powerful flywheel of growth.

Our compelling and differentiated innovation remains a key element of our growth strategy. Our snacking occasions-based framework and strong consumer insights are supported by our marketing and innovation capabilities. I believe this is why we are now and continue to be positioned to consistently launch more impactful, breakthrough innovation that brings incremental households into the franchise. Innovation is a core competency at Hostess, and we are building a multiyear pipeline of new products to continue our innovation momentum.

Baby Bundts, our highest revenue innovation over the past 12 months, is a vivid example of our capabilities. We have high confidence that Bouncers, our next big innovation launch, will be another great example of how we can contemporize our iconic brands for the next generation. Bouncers reimagines our iconic Twinkies, Ding Dong and Donettes offerings in a single-serve poppable version, ideal for the lunchbox occasion and designed to bring incremental consumers to our brands, particularly millennial parents. Bouncers is receiving strong endorsement and support from our retail partners and is expected to hit the market in early fall.

At the macro level, the consumer environment is becoming more challenging. We are watching closely for signs of changing consumer behavior as consumer baskets show greater impact from overall higher inflation. However, we believe that our strong brands and innovation in our targeted snacking occasions positions us well to deliver leading growth for the remainder of '22 and beyond. A few points to amplify this point.

First, we grew retail dollar sales across all channels during the quarter, demonstrating the strength and reach of our broad-based multichannel distribution strategy as we continue to operate effectively across all channels, a key advantage as consumer spending shifts across channels. Second, even with double-digit price increases, absolute price points for Hostess products remain relatively low on a per-serving basis, making them an accessible snacking option within the snacking occasions in which we compete. Third, similar to many snacking categories, the Sweet Baked Goods category has low private label penetration of less than 3%. Our strong innovation and excellent retail execution insulates against the threat of consumer trade-down in the current environment.

We are pleased with our strong quarterly growth, which is helping us excel in a challenging operating environment as we face heightened inflation and continued supply chain fragility. I'm proud of our dedicated and talented workforce for continuing to execute at high levels through these challenges, enabling us to maintain our previously communicated EBITDA guidance at the upper end of our $280 million to $290 million range for the full year. To demonstrate our appreciation, earlier this week, we rewarded the relentless efforts and hard work of all of our hourly bakery and distribution center employees with a thank you bonus as we continue to invest in our workforce. Our frontline team members are the backbone of our Hostess business, and we cannot thank them enough.

We also continue to make great progress on all of our corporate responsibility initiatives as outlined in our second corporate responsibility report which we published in June. We recently announced the appointment of Darryl Riley as our first chief sustainability officer. Darryl will be instrumental in supporting the organization to drive accountability and transparency of our corporate responsibility initiatives as we need to build a strong, sustainable corporate culture that values nimbleness, integrity, tenacity, inclusivity and a commitment to quality. In summary, our strong quarterly and year-to-date results position us well to successfully navigate through this near-term volatility and deliver our revised full year guidance.

We have built a long track record of delivering excellent results through various operating environments and continue to be excited about the growth opportunities ahead of us. We are executing on our strategic priorities and remain highly confident in our ability to deliver our attractive long-term growth algorithm. With that, let me turn it over to Travis to go through the quarterly financial results and our revised outlook in greater detail.

Travis Leonard -- Chief Financial Officer

Thanks, Andy. It's an honor to be part of the Hostess success story and speak about another quarter of outstanding performance. I will start with a review of our top line. Organic net revenue for the second quarter increased 16.8% to $340.5 million, a record sales quarter for Hostess Brands.

Our top line was driven primarily by price mix, which accounted for nearly 14 percentage points of the quarterly growth as we benefited from planned pricing actions and favorable product mix. Higher volume accounted for the rest of the quarterly sales growth. Our Sweet Baked Goods portfolio, nearly 90% of total sales, grew 15.6% during the quarter, while our Cookie portfolio grew 27.6%, demonstrating growth across our entire portfolio. Switching to retail sales trends.

Our Nielsen measured Sweet Baked Goods point of sale increased by 15.6% for the 13-week period ending July 2, with broad-based growth across all key channels. Our share of the Sweet Baked Goods category dollar sales remained relatively flat at 21.7%, while our volume share increased by nearly 70 basis points. Voortman POS increased by 25% in the period, nearly double the 13% growth for the overall cookie category, driven by pricing, innovation and distribution gains with strong growth in the sugar-free subsegment. Voortman share of the cookie category increased by nearly 20 basis points.

As Andy mentioned, both our single-serve and multipack offerings grew by double digits during the quarter. Our breakfast portfolio also continued to significantly outperform the subsegment with 22.1% growth in the quarter compared to 16.1% for the total breakfast subsegment, driven in part by our impactful innovation, including Baby Bundts. Moving to the P&L. Adjusted gross profit of $112.8 million increased by 7.1% in the quarter, driven by pricing actions and higher volume.

As expected, second quarter gross margins were challenging. Adjusted gross margins for the quarter declined by 299 basis points from the year ago quarter to 33.1% as the benefit from higher prices and productivity initiatives were more than offset by 20% inflation, as well as inefficiencies caused by supply chain fragility. Adjusted EBITDA increased by 0.7% to $68.9 million in the quarter as higher gross profit was partially offset by higher SG&A expenses. Our adjusted SG&A increased by 19.8% to $61.2 million, driven primarily by planned investments in our people and capabilities and a step-up in brand building activities, as well as higher variable selling expenses.

Adjusted EBITDA margin declined by 323 basis points to 20.2%, primarily due to the decline in gross margin, as previously discussed. Our effective tax rate, excluding discrete items, was 27.2% as compared to 27.3% in the prior year quarter and was in line with our 27% outlook for the full year. Adjusted net income of $30.5 million for the quarter decreased 5.3% from the prior year period. Adjusted earnings per share of $0.22 decreased 4%.

Both declined as EBITDA growth was offset by higher depreciation and share-based compensation expense. At the end of the quarter, we had cash and cash equivalents of $206.8 million, short-term investments of $20.9 million and net debt of $858.3 million with a net debt leverage ratio of three times, which is at the bottom of our targeted three to four times range. During the quarter, we repurchased $38.8 million worth of shares under our previously announced $150 million repurchase program. Turning to the outlook for the year.

Given our strong year-to-date results, we are raising our full year net revenue guidance to at least 15% growth, up from our previous guidance of at least 12% growth. We continue to expect full year volume to increase by low to mid-single digits. Our stronger top line outlook is enabling us to maintain our full year EBITDA guidance toward the high end of the $280 million to $290 million range and EPS guidance in the $0.93 to $0.98 per share range. We continue to expect full year capex in the $120 million to $140 million range and a tax rate of 27%, both unchanged from our original guidance.

We now expect average shares outstanding of $138.5 million to $139.5 million, down modestly from our previous guidance of $139 million to $140 million. We continue to expect high teens inflation for the full year, and we have forward purchase contracts in place for over 90% of our market-traded commodities for the remainder of the year. Given the incremental supply chain headwinds experienced in Q2, we expect full year gross margins to be down approximately 200 basis points from last year. As we look to the back half of the year, we expect incremental margin benefits from previously announced pricing actions, along with higher contribution from productivity initiatives.

As Andy mentioned, we will also continue to make targeted investments across the organization, including investments in our people, capabilities, products and brands. As an example, advertising and marketing expense increased by double digits during the quarter and is expected to remain elevated over the remainder of the year to support both core and new product innovation. We expect to continue to drive productivity initiatives, as well as leverage our revenue growth management toolkit, including positive mix and more efficient trade spending to manage our industry-leading margins over the long run. I am proud of our team's ability to deliver another quarter of strong growth, and I'm excited to continue our journey of driving sustained profitable growth.

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

Andy Callahan -- President and Chief Executive Officer

Awesome. Thanks, Travis. Hostess continues to grow due to the resiliency of our portfolio, our business model and our strategies supported by our talented team as we execute at a high level in a very dynamic environment. We remain confident of continuing our revenue growth through the remainder of '22 and beyond as highlighted by our revised outlook and our ability to deliver attractive long-term growth and leading shareholder returns over time.

With that, we are ready for your questions.

Questions & Answers:

Operator

Thank you. [Operator instructions]

Andy Callahan -- President and Chief Executive Officer

Thanks, Paul. And we're open to the universe now.

Operator

Yes. Every line is live. And our first question comes from Pamela Kaufman with Morgan Stanley. Please proceed with your question.

Pam Kaufman -- Morgan Stanley -- Analyst

Hi. Good evening. Can you discuss the outlook for the second half and what's driving your top line guidance? I think you previously expected mid-single-digit volume growth for the year. Volumes were up 3% in the second quarter.

So are you still expecting mid-single-digit volume growth? And can you talk about what's driving the guidance for revenue up around 10% in the back half, which is slowing to about less than half of the rate in the first half of the year?

Andy Callahan -- President and Chief Executive Officer

Yeah. Hey, thanks, Pam. Appreciate the question and coverage. We don't specifically quantify the forward revenue.

As Travis mentioned, you're exactly right, we do expect the full year to be flat to the midpoint. So the point here is it's exactly really the way we had called -- we expected it. If you look at the charts, we've been -- we're lapping really high growth numbers, but we expect that the consumer to be absorbing a lot as we move into the back half. In the second quarter, we had 13.8 points of growth was from price mix.

That's helping offset our 20% inflation in the second half. We do expect, obviously, that trend of more price mix weighted to be in the back half and the full year volumes to be that. So it is a deceleration of growth but still growth that's on the leading end of other food companies. And I think that's really because of our business proposition, our innovation, our continued investment in the consumer and the categories in which we compete in the snacking occasions, which are traditionally resilient.

So we've been -- it's actually unfolding the way we see it at this point, but we're going to continue to monitor closely. We're always focused on the consumer and making sure that we have this sustainable profitable growth over time. And I feel confident we have the right strategies to do that.

Pam Kaufman -- Morgan Stanley -- Analyst

Thanks. That's helpful. And then can you just talk about your expectations around gross margin for the year? So you lowered your outlook for gross margins during the second quarter. What gives you confidence around the updated gross margin outlook? And what kind of visibility do you have into the back half gross margin?

Travis Leonard -- Chief Financial Officer

Great. Thank you for the question. I'll take this. So as we stated in our call, we expect full year gross margins to be down 200 basis points versus prior year.

We do anticipate Q2 to be the highest year-over-year decline. So as we think about the second half from a year-over-year perspective, we will see that moderate a bit in the second half. And just to give you a little bit of perspective, we talked about supply chain fragility, and let me give you a little bit of insight to what we were specifically talking about. One example of this is around volatility and the timing of certain ingredients.

So unfortunately, you can't make a Twinkie with only 95% of ingredients. So when the ingredients aren't there, you do experience production scheduling challenges, as well as inefficiencies in transportation. We continue to work very closely with our suppliers and value the strategic relationship we've built with them, which provides us confidence that these issues will definitely get better over time.

Andy Callahan -- President and Chief Executive Officer

Yeah, I agree with everything Travis said. We have a good track record of executing in volatile environments from the beginning of COVID to now. So we work hard, appreciate our suppliers in a difficult situation, but good line of sight exactly the way Travis said.

Pam Kaufman -- Morgan Stanley -- Analyst

Thank you.

Amit Sharma -- Vice President, Investor Relations

Thank you, Pam.

Operator

Thank you. Our next question comes from Ken Goldman with J.P. Morgan. Please proceed with your question.

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

Hi. Good afternoon. It's Anoori on for Ken. I wanted to dive into those production challenges you had in the quarter a little bit more.

So yeah, I'm curious if you could help us understand how much of the deceleration in volumes that we saw in the second quarter was a result of supply chain versus just what you were expecting in terms of elasticity. I guess could volumes have been better if you were able to produce optimally? And are there any catch-up shipments that we should keep in mind as we move into the back half?

Andy Callahan -- President and Chief Executive Officer

Yeah, I'll take that. A couple of things. First of all, we are a relatively short shelf life product. We're baked goods.

We do it actually very well. We do high-quality products at scale that consumers demand high quality, which is why fresh bakeries are still around in such prevalence. It's one of our secret sauces. But the impact of that is that we have relatively low inventory.

So it's not -- we're not one of those categories that have catch-up in inventory. So we ship real time. As far as the supply chain fragility is concerned, I would think of it more -- now we still have some disruptions. The cost that Travis talked about, we're not bringing -- not everything is happening as efficient as we're accustomed to or the standards we have.

I would think of it more of a cost issue at this point versus a real meaningfully growth issue, although we certainly didn't do everything due to some of those disruptions. But I think in the Q2, it's more related to the inefficiencies that it would be the cost -- or I mean the volumes.

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

OK. Got it. That's helpful. And then my follow-up would be -- your optimism on Bouncers is noted.

And so how should we think about the incrementality of, first, your innovations like Bouncers? And how much contribution or how should we think about the contribution and how much is embedded in your outlook for the balance of the year?

Andy Callahan -- President and Chief Executive Officer

Yeah. It's embedded in the outlook. We typically do not break out the specific contributions of innovations. Our team -- our innovation team with Dan O'Leary, Tina Lambert working in concert with Arist Mastorides, our chief customer officer, really, and their talented team, it's insight-driven.

We focus on our five occasions. This one's focused on the lunch box, which we talked about at Investor Day, which is one of our really strategic areas targeted to our millennial parents who are searching for these options. So our customers and our consumers, when we test it to them, are really excited about Bouncers and we are, too. So we're not going to forecast it innovations and art as much as it is as the science.

Our track record over the last several years has been as good or better than most, and I'm equally excited about this. When you think about for the lunch box, a new innovation that reimagined some of the icons that some of us and our parents had in a really new and contemporary form for uses that they really need and consumer that has high awareness of the Hostess brands and sub-brands and looking for options that are more contemporized. I think that's one of the reasons why our customers are excited about it and certainly why we are in the data. So when you move into new occasions and attract new consumers as well, which we anticipate this does, we do that research.

We look at what are more platformable, scalable, how much is it incremental versus a line extension. Our pipeline takes into account all of that. Very excited about it and enthusiastic about it.

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

Thank you.

Amit Sharma -- Vice President, Investor Relations

Thank you, Anoori.

Operator

Thank you. Our next question comes from David Palmer with Evercore ISI. Please proceed with your question.

David Palmer -- Evercore ISI -- Analyst

Thanks. Good evening. I wanted you to maybe tell the story of the quarter a little bit. I know you were expecting perhaps shipments to be trailing consumption because of some of the supply chain constraints, and maybe you surprised yourselves because it looks like your units that you shipped were equal to the measured channel units that we see.

Is that true that -- or maybe there's some dynamics around Bouncers, for example, you have some shipment timing there that represents the catch-up and you still have some lower inventory levels in some other areas. I'd love to here the story of the quarter in terms of shipments.

Andy Callahan -- President and Chief Executive Officer

Yeah, David, let me think through your question here. A couple of things. You're asking similar to Anoori. Is there some customer-related inventory that's still in front of us to fill up? There might be a little bit of that, but I don't think that's really meaningfully at play here.

I think we're pretty much aligned. We're looking at the second quarter in a row where we had shipments and POS that weren't meaningfully off. It is not a -- it's not a Bouncers issue, by the way. We're in the early -- we're in some early shipments of Bouncers, but really, our national expansion around Bouncers is happening through September.

So in the quarter, we do not have a Bouncers issue. I just feel that we have a good consumption model. Our team does a nice job. We're really having to execute and demonstrate our agility and customer partnerships and other things to -- based on some of the supply chain things we talked about that.

I think we'll work through that really through in the back half and get back to the efficiencies that we're really -- and predictability that we're accustomed to. So I don't think that's the issue. I don't know, Travis, if you have anything to build on that.

Travis Leonard -- Chief Financial Officer

No, I think you got it, Andy.

Andy Callahan -- President and Chief Executive Officer

Yeah, well, we continue to see volume growth in the quarter. So we're one of the few that are delivering nearly 14% of price mix and unit growth on top growing unit share despite some of the disruptions in efficiency.

David Palmer -- Evercore ISI -- Analyst

So this was -- it was really -- the story of the quarter was you were scrambling for ingredients at times, elevated costs ensued, and that was a bit of a surprise and that was really the story of the supply chain rather than it ultimately leading to a shortfall in what you could ship.

Andy Callahan -- President and Chief Executive Officer

For the most part, yeah. Yes.

David Palmer -- Evercore ISI -- Analyst

The -- I guess from here, you would expect measured channel sales versus shipments to be somewhat more even, I would imagine. I guess when you're consistent with your guidance, are you contemplating any additional pricing actions in the second half? You mentioned 20% inflation. Wondering if you would seem to have the right to be raising price a little bit more than you have.

Andy Callahan -- President and Chief Executive Officer

So yeah, the headline on that would be everything that's in our guide, we've communicated and it's flowing through the marketplace. And when it comes to just in general, we look at a full market basket of things. Pricing is one of them. But we have -- all the pricing that were contemplated is in the marketplace.

The inflation is coming up, as Travis has talked about it, for the full year about the high teens. It was a little higher here in Q2 as you noticed, but that's built in our guide. And also, obviously, a long-term algorithm of mid-single-digit growth, EBITDA top line growth and five to seven and all of that contemplate of EBITDA -- all that contemplates us to obviously managing our gross margins over time. And we have a full toolbox of that revenue growth management, productivity initiative, actively managing mix to commit to that over time.

So the way we see it, obviously, it's a very dynamic environment. We're close to that, we monitor that, but that's where we're at.

David Palmer -- Evercore ISI -- Analyst

Great. Thank you very much.

Andy Callahan -- President and Chief Executive Officer

Thanks, David.

Operator

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

Jim Salera -- Stephens Inc. -- Analyst

Hi, guys. Jim Salera on for Ben. I have a two-part question on the top line performance. So part one, if you guys could talk a little bit about the volume growth.

It's impressive to have 3% volume growth given how much the price has gone up. Is that coming from new customers entering the category, whether it's trade down or just return of mobility in the C-store channel? Or is that increased buying rates among existing Hostess customers?

Andy Callahan -- President and Chief Executive Officer

Yeah. I appreciate the question from the consumer point of view. So we are -- we do continue to grow units. We expect the full year to come out of this year with growth in units of greater than 15% growth from -- at least 50% revenue growth price mix.

So we think the consumer first. We've grown penetration, i.e., we're getting more consumers in the franchise. And the consumers that we -- when we attract new consumers that repeat, i.e., turn into two-time consumers at a greater rate than the category in total, almost a two times rate on the category in total. So a lot of these investments we're making in growth by bringing them new ideas, by bringing them innovations that are compelling and that they want, by partnering with our customers and actively manage mix and build in the distribution.

And what you don't see is our investment and the great job our supply chain does and our quality team in the quality of our products. Baby Bundts was just really reimagined what quality of baked good can happen at scale, but that's happening across all of our portfolio. So when you put those together, when we make those investments in growth, they become sticky and that's sustainable. And we're really focused on making sure we get that at the right price value and then do that as efficiently as possible, which is what the magic of our model is.

And the fact that we're in these five occasions, I expect that to continue to repeat over time. So within any one quarter, there's timing of pricing and some other things and a lot of things happen, maybe execution, lapping of things. But over time, that model is going to grow -- continue to have us grow above food. We're going to continue to grow share in our category because I think we're executing the right strategy at the brands and the people and the ideas to be able to do that.

And I think we're seeing that play through. In the short term, we're in categories with snacking with an accessible price points that I believe have proven over time to be resilient in different types of economic environments and our -- the breadth of our availability to consumers across channels helps insulate that as consumers move across channels, looking for value. So I feel like we're in a good position, but in the long term, relative to some of those consumer dynamics and the investments we're making, as well as the short term.

Jim Salera -- Stephens Inc. -- Analyst

Great. And you actually touched on the beginning of part two there at the end. The single-serve point of sales growth is really incredible given the strength last year. Is that, again, you mentioned more accessible? Is that just consumers buying it because it's a lower dollar price than maybe some other indulgent snack? Or is that, again, return on mobility and maybe new entrants into the category, they want to buy a single serve before they go up into the multipack?

Andy Callahan -- President and Chief Executive Officer

There's a couple of things going on here. One thing I would just be very clear. This single serve is a little bit more -- it's a different occasion than the multipack. So the single-serve is really -- you need to have distribution at a point of interruption.

It's typically more of an impulse sale. It is a relatively good price point versus other options, accessible price point versus other options as well. Multipacks are more of a buy and inventory in your home for in-home snacking or on the go. So they're distinct occasions.

On our single-serve specifically, we have done really well. We have a distribution that's good. We executed very well. We have our Hostess partnership program with a lot of our distributors and retail customers that allows them to benefit from growth collectively and provide investment.

Our teams also -- given our success and given the innovation we're doing, we're also working with customers to make sure -- and we talked about this at Investor Day, Dan O'Leary did, about our investments in other locations and points of distribution. So you may have distribution of Hostess, let's say, in a grocery box or a retail box, but you can get single-serve still either more scheduled or more present in other stores, which adds another opportunity for sales. So we still have opportunity for points of interruption within stores, which the team is doing a real nice job at. So there's both the repeat that I talked about before, as well as some of the breadth of distribution of single-serve within different opportunities for the consumer to enjoy our products.

Jim Salera -- Stephens Inc. -- Analyst

Great. Thanks, guys. I'll pass it on.

Andy Callahan -- President and Chief Executive Officer

Yeah.

Amit Sharma -- Vice President, Investor Relations

Thank you, Jim.

Operator

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

Rob Dickerson -- Jefferies -- Analyst

Great. Thanks so much. I'll try to keep this quick. I guess just first question I had was kind of visibility currently on the community store channel.

I understand what you said about consumer basket showing some impact, but you're still doing well. I heard from another company this morning saying they're actually seeing still decent traffic and purchase rates in the C-store channel for the time being. I know you've also spoken to the channel before. So just curious kind of what you're seeing within that specific channel and if you have any perspective regarding elasticity differential potential on a channel basis as you get through the year.

Andy Callahan -- President and Chief Executive Officer

Yeah. Hey, Rob, thanks for the question. We have talked about convenience before. We look at external data.

We try to collaborate it -- collaborate it. Yeah, we try to cross tab it to our internal data. And what we've seen historically, I'll just say what I said last quarter, is as gas price has gone up and mobility was up, what we saw was actually the opposite. We saw gas prices per ticket decline, but frequency increased.

Inside sales still stay the same or benefit from the increased frequency and snacks of which we compete be very resilient. Consumers would cut, let's say, beverages before they cut snacks. When we looked at it through this quarter and continue to monitor it, we did see some of that traffic decline temporarily for a period of time, but then bounced back as we saw fuel prices kind of drop a little bit. So the headline on the traffic in the C-store has been resilient, and that's been helpful for our business, as well as the fact that we have good distribution, good presence, good partnership with our customers, as well as a really good value price point versus some other options they have if they're looking for a quick snack.

So we have seen good resilience. I like our position. Related to elasticity, we typically -- we don't disclose exactly, but what we have said before is we certainly see impulse sales being modestly less elastic than some other categories, and that certainly helps. We're the leading share within the single-serve within sweet baked goods, so that's helpful.

Rob Dickerson -- Jefferies -- Analyst

All right. Super. And then just a question on a couple of lines in SG&A. Advertising and marketing was up double digit in the quarter.

And then I know you had -- you made a comment on kind of the first ever or at least first in a long time campaign that's forthcoming, while at the same time, from your Investor Day, kind of speaking to that by saying that we are going to continue to lean in. Should we be expecting, let's say, an uptick in the back half of the year like relative to what we're seeing in Q2? Or my impression was maybe some of that uptick in kind of spend on the go forward is maybe a little bit more heavily weighted in the next year, the following year, but maybe I'm just wrong.

Travis Leonard -- Chief Financial Officer

Yeah, what we said is --

Andy Callahan -- President and Chief Executive Officer

Travis, go ahead.

Travis Leonard -- Chief Financial Officer

Yeah. I'll start in the beginning. So what we said in our comments is we had a step-up in Q2 and we expect that to remain elevated, so similar to those levels throughout the remainder of the back half.

Rob Dickerson -- Jefferies -- Analyst

OK. OK. Fair enough. Perfect.

And then --

Andy Callahan -- President and Chief Executive Officer

And we are supporting Bouncers, by the way, which will expand in September as we said, too. So that's both the base business and the innovation.

Rob Dickerson -- Jefferies -- Analyst

OK. Perfect. And then just on the admin side, a little bit higher in the quarter than expected. But I know you have the commentary around the employee bonus piece.

I'm not sure if that was included within the quarter or if that's coming later. Because I'm just curious if there's a kind of like a one-time and then that kind of rolls off a little bit. Then I'll leave it at that.

Travis Leonard -- Chief Financial Officer

Yeah. Just let me get more specific on G&A. As we said in our comments, we expected to have investments in our people, process and capabilities to drive growth. And we have accelerated, quite honestly, our investments in these areas around consumer insights, data analytics, productivity initiatives, again, which is we'll continue to support our long-term growth, both from a top and a bottom line.

Additionally, we're investing in our workforce. We've got a new chief customer officer. We've got a new chief sustainability officer and hired a new R&D head, and obviously, I'm excited to be here as well. So I think overall, we've made some investments.

We have accelerated those a bit in Q2, which is a little bit of a step-up in Q2.

Rob Dickerson -- Jefferies -- Analyst

All right. Got it.

Andy Callahan -- President and Chief Executive Officer

Think about year to go -- but just think about year to go kind of consistent on a run rate basis.

Rob Dickerson -- Jefferies -- Analyst

Perfect. All right. Thanks, guys.

Amit Sharma -- Vice President, Investor Relations

Thank you, Rob.

Operator

Thank you. Our next question comes from Bill Chappell with Truist Securities. Please proceed with your question.

Stephen Lengel -- Truist Securities -- Analyst

Hi. Good evening. This is Stephen Lengel on for Bill Chappell. Sort of piggybacking off some of the prior questions about the supply chain.

I mean is there anything to note in terms of like the construction build-out costs with the Arkadelphia plant? Overall capex guide was unchanged, but is it still on track for the mid-second half of '23? And how quickly do you expect it to ramp once it kind of gets into that range?

Andy Callahan -- President and Chief Executive Officer

Yeah. Hey, thanks for the question. The headline answer is that's not related to the supply -- talk about the fragility of the supply chain. The Arkadelphia ramp-up is still on schedule for the second half of '23.

There is a ramp-up schedule. We haven't communicated that. That does take time. You have to hire people.

You have to train the people. You have to set up the facility. So -- but that's second half of '23, that's on time. Travis talked about the capital on budget.

So basically, think of that as on budget, on time at this point. The supply chain fragility that we're talking about is more the daily operations of making sure that a very complicated system that runs like an orchestra normal times is being disrupted and therefore, really challenged our agility, sometimes our efficiencies to be able to service our customers and our consumers at the standard that we have. And that's causing us not -- with an ability of not to be able to do that and at the efficiencies that we want. So we think we're toward the back end of that, but we're still in a dynamic and fragile environment.

But that's what that comment is more related to. That flows through, as Travis explained, into some of these costs. So as we move forward and it becomes more stable, we would get more to the efficiencies and build from there that our standards expect.

Stephen Lengel -- Truist Securities -- Analyst

Great. Thank you very much.

Andy Callahan -- President and Chief Executive Officer

Yeah.

Amit Sharma -- Vice President, Investor Relations

Thanks, Steve.

Operator

Thank you. Our next question comes from Connor Rattigan with Consumer Edge Research. Please proceed with your question.

Connor Rattigan -- Consumer Edge Research -- Analyst

Hi. Good evening. Thanks for the question. So great to hear that Voortman is doing so well in the sugar-free or better-for-you segment.

I'm not sure if I missed this, but can you quantify maybe what percentage of your portfolio consists of that sugar-free or healthier snacking segment? And also, too, just thinking from a mix standpoint, is there anything like sizable pricing differential between these healthier options versus the traditional offering?

Andy Callahan -- President and Chief Executive Officer

Yeah. So just a headline on Voortman. So Voortman is about 10% of our overall portfolio in revenue. As you saw in this quarter, it's growing -- of course, our whole portfolio is growing a lot, but Voortman has grown a lot.

We are, by far, the leading share within our sugar-free portfolio. So that's really important to think through. And that subsegment of sugar-free is growing at -- consistently growing at two times the rate of total sugar. Our products taste terrific.

So we're working obviously hard. That's really important for us to make sure that we have a good portfolio of that. So as far as a percentage of our portfolio, sugar-free is a meaningful part of our total portfolio relative to total cookies. And -- but we also have a meaningful share within our regular wafer category, and sugar-free encompasses both the wafers, as well as cookies.

So it's an important part of our portfolio. It's growing at twice the rate. It's a profitable -- it's accretive in gross margins as well within our portfolio. So we feel really like we're in a good spot relative to sugar-free.

Amit Sharma -- Vice President, Investor Relations

Connor, sugar-free is about two-third of the Voortman business.

Connor Rattigan -- Consumer Edge Research -- Analyst

OK. Thank you. That was really helpful. I'll pass it on.

Amit Sharma -- Vice President, Investor Relations

Thank you, Connor.

Operator

Thank you. Our next question comes from Robert Moskow with Credit Suisse. Please proceed with your question.

Rob Moskow -- Credit Suisse -- Analyst

Hey, thanks. Andy or Travis, it's early to think about cost inflation heading into 2023. But from our perspective, we just see all these commodities kind of leveling off and even kind of falling down a little bit, especially gasoline. But from your perspective, I'm sure you're seeing your costs only go higher because of upstream disruptions and lack of availability.

So this -- maybe this is a hypothetical question. But if the commodities are kind of leveling off or even falling, could we still see a lot of inflation next year just because, I don't know, there's just not enough labor to get your raws to you when they need to be there? I don't know if that's the right way to ask the question. But is disruption still -- could it be significant enough that we still see inflation even though the commodities are not so inflationary?

Travis Leonard -- Chief Financial Officer

Maybe I'll start here and then Andy will chime in. You're right. It's too early to talk about 2023 given the volatility in the global markets. And we think about volatility, there's weather conditions that are uncertain and volatile, this geopolitical uncertainty out there.

To your point, there's labor challenges and just the overall supply chain disruption. So at this point, it's too early to talk about it. As we said for this year, we've got 90% of our market traded. We've got future purchase contracts at 90% of our market-traded commodities.

But there are some costs that are actually exposed and we buy on the spot as we've discussed such as packaging, labor and diesel, and those will remain open to the spot market. So a lot of uncertainty, volatility and a bit too early to talk about. And maybe Andy can talk a little bit about how we think about coverage and our approach in this space.

Andy Callahan -- President and Chief Executive Officer

Yeah. Rob, I think you nailed it as far as where we do forward contracts, we look at predictability of cost, reliability of supply. And so when you're in a really volatile market, we look at those. So we certainly extend out.

So in that case, just like on the way up, there's not an immediate close or just a little bit of that on the way down. Who am I to predict inflation? And I think that's true for everybody else. Obviously, we can be hopeful. We haven't seen it yet.

So we try to prepare for multiple scenarios and leverage our competency of agility and responsiveness and strong relationships with our customers, suppliers to kind of manage through it that's proven pretty successful for us so far. I am hopeful. Our category, I feel like, will be resilient through rocky times for our consumers, and I am optimistic, but it's difficult to predict. I do expect that -- like when we very started this journey, I guess, if we can say that COVID was beginning of the journey, it was a -- it was more of a blunt instrument on the supply chain that was really all clogged.

And now it's 1,000 points of light with -- where you're not sure where the disruption is going to come through. It's a little bit more like that. So agility has certainly been a terrific tool. I would guess that -- I would be hopeful that we would see some relief and some stability in the back half.

But certainly, I'm not going to sit here and try to predict that.

Rob Moskow -- Credit Suisse -- Analyst

OK. Well, here's an easier follow-up maybe. Have you ever said what the incremental volume from Arkadelphia will provide just on a percentage basis? And is it all incremental? Or is it going to pull some volume from your other facility, which is probably being overworked?

Andy Callahan -- President and Chief Executive Officer

There's a combination of both. We said that it adds 20% capacity to our cake and Donettes -- and donut business. And it does have a little bit of a back-end benefit of flexibility in some of the remaining bakeries. So there's a little bit of a combination of both.

The team -- by the way, the team has done a great job because we added lines over the last 3 or 4 years of our industry-leading growth journey. We've added lines, increased efficiency, cut SKUs to get it -- really get as much out of our fixed assets as we could. But then we're at the point with our projections on box. So it's really a good time confidence in our growth.

But it does have a little bit of a dual effect on that -- in that regard.

Rob Moskow -- Credit Suisse -- Analyst

Thanks.

Andy Callahan -- President and Chief Executive Officer

Yeah.

Amit Sharma -- Vice President, Investor Relations

Thank you, Rob.

Operator

Thank you. Our next question comes from Rebecca Scheuneman with Morningstar. Please proceed with your question.

Rebecca Scheuneman -- Morningstar -- Analyst

Great. Thanks for squeezing me in. So just one quick question. I was wondering if you could give me an update on elasticities, how they've been trending since the beginning of the year and how that compares with what your expectations were.

And then finally, if you'd be willing to quantify that, that would be very helpful. Thank you.

Andy Callahan -- President and Chief Executive Officer

Yeah. I'll take that one. We do not quantify our elasticities. So what I would look at is, the way I think about it is our team has a consumption model that's proprietary to us.

And the consumption model says, what are all the drivers that are -- that you see in the Nielsen data or the IRI data? What are all the drivers that ultimately result in that? We have elasticity in the model. We have distribution. We have support, what's the consumer environment and macro things in there, our advertising support, our innovation. Our team has done a pretty good job with that.

And what we've seen is in the short term, we've seen -- where we hear a lot of the resilience despite the pricing on a lot of these macro factors around consumer behavior, changing behavior are really offsetting what we typically see in the pricing. They've also seen some of the support. So one of the reasons why last quarter, we saw this impact on the consumer come into play, which appears like it's playing out, is because of this model. So we think we have a pretty good understanding of the consumer and the drivers of that.

The team has done a nice job of keeping us educated on that. There's still some uncertainty out there. But the elasticity does obviously get a lot of play. But what really happened to some of those support things, either we're lapping the change in the consumer behavior changes being at home and other things or support for the consumer, we actually see those drivers not as strong, and therefore, you're starting to see a little bit of slowdown.

I'll just close. But with that being said, I still am very confident in our long-term algorithm, our growth, our model and our ability to grow over time, that's mid-single digits.

Rebecca Scheuneman -- Morningstar -- Analyst

OK. Great. Thank you.

Amit Sharma -- Vice President, Investor Relations

Thank you, Rebecca. Paul, we have time for one more, please.

Operator

Thank you. Our last question comes from [Inaudible] with Citigroup. Please proceed with your question.

Unknown speaker -- Citi -- Analyst

Hi. Thanks for squeezing me in here. You touched on this earlier, but I want to ask on the elevated A&M. Just at a higher level, as you look to build the top line piece, how are you thinking about balancing core products, innovation or single-serve versus multipack, going into the launch of Bouncers and then beyond that also? Thank you.

Andy Callahan -- President and Chief Executive Officer

Yeah. So our team does a nice job. We actively manage a pipeline. So our pipeline is really grounded in our five occasions.

It's a $50 billion addressable market: morning sweet start, lunchbox, afternoon reward, immediate consumption, afternoon sharing. I encourage you to look at our -- Tina Lambert did an excellent job at Investor Day. If you click on the link, you'll be able to see it. I think it's about 10 minutes long, and it really explains it.

But we look at -- we manage that pipeline. We manage short-term news and long-term platform innovation that attracts new consumers to the franchise, leverages our brands, leverages our insights to be able to bring. That's what Bouncers is. Bouncers looks at that.

We also look at convenience channel or immediate consumption innovation as well. That's what Boost did. Boost looked at the immediate consumption. This year, we've launched a bagged sugar-free cookies under the Voortman brand.

So we look at -- we look -- we're grounded in the consumer. We look at the occasions. We then build a pipeline in a process of that. We're already looking at '24, early '25 ideas and then put it into our business realities.

What's it going to take to invest, what -- how big can it be, etc. A lot of that then becomes business judgment. But it all starts with the consumer. And certainly, it's important for us to bring innovation to all of our important consumers who, really, we try to inspire moments of joy to every day.

Unknown speaker -- Citi -- Analyst

Great. Thank you very much.

Andy Callahan -- President and Chief Executive Officer

Yeah.

Amit Sharma -- Vice President, Investor Relations

Thanks.

Operator

Thank you. There are no further questions at this time. I would like to return -- I would like to turn the floor back over to Andy Callahan for any closing comments.

Andy Callahan -- President and Chief Executive Officer

Yeah. Real quickly to close. We greatly appreciate your interest in Hostess. We'll continue to work hard for all of our -- all of you.

Great thanks out to the Hostess team. They work hard passionately. They bring their heart and soul into everything they do. So it's greatly appreciated.

We're just getting started, and we believe in our long-term algorithm. And I appreciate it, and we'll see you next quarter.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Amit Sharma -- Vice President, Investor Relations

Andy Callahan -- President and Chief Executive Officer

Travis Leonard -- Chief Financial Officer

Pam Kaufman -- Morgan Stanley -- Analyst

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

David Palmer -- Evercore ISI -- Analyst

Jim Salera -- Stephens Inc. -- Analyst

Rob Dickerson -- Jefferies -- Analyst

Stephen Lengel -- Truist Securities -- Analyst

Connor Rattigan -- Consumer Edge Research -- Analyst

Rob Moskow -- Credit Suisse -- Analyst

Rebecca Scheuneman -- Morningstar -- Analyst

Unknown speaker -- Citi -- Analyst

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