What happened

Shares of Hostess Brands Inc. (NASDAQ:TWNK) fell 9.1% on Wednesday, after the sweet baked goods specialist announced mixed second-quarter 2017 results and reduced its full-year earnings outlook.

So what

That's not to say Hostess' results looked bad on the surface. Quarterly revenue climbed 5.6% year over year to $203.2 million, primarily driven by new product initiatives, including Chocolate Cake Twinkies, White Fudge Ding Dongs, and Golden Cupcakes. On the bottom line, net income rose 28.8% over the same period to $28.2 million, and net earnings per diluted share climbed 20% to $0.18. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) rose 7.7% to $63.2 million. 

By comparison, analysts' consensus estimates predicted Hostess would deliver the same earnings of $0.18 per share, but on slightly higher revenue of $205.2 million.

Various Hostess products, including Twinkies, donettes, and hamburger buns


Now what

Hostess also reaffirmed its full-year 2017 guidance for revenue of $781 million, and for 2017 adjusted EBITDA of $235 million. But the company simultaneously reduced its outlook for 2017 net income to be roughly $96 million, or $0.58 per diluted share, down from previous guidance (provided in May) for net income of $98 million, or $0.61 per diluted share. 

To be fair, Hostess explained that this was the result of of a recent change in state tax law causing a $1.5 million to $2.0 million increase to the amount payable under its tax receivable agreement.

But between that and Hostess' slight top-line shortfall in Q2 -- at least relative to the market's expectations -- it's no surprise to see shares trading lower today. Over the long term, however, I see nothing that indicates Hostess can't still deliver market-beating gains for investors from here.

Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.