JM Smucker optimistic about Hostess Brands' integration despite lower than expected segment sales that prompted overall guidance cut

Integration of Hostess Brands, which JM Smucker acquired last fall, “is progressing well and remains on-track,” CEO Mark Smucker said yesterday during the company’s first quarter earnings call on Aug. 28.

But, even as he touted earlier than anticipated synergies from the acquisition, which he expects to reach $100 million by the end of fiscal 2026, he acknowledged that sales of the brand have been hit “disproportionately” by ongoing inflationary pressures causing consumers to be more “selective in their spending.”

With net sales of $334 million for the quarter, the sweet baked snacks segment “delivered net sales slightly below our expectations,” although the segment’s profit of $74 million was “in-line” with expectations, CFO Tucker Marshall said.

The sales miss was “primarily driven by the macroeconomic environment and slowdown in the convenience channel,” Smucker explained. “Consumers continue to be selective in their spending, a trend that is largely driven by inflationary pressures and diminished discretionary income. These trends have impacted the sweet baked goods category and caused a reduction in convenience store foot traffic, which disproportionately impacts the Hostess Brands.”

The hit prompted the company to lower its overall anticipated net sales for the fiscal year, which caused its shares to tumble 4% in premarket trading yesterday.

“We are revising our full-year net sales expectations primarily due to a dynamic consumer environment driven by inflationary pressures and diminished discretionary income impacting the dog snacks and sweet baked categories,” so that the company now expects full-year net sales to increase 8.5% to 9.5% year-over-year, reflecting a full-year of sales from Hostess Brands.

“That 1% change is approximately $80 million – about half of that, or $40 million, is coming through sweet baked snacks, of which $25 million is in the first half of the year and the balance being in the back half of the year,” Marshall explained.

“Despite the topline softness, we are seeing synergies [with Hostess Brands] come in as anticipated and candidly coming in better than expected, which is supporting the overall profit profile of not only this business unit, but also the total company,” he added.

Confidence in Hostess Brands' long-term success balances on multiple prongs​

Part of the company’s confidence comes from long-term snacking trends, which Smucker said, “continue to be favorable with sweet and indulgent snacks historically growing faster than overall packaged food and approximately 70% of consumers eating at least two snacks per day.”

He added: “Hostess Brands is well positioned to capture on these trends with accessible price points, single-serve and multi-pack offerings, and relatively low private label exposure.”

Part of the softness in Hostess sales comes from a slowdown in the convenience channel in the first quarter, also due to inflationary pressure, but which JM Smucker plans to counter by “leveraging our strength in retail and away from home channels,” to expand distribution of Hostess Brands, said Smucker.

He added the company remains optimistic about Hostess Brands’ play in convenience, where, despite the slowdown, it is gaining share.

In addition, he said, JM Smucker’s confidence in Hostess Brands’ longer term potential is rooted in its “strong innovation pipeline,” which helped Hostess lead the sweet baked category for three years in innovation, “a trend we are focused on continuing.”

Finally, he said, JM Smucker is planning joint merchandising and collaborations of Hostess Brands with its other iconic brands, and increased media support to drive awareness and consumption.

On the last point, Smucker added that marketing for Hostess will not level up to the same degree as other JM Smucker brands “because we are working through some new creative work, new advertising, new brand positioning, that will not be fully baked until the back half of the year.”

GLP-1 impact on Hostess Brands is not meaningful

Company investors also need not worry about a negative impact from the rising popularity of GLP-1 drugs on Hostess Brands, Smucker said.

“We look at that very closely and actually have recently … gotten some new data and really looked across households and we continue to see that there is really no meaningful impact from GLP-1 drugs on this particular category,” he said.

“And so, the softness that we have talked about is really driven, more than anything, by just this less discretionary income,” he said, adding: “For all of those reasons, for all of the things that we can control and that we plan on doing, we still love the brand.”