Why Hostess Brands, Inc. Stock Plunged Today

MarketsMotley Fool

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.

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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.

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.

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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.