Q2 2025 Earnings Summary
- Uncrustables sales are exceeding expectations, with the company expecting to hit $900 million in sales this year, ahead of plans, and aiming to meet or exceed $1 billion by 2026.
- The company anticipates $100 million in cost synergies from the Hostess acquisition by fiscal year 2026, with efforts to improve execution, expand distribution, launch new marketing campaigns, and drive innovation, positioning the brand for growth.
- Meow Mix continues to be a bright spot in the pet portfolio, with restored promotional activity and ongoing innovation driving performance.
- Weakened execution in the Hostess business, specifically in securing display and promotional activities, may hinder growth in the indulgent snacking category, especially as consumers become more health-conscious.
- Increasing usage of GLP-1 weight loss drugs among U.S. adults could reduce demand for indulgent snacks like Hostess products, particularly if coverage expands under Medicare and Medicaid, posing a potential risk to future sales.
- The anticipated $0.25 impact to earnings from the divestiture of Voortman, with a $0.10 hit expected in the current fiscal year, suggests potential challenges in maintaining profitability.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +17% | Acquisition benefits (e.g., Hostess Brands) and favorable sales mix across core categories boosted revenue, despite inflationary pressures. |
Operating Income (EBIT) | -43% | Weakened by higher commodity and integration costs (post-acquisition), increased amortization, and one-time items impacting margins. |
Net Income | -$24.5M (down from $194.9M in Q2 2024) | Driven by elevated interest expenses due to new debt financing, acquisition-related charges, and lower profit margins partly offset by revenue gains. |
EPS (Diluted) | -$0.23 (down from $1.90 in Q2 2024) | Reflects the same profit structure pressures as Net Income, including unfavorable cost dynamics, resulting in a negative bottom line per share. |
U.S. Revenue | +19% | Strong volume/mix gains in coffee, peanut butter, and Uncrustables segments, coupled with acquisition-driven sales, outweighed any pricing headwinds. |
Canada Revenue | -15% | Impacted by the divestiture of the Canadian condiment business and ongoing inflation, reducing overall net sales from the region. |
All Other International | +47% | Sustained by robust coffee and snack demand and potentially favorable currency effects, lifting sales beyond prior-year levels. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
EPS | FY 2025 | $9.70 – $10.10 | Midpoint $9.90 | no change |
Gross margin | FY 2025 | 37.5% – 38% | 37.5% – 38% | no change |
Net sales | Q3 2025 | Flat year-over-year | Flat year-over-year | no change |
Coffee segment margin | 2H 2025 | no prior guidance | Mid-20s to low-20s | no prior guidance |
Voortman divestment impact | FY 2025 | no prior guidance | $0.25 full-year impact | no prior guidance |
Hostess synergies | FY 2026 | no prior guidance | $100 million | no prior guidance |
Hostess sales guidance | 2H 2025 | no prior guidance | Low single-digit year-over-year decline | no prior guidance |
Coffee sales | Q3 2025 | no prior guidance | Flat year-over-year | no prior guidance |
Coffee sales | Q4 2025 | no prior guidance | Growth year-over-year | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Net Sales Growth | Q2 2025 | 9% year-over-year | 17.2% year-over-year (from 1,938.6MIn Q2 2024 to 2,271.2MIn Q2 2025) | Beat |
Gross Margin | Q2 2025 | 37.5% | 39% ((2,271.2M- 1,385.1M) / 2,271.2M) | Beat |
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Hostess Performance and Outlook
Q: Hostess sales guidance implies declines; what's expected to drive improvement?
A: Sales guidance implies a low single-digit year-over-year decline in the second half. Sequential improvement is expected due to enhanced execution efforts and lapping easier comparables. Focus areas include improving display execution, expanding distribution, launching new marketing campaigns, packaging refresh, innovation with value offerings like $1 packs, and co-promotions with legacy brands such as coffee ,. -
Coffee Inflation Impact
Q: How is rising coffee inflation affecting pricing and margins?
A: Coffee is experiencing significant inflation, with Arabica prices hitting $3, the highest in over 10 years. The market is speculative, but they intend to responsibly pass along cost changes. Coffee margins are expected to decline from 28% in the first half to the mid-20s to low 20s in the second half due to higher costs ,. -
EPS Guidance and Outlook
Q: Why has EPS guidance changed, and what's the outlook?
A: EPS guidance was revised from $10 to $9.80 due to a reduction in top-line outlook and ongoing green coffee inflation. It has now been raised to $9.90 by locking in the gross margin beat from Q2. While it's early to discuss fiscal '26 specifics, factors influencing future earnings include base business momentum, cost synergy realization, and debt paydown benefits. -
Pet Food Segment Outlook
Q: What's driving pet food performance and expectations?
A: Milk-Bone continues to perform due to its broad value spectrum and successful innovation like peanut buttery bites containing Jif. Growth is slower due to the discretionary nature of pet treating. No additional softness is expected; however, Q3 outlook is impacted by strong prior-year comps and reduced co-manufacturing sales ,. -
GLP-1 Weight Loss Drugs Impact
Q: How are GLP-1 weight loss drugs affecting the business?
A: Currently, there is no material impact on the business from GLP-1 trends. The company continues to monitor the situation and focuses on consumer needs with potential innovations like portion size adjustments and sugar reduction. -
Uncrustables Growth Outlook
Q: What's driving Uncrustables growth, and what's the outlook?
A: Uncrustables is performing exceptionally well, expected to hit $900 million this year, ahead of expectations. Being in demand-generating mode allows for advertising and new product launches, including a limited peanut butter-only SKU. Confident in meeting or exceeding $1 billion in fiscal '26. -
Synergies from Hostess Acquisition
Q: What's the update on cost synergies from the Hostess acquisition?
A: Committed to achieving $100 million in cost synergies by the end of fiscal year '26. Expect about half this fiscal year and half next fiscal year, even after the Voortman divestiture. -
Voortman Divestiture Impact
Q: How will the Voortman divestiture affect earnings?
A: The full-year impact is $0.25; impact to this fiscal year is $0.10. Plan to use $300 million in proceeds to pay down debt, partially offsetting the impact and leaving about a $0.05 effect, which is immaterial to overall guidance. -
Stranded Overhead Costs from Pet Divestiture
Q: How are stranded overhead costs from pet divestiture being addressed?
A: Completed the Transition Services Agreement; this fiscal year's impact is $0.60. Working to mitigate or remove stranded overheads; it should not be a drag on earnings next fiscal year and may become a tailwind. -
Balance Between Price and Volume Mix
Q: What's the outlook on price vs. volume mix for the rest of the year?
A: Base business growth is about 2.5% to 3%, equally split between volume/mix and price on a full-year basis. -
Q3 Sales Expectations
Q: Why is Q3 sales expected to be flat year-over-year?
A: Anticipating flat coffee sales due to a second round of pricing. Pet portfolio is lapping a strong prior-year comp and assessing the discretionary nature of pet treating, along with reduced co-manufacturing sales. Sweet Baked Snacks sales are called down, offset by growth in frozen handheld and spreads portfolio. -
Milk-Bone and Meow Mix Performance
Q: How are Milk-Bone and Meow Mix performing amid competition?
A: Milk-Bone continues to perform, leveraging its value spectrum and successful innovation. Meow Mix is a bright spot; promotional activity was restored as they returned to full supply and back in stock. -
Profitability and Segment Margins
Q: How are segment margins expected to play out?
A: Coffee margins are expected to decline to the mid-20s to low 20s in the second half due to green coffee inflation. Pet margins are higher than originally thought, balancing out overall profitability among segments. -
Sweet Baked Snacks and Execution
Q: What aspects of execution weakened in Sweet Baked Snacks, and how are you addressing it?
A: Needed to improve execution on display and support with innovation ,. Actively engaged with key customers; discussions are positive. Focused on enhancing display, expanding distribution, launching new marketing campaigns, packaging refresh, and introducing value offerings like $1 packs ,.