Aug 10, 2020
Operator
Greetings. And welcome to Hostess Brands’ Second Quarter 2020 Earnings Conference Call.
At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.
[Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Katie Turner.
Please go ahead.
Katie Turner
Good afternoon. And welcome to Hostess Brands’ second quarter 2020 earnings conference call.
Joining me on the call today are Andy Callahan, Hostess Brands’ President and CEO; and Brian Purcell, Chief Financial Officer. By now everyone should have access to the earnings release for the period ended June 30, 2020.
They went out this afternoon at approximately 4:05 p.m. Eastern Time.
The press release and an updated investor presentation are available on Hostess’ website at www.hostessbrands.com. This call is being webcast and a replay will be available on the website.
I would just like to remind you that today’s discussion will include a number of forward-looking statements. If you refer to Hostess’ earnings release, as well as the company’s most recent SEC filings, you will see a discussion of the factors that could cause the company’s actual results to differ materially from these forward-looking statements.
Please remember the company undertakes no obligation to update or revise these forward-looking statements. The company will make a number of references to non-GAAP financial measures.
The company believes these measures provide investors a useful perspective on the underlying growth trends of the business and has included in its earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures. And with that, I’d like to turn the call over to Andy Callahan.
Andy Callahan
Okay. Thank you, Katie.
Good afternoon. We appreciate you joining us today.
Before I get into our strong second quarter 2020 results, I would like to briefly comment on the ongoing COVID-19 global health plan. As I did on last quarter’s call, I would like to thank the Hostess heroes on behalf of the Hostess Brands Board of Directors and leadership team.
I am grateful to everyone for the remarkable dedication and commitment of those serving on the front lines every day in our facilities, transportation, grocery stores, healthcare and beyond, ensuring that the local communities are supported. I would like to reiterate our support for a safe recovery to all those impacted from the virus.
The health and wellbeing of our entire team, their family and the communities we serve remains our top priority. We are pleased to report that our manufacturing and distribution facilities have continued to be operational, serving our customers, bringing consumers to comfort, enjoying Hostess during this difficult and uncertain time.
In addition, our COVID-19 task force remains intact as we stay nimble and educated for the opportunities and challenges we face to best position Hostess for success now and well into the future. During this volatile time, we continue to actively monitor and develop action plans to ensure we are appropriately adapting to the current environment.
Where when appropriate, we are modifying our manufacturing, supply chain and merchandising priorities to respond to the changing market dynamics, which I will note has improved, although, not uniformly across key areas of our business since we reported Q1 earnings in April. Our team has done a great job in the face of robust consumer demand, as we support our retail partners to minimize out of stock, while also adjusting the timing and nature of trade programs.
We continue to update our marketing programs to best target anticipated changes in consumer demand. Today and into the future, our team remains grounded in our five pillars, one, grow the core, two, grow through innovation, three, improve through agility and efficiency, four, cultivate talent capabilities, five, leverage our strong cash flow.
I am pleased with our team’s ability to drive another quarter of growth and progress as we continue to operate in a marketplace impacted by COVID-19. During the second quarter, we continued to execute on our stated objectives.
These include, executing on continued growth of core Hostess, completing significant integration activities for the recently acquired Voortman business and implementing operational improvement. The executional excellence demonstrated against these priorities has enabled us to exceed our financial expectations for the second quarter and positions us for a strong year.
Our foundation is strengthened. We will continue to fuel our sustainable profitable growth.
The accomplishments in the second quarter include, net revenue growth of 11.7%, excluding the In-Store Bakery or ISB, business sold in August of 2019 and adjusted net revenue growth of 14.7%. The Voortman acquisition contributed $30.4 million to this growth ahead of plan.
Strong growth of our core Hostess branded revenue was partially offset by lower private label and other non-Hostess branded revenue. As we expected, we were impacted by the mix shift from single serve to multi pack sales resulting from changing consumer shopping habit due to COVID-19.
However, we did see this improve over the course of the second quarter and into July. Point-of-sale increased 7.4% and market share was 19.3%, down 7 basis points.
Hostess branded point-of-sale was up 9.2%, representing continued growth ahead of the Sweet Baked Goods category and demonstrating the strong consumer demand with a well-known and trusted Hostess brand during this time. Our strong core Hostess branded volume was partially offset by declines in non-track channels, such as spending, which is primarily our lower margin value grade, including Cloverhill, Big Texas and Dolly Madison, and private label sales due to shifts in demand from COVID-19.
The decline in non-track channel, as well as shifts in timing of July 4th merchandising shipments year-over-year help explain the Q2 delta between our point-of-sales growth in Sweet Baked Goods net revenue growth. During the second quarter, we were able to achieve year-over-year point-of-sales growth within the convenience channel, despite the unprecedented challenges this channel is facing.
We also maintained our number one market share and achieved the highest share position in the history of Hostess within this important sales channel. This really speaks to the strength of our warehouse distribution model where we were able to benefit from our ability to get our products into the stores.
Based on our recent market data, the convenience channel trends are showing continued improvement in July. While our single-serve sales remain below the pre-COVID-19 period, they are improving, we are confident that our strong performance this quarter, despite the dramatic shift in consumer behavior, puts us in an even stronger position for growth once the economy opens back up more fully.
From a household penetration perspective, we have increased Hostess’ household penetration and improved our repeat purchase rates during COVID. In Q2, Hostess percent households buying increased 10% and exceeded the Sweet Baked Goods category, which increased 7%.
Hostess trip, dollar growth and units per household were also up versus the prior year period. Importantly, repeat purchases are also up, so our trial is creating more loyal Hostess consumers.
We are also pleased that our mixed initiative launched at the beginning of the year and the strategic emphasis to prioritize more profitable Hostess branded SKUs during this period of unprecedented demand helped protect our margin and profitability in the quarter. We believe the diversification we have across sales channel, value tiers and now categories with cookies has enabled us to be resilient and nimble, as we continue to navigate changing consumer behavior.
As a result of the strategic actions the team has successfully executed during the quarter, adjusted EBITDA significantly outpaced our adjusted net revenue growth with an increase of 22.6% compared to Q2 last year excluding ISB. Our adjusted EBITDA growth was primarily due to accretive margin expansion generated from the successful integration of Voortman ahead of expectations and strong core Hostess volume growth.
The Voortman integration and transition continues to progress ahead of plan with significant progress achieved in Q2 against our stated $15 million in annual cost synergies. This gives me confidence that we will deliver more synergies than we initially targeted in year one.
We are incredibly pleased with all we have accomplished on Voortman in a very short period of time. Building on the Voortman progress in Q1, we completed key integration activities, including transitioning Voortman DSD distribution model to the Hostess warehouse model in both the U.S.
and Canada. Importantly, Voortman was significantly accretive to adjusted EBITDA in the second quarter.
This is quite an achievement given all the operational efforts we have undertaken since January. We are fortunate to have an experienced team that is proving once again they will continue to successfully execute the complex work and integration, like they did during the re-launch of Hostess.
We continue to expect that our transition cost will be in the range of $25 million to $30 million, as we communicated on our Q1 call. This is $5 million better than the initial estimate.
We are particularly pleased to have achieved continued Voortman POS growth in Q2 during our warehouse transition activities, while simultaneously rationalizing almost half of the pre-warehouse transition SKUs. Our team is actively developing new products to drive increased distribution into new channels and evaluating additional growth platform for the Voortman brand as we position the business for future profitable growth.
We are excited about the many opportunities for growth in the Voortman business and with the progress we are making as we leverage Hostess’ leading brand, broad-based distribution model, focused and tailored customer approach, innovation and promotion expertise, and scale merchandising capabilities. During the second quarter, we also advanced our innovation, a core pillar of our long-term sustainable growth.
Our innovation contribution exceeded our expectations in the quarter, driven by Hostess branded Brownies and Lemon Cupcakes. Our new Tiger Tail Twinkie launched July 21st and we are pleased with the consumer reception to this limited addition Twinkie wrapped in tiger-striped packaging.
Going forward, we have a strong pipeline of both the core Hostess and new platform idea. As we begin our largest selling period with customers during Q3, we worked with them, collaboratively with them to optimize programming to meet our dynamic consumer environment.
We made the proactive decision to delay the rollout of certain new items to prioritize core growth in Q2, but the team is diligently working to be ready to launch when the time is right. We are also excited about the expanded capabilities of our new R&D facility, which is now up and running inside our Lenexa headquarters office, adds to our existing industry leading capabilities.
This facility is designed to develop differentiated products and conduct sensory and focus with test, which underscores our ongoing commitment to consumer insight driven innovation. Our merchandising team has done an excellent job remaining agile, as we flex our business where appropriate to meet consumer needs and consumer shopping habits evolve.
Food and home growth has continued at a sustained rate while on the go purchases have started to improve, which both bode well for continued growth in the second half of the year. Hostess has historically performed well in both recessionary and growth economy.
In 2020, both the Sweet Baked Goods and Cookies categories have continued strong growth as we expect this to continue. As we head into the fall season, we have strong merchandising tied to our seasonal programming planned in the second half of store growth.
I believe we will benefit from the potential changes in consumer behavior during the back-to-school period. We are excited about the unique ways Hostess can bring Halloween home as another growth app.
In addition, our marketing efforts are increasing in key areas to accelerate growth include developing new e-commerce programming, which will continue to support our next phase of growth. We have consistently executed, tested a proven playbook, which has driven sustained growth over the last five years.
Our foundation to grow is strong, and we have never had more opportunities for profitable growth as we strategically invest in business to more deeply fuel growth. I am very proud of Hostess’ perseverance and nimbleness in this dynamic operating environment.
Our team is leveraging our core competencies to support record demand by focusing on mix, adjusting customer consumer programming and collaboratively working with retail partners as we further advance Hostess innovation pipeline to drive long-term growth. I remain confident in the progress we have made year-to-date and how these results position us well for the second half of 2020 and into 2021.
We believe Hostess will emerge from this volatility in a much stronger position with continued industry-leading growth and industry-leading margins. Now, I will turn it over to Brian to go through the details of the quarter’s results.
Brian Purcell
Thanks, Andy. I want to reiterate my continued gratitude to our team.
Our results for the second quarter are strong and reflect the culture of performance and excellence we are always building at Hostess. We are making disciplined investments in managing cash to support our long-term sustainable growth.
Today, I will review our second quarter 2020 financials and other data from today’s release as we think about our business moving forward. Net revenue for the quarter was $256.2 million, an 11.7% increase, excluding the impact of the IS -- the sale of the ISB business in August 2019.
Adjusted net revenue was $263 million, an increase of 14.7% excluding ISB. This includes $6.8 million added back to sales related to slotting fees incurred to obtain warehouse space for the Voortman transition.
This was expected and in line with our acquisition economics. The increase in adjusted net revenue was primarily driven by the acquisition of Voortman, which contributed adjusted net revenue of $30.4 million for the quarter, as well as strong Hostess branded revenue growth, which was partially offset by lower value brands and private label revenue.
As we discussed in our Q1 call, in April, we were seeing a decline in our single-serve sales of 10% to 15% and an increase in our multipack and bagged donut sales of 10% to 15%. This trend improved over the course of the second quarter and we finished the quarter with single-serve POS down only 5.5% and multipack up 19.4%.
As Andy mentioned, we are seeing this positive trend continue with single-serve POS down only 1% July-to-date. Gross profit was $89.4 million for the second quarter of 2020 and gross margin was 34.9%.
Excluding ISB, gross profit increased 10.5% from the second quarter of 2019. Adjusted gross profit was $98.1 million or an increase of 21.1%, excluding ISB, representing an adjusted gross margin of 37.3%.
Adjusted gross profit improved year-over-year due to higher revenue and accretion from Voortman. Voortman’s Q2 margins benefited from the significant ramp in production to support the pipeline fill during the transition to the warehouse model, which resulted in higher operating efficiencies.
During the quarter, we were able to hold core Hostess margins flat, as higher volume and operating efficiencies offset negative mix impact and higher COVID-related costs. We expect COVID-related costs, including bakery inefficiencies due to production modifications, higher leaves of absences and increased overtime that we incurred in Q2 to be lower in future quarters if conditions remain at their current levels.
As expected, operating costs were higher in the second quarter primarily due to the addition of Voortman and the related transition costs. Our effective tax rate was 24%, compared to 35.2% in the prior year quarter.
The prior year effective tax rate was impacted by a discrete tax expense of $2.8 million. Net income was $17.4 million and diluted EPS was $0.13.
Adjusted EPS was $0.22 per share, an increase compared to $0.17 per share in Q2 last year as a result of the accretion from the Voortman acquisition and the higher EBITDA driven by the core Hostess group. Adjusted EBITDA for the quarter was $65.1 million or 24.8% of adjusted net revenue.
Excluding the sale of ISB, adjusted EBITDA increased $12 million or 22.6%. The increase was primarily driven by the addition of Voortman, which contributed about $9 million of EBITDA accretion for the quarter.
The high Voortman margins and strong Hostess branded multipack and bagged donut volumes more than offset the negative mix from temporary declines in our single-serve sales volume and COVID related costs. We had cash and cash equivalents of $127.8 million and net debt of $980.6 million as of June 30th, with a pro forma leverage ratio of 4.3 times factoring in the expected 2020 EBITDA contribution from Voortman.
We are committed to effectively reducing this ratio over the course of the year and have a proven history of successfully reducing our leverage following acquisitions, while continuing to make disciplined investments for growth. We remain focused on achieving our long-term leverage ratio target in the range of 3 times or 4 times.
We believe we have sufficient financial flexibility to support our expected future cash flow, utilizing our cash on hand and operating cash flows. Now moving to our outlook, as you all know, we are operating in a volatile and unpredictable environment, with unknown impacts from COVID-19, including, potential changes in consumer buying habits, which are highly dependent on future U.S.
movement restrictions, the availability of labor, which is being impacted by government subsidies in both our and our customer supply chain availability, just to name a few. Assuming no significant impacts from changes in these factors, we are now expecting adjusted EBITDA of $230 million to $240 million with Voortman EBITDA contributions of $25 million to $30 million.
We expect margins in the second half of the year to be slightly lower than Q2, as operating efficiency levels normalize and we increase our investment in merchandising and marketing to drive continued long-term growth. This puts us well on track for achieving adjusted EPS of $0.70 per share to $0.75 per share and reaching our leverage target of around 4 times by the end of 2020.
Despite the temporary uncertainty created by COVID-19, we remain confident in our underlying business fundamentals, which support our ability to achieve our long-term financial objectives, including organic revenue growth, adjusted EBITDA margin and free cash flow conversion in the top quartile of our peers. With that, I will turn the call back to Andy for closing comments.
Andy Callahan
Thanks, Brian. We are pleased with our strong and better than expected second quarter and first half 2020 results, particularly as we continue to manage through this dynamic and uncertain time created by the COVID-19 pandemic.
Our core Hostess business and Voortman business are both tracking ahead of our expectations, based on our strong execution and ability to remain agile, proving Hostess as resilient in evolving economic cycle. We believe our ability to execute and manage the controllable aspects of our business in this operating environment will create a stronger Hostess for success long-term.
Across the team, we are working together to further advance our high performance-based culture to consistently win with all stakeholders. The commitment of our people, the strong consumer awareness and loyalty to the Hostess brand, as well as our agile, efficient distribution model will continue to be key competitive advantages in the marketplace to drive strong long-term financial performance in the top quartile of our peers, as we create value for our shareholders for many years to come.
With that, Brian and I are available for your questions. Operator?
Brian Purcell
Operator?
Katie Turner
I think we are having slight technical difficulties, if you could just bear with us a second.
Andy Callahan
Okay. Great.
Thank you.
Katie Turner
Okay. Go ahead.
So it sounds like the operator’s temporary lost their connection. If everyone can just hold on the line, we’d appreciate it.
Thank you.
Operator
[Operator Instructions] Our first question comes from Rob Dickerson with Jefferies. Please go ahead.
Rob Dickerson
Great. Thank you so much.
Congratulations on a superb quarter. So, look, I guess, I just have a question on the guidance.
Your original guidance that you had set come out of Q4 was $225 million to $240 million in EBITDA, obviously, that was suspended given everything that we have all been dealing with and understandable and now the guidance is $230 million to $240 million assuming the moving pieces kind of stay stable. But at the same time, you had a great Q2, I mean, really way above expectations.
Gross margins actually kind of fascinating, I would argue, and it sounds like Voortman is coming in a lot better than expected. So if we think about kind of the back half of this year, your comment on being margin will be down just slightly, also sounds like maybe there could be some increase in marketing or promotional spend, I am not sure, and then also it sounds like there was some volume leverage that contributed to the margin off of Voortman to the pipeline fill.
But all that being said, you are also saying that maybe the mix component could get better, right? If kind of convenience stores get better and the single serve gets better.
So I guess my kind of long winded question or a long winded way of asking is just, like, what could occur in the back half to actually make your results better than you are potentially conservatively thinking about now and like why wouldn’t that really elevated gross margin at least have some staying power, maybe not as good as Q2, but obviously, better than we have seen historically at Hostess? Thanks.
Brian Purcell
Yeah. So thanks, Rob.
The -- if you look overall at our guidance, the $230 million to $240 million, obviously, if you think about the back half. There’s still a lot of uncertainty.
I think if -- and in terms of being optimistic and looking at the upside to your question, obviously, if mix continues to improve over the back half, that would be a reason to be optimistic. There’s obviously, right now, in the short term, we are starting to see that.
In Voortman, we feel great about the $25 million to $30 million. In Q2, obviously, there was a lot of moving pieces and we demonstrated the ability to navigate that and operate well.
We feel that’s baked into our guidance in the back half, there’s obviously the caveats if there’s any major changes in the U.S. movement restrictions, et cetera.
But I think we feel great about the base business. We feel great about Voortman and we are overcoming -- we finished Q2 with single-serve down, although, we have got some mixed headwinds and tailwinds.
I think that in the back half, the guide that we put forward accurately reflects where we feel about the business, and obviously, some of the uncertainty that still exists from a mix standpoint.
Andy Callahan
Yeah. Let me comment at the top because implicit in your question, Rob, I share your optimism from where we are at.
Voortman is executing very well, now Q2 was a perfect storm, we had some leverage, we didn’t do any promotion, we filled the pipeline. But we -- and we are executing that with $5 million less in cost than we had planned and we are going to over deliver on the EBITDA versus planned, synergies or sooner we are well in position.
And on the core business, remember, our single-serve business, which was down 5%, we went into this up 3% and we are still planning to flat. So there’s a lot of uncertainty, but implicit in your question, I share your enthusiasm.
As said another way, we will come out of this stronger than we went into it. So I feel very confident about it as we move forward.
Rob Dickerson
Okay. Great.
Yeah. Yeah.
I just want to be clear because at first, the stock was down a little bit off the print, Q2 is good, mix could improve, costs at least in the COVID side, seemed to be decelerating into the back half and if the environment improves a little bit, single-serve comes back, then it doesn’t sound like, I mean, quite frankly, at a positive scenario, margins could actually be stable to up, but I will leave it at that. Thank you.
Andy Callahan
Okay.
Operator
Our next question comes from Brian Holland with D.A. Davidson.
Please go ahead.
Brian Holland
Yeah. Thanks.
Good afternoon. And congratulations on the strong execution and the integration of Voortman and I appreciate it in a terribly complicated environment to do that in.
The first question maybe just two points, one, can you give us a sense of how much of a drag that mix impact was on your gross margin in the quarter and also you talked about some of that private label, non-branded business that maybe you pulled away from. How much of an impact did that have on the revenue in the quarter, just curious?
Brian Purcell
Yeah. So the -- on the margin side, the -- we actually saw a headwind with single store being down, and then obviously, multipack was up.
So that created a little bit of headwind from a margin standpoint. Conversely, we had private label business down as well and that helped us from a margin standpoint.
So between that and getting a little bit of operating efficiencies on the supply chain side, that helped us. So our margins from a base standpoint were relatively flat and the accretion that we are seeing year-over-year is driven by Voortman, so that’s the margin side.
If you look at the revenue side, if you look at where we finish from a revenue standpoint relative to POS, our POS was up over 7 points and I think if you look at our base Hostess business, that would be more reflective of probably in line with POS.
Andy Callahan
Hostess branded.
Brian Purcell
Hostess branded business, that will be in line with where POS finished. Last year we actually outpaced POS, if you look at our revenue growth in the quarter, driven by a lot of the private label side, the value brand side.
So if we sort of slipped this quarter and did the opposite and on a two-year basis, I think, you would see a revenue growth for base Hostess that’s in line with POS.
Brian Holland
Thanks. I appreciate the color there.
And then maybe just as a follow-on, packing on to Rob’s question earlier. Appreciate you trying to frame in what is a tough environment to do so.
What the guidance could look like a range of outcomes. Can you help us understand what sort of base level assumptions you have used, I mean, did you look at where 2Q ended and you assumed that basically that didn’t change?
If you could just at least directionally help us understand how you frame the second half given what is obviously a volatile environment? Thanks.
Brian Purcell
Sure. Yeah.
So, obviously, if you think about our mix going forward, that’s the biggest difficult question to call in terms of the outlook. But what we have assumed is basically more in line with recent trends from a convenience standpoint, from a large format, multipack standpoint.
We have assumed recent trends going forward. And like I said, in Q2, we have made some choices from a portfolio standpoint to help manage that to navigate a pretty difficult quarter in a volatile environment.
We expect to do the same things going forward. And obviously, if there are any material shifts in the current environment from a macro standpoint, that would impact our guide.
But the short answer is we are looking at short-term trends, more recent trends where we are starting to see some stabilization to basically feed our foundation for the back half of the year.
Brian Holland
Great. I will pass it another one.
Thanks. Best of luck gentlemen.
Operator
Thank you. Our next question comes from Ken Goldman with JP Morgan.
Please go ahead.
Ken Goldman
Hi. Good afternoon, everybody.
Thank you. I think you mentioned that single-serve July-to-date is down about 1%, did you provide the same number or a range for multipacks, I may have just missed it?
Brian Purcell
For July?
Ken Goldman
Yes.
Brian Purcell
Yeah. So July, the multipack business in terms of what we are seeing, let’s say, quarter-to-date...
Andy Callahan
Well, we are having timing of some shifts, but in general, multipacks were up above 15%, just year-on-year comparison, but multipacks was up 15% and single-serve worked its way back to flattish, so like the last time we are seeing down 5% in Q2.
Ken Goldman
Right. No.
I get the single-serve price. Thank you for the multipack number.
Okay. And then your previous guidance for Voortman synergies was, I think, $15 million if not more over the first 12 months to 18 months.
Is there an updated range that we should be thinking about now in light of some of these synergies coming in more quickly and are you still looking for $40 million to $50 million for Voortman EBITDA in 2022 or is that starting to seem a little light to you right now as well?
Andy Callahan
Okay. So for everyone I am going to talk about the synergies real quickly.
I think what we said, as you are right, about 12 months to 18 months, we are going to get them sooner, so they are coming in sooner, which is one of the reasons why we took the EBITDA up and then we had a good Q2 related to the pipeline fill and efficiencies as we have talked about. I agree with you on that, relative to that, therefore, given the progress we have made and the execution of the integration, I would think ‘22 is late and we are looking at moving some of those numbers forward.
So you will see that -- just if you look at our back half performance, we should be at the bottom half of that range, we haven’t done our full ‘21 plan. But I would think about profit deliveries moving forward but then continuing to grow as we move into the years.
Ken Goldman
Thank you very much.
Operator
Next question comes from Pam Kaufman with Morgan Stanley. Please go ahead.
Pam Kaufman
Hi. Good afternoon.
I was hoping that you could explain the adjustments made to revenue for Voortman during the quarter. You mentioned that they were related to slotting fees, could you just elaborate on that and is that something that is truly one-time or do you expect that to continue over the next couple of quarters as well?
Brian Purcell
Yeah. So -- thanks, Pam.
The slotting fees are associated with the conversion moving from a DSD to warehouse. We had base slotting fees to get those -- the Voortman SKUs into the warehouse model.
We added it back because it is one-time in nature.
Pam Kaufman
Got it. Thanks.
And then I was hoping that you can comment on what’s left at this point of the Voortman integration. And obviously, the cost synergies are -- you are realizing them on an accelerated basis, any comments around revenue synergies now that you are putting their products through your distribution network and the opportunity that you see there?
Andy Callahan
Yeah. Thanks Pam for your question.
You are exactly right. We are moving into the next phase.
We actually just completed the -- we delayed 10 of the conversion slightly after the U.S. We are now complete with that including anything related to technology.
So it’s all on Board. That’s going very well.
The next phase is really driving making sure that the operating model and the store continues to operate well. So in other words, moving forward with the merchandising program, having the buyers order it the right way, getting displays and then driving those other distributions within both stores and other channels.
So think about distribution in a couple of areas. One is the breadth of distribution across channels that DSD was not able to get into, as well as we are looking at selling into some of the club channels, as well as convenience stores in the back half of the year, so that’s happening.
But we are also not holding off on innovation as well. We are looking at other innovation platforms and potentially we can start selling in for launch into next year.
So we are looking at not only the revenue synergies within distribution, taking advantage of that breadth of distribution model, but also innovation as well. All of that’s in play right now and we are engaging with customers in the back half of the year.
So there’s a combination of the operational improvements, getting the merchandising plans, reorder plans, cycles, selling, as well as the synergies related to the breadth of distribution and innovation.
Pam Kaufman
Great. Thank you.
Andy Callahan
Thanks, Pam.
Operator
Next question comes from Bill Chappell with SunTrust. Please go ahead.
Bill Chappell
Thanks. Good afternoon.
Hey. Just…
Andy Callahan
Hi, Bill.
Bill Chappell
I guess, first question, just trying to understand where, I mean, if 42% of your business is kind of through C stores, kind of where are we in the back to normal level, I mean, is that halfway there in terms of kind of customer traffic of what you see, realizing that some are gas stations, some are offices, are we not even close to that and kind of what are you assuming as we move through the back half of the year?
Andy Callahan
Yeah. So I think that’s related to the -- sometimes, I don’t know if there is a back to normal, Bill.
I ask everyone, what do you attribute to COVID? This is a fundamental change potentially in the way consumers behave.
Will they be packing more lunches back-to-school, that’s good for Hostess? Will they be eating at home more, that’s good for Hostess.
Related to the C store channel and the traffic as well, I see that as potential change as well, we are well-positioned for that, our share is growing. We were growing at 3% going into it.
We are now have worked our way back to flattish over the last period. So it’s a start and I believe when consumers fully get back to working, we will be 100% back.
We have seen it open up in some areas and traffic move relatively aggressively. It’s hard for me to put a number on it because it stops and starts, but we know when we see areas where the economy opens up, our business and our loyalty responds right away.
The other thing that we are seeing within some of these stores is the prepackaged business is doing better than the fresh section and we are well positioned to take advantage of that, which is why I think we are seeing some wait and see even more so than the traffic. Sales -- overall sales within C store we are seeing us better because we are also well-positioned to take advantage of the change in consumer behaviors related to fresh and prepackaged.
So I think we -- but as soon as that responds we expect the business to do well. Importantly, we have been able to manage the mix aggressively, and therefore, manage our margins well, despite having declines in a very profitable piece of our business.
So when that does come back, it’s a very good sign for us moving forward.
Bill Chappell
Okay. Thank you.
And then just you have kind of touched on back-to-school, but what are your expectations maybe above what back-to-school means to the business and to a lesser extent, Halloween, I mean, I know it’s not huge.
Andy Callahan
Yeah.
Bill Chappell
But I mean, at the same point, I know you certainly do some Halloween related promotions and displays and stuff like that. So with -- I don’t want to say that either back-to-school is canceled nor Halloween, but I just didn’t know what you are preparing for?
Andy Callahan
So we are preparing for it, so we have done two things just on a macro level, where we given the high demand in total, we have been very disciplined about making sure that we can manage some mix. And if it was one of our less profitable things, we are smoothing out total demand over time in the back half to make sure that we can service the breadth of our distribution of all of our customers versus the high spike, so that’s just good for our business.
Related to our fall and Halloween, we actually -- we have a rally and cry and a consumer theme around bringing Halloween home. We think there’s a change in consumers, customers have responded extremely well for that, that we are -- we have some of our really iconic and Halloween flavors related to twinkies and cupcakes that are actually sold in above a year ago, as well as our fall programming.
So in general, across for Halloween I feel really good. I feel -- and across our whole fall programming, I feel good.
Because we are really kind of grabbing on to the consumer behavior around home trusted brands, increased penetration and our customers are responding to that merchandising approach.
Bill Chappell
Got it. Thanks so much.
Andy Callahan
Thanks, Bill.
Operator
Next question comes from David Palmer with Evercore. Please go ahead.
David Palmer
Thanks. Good evening.
Just to make you repeat that number that you said in relation to Ken’s question. That multipack take-home business sales growth quarter-to-date that goes up against the negative 1% for single-serve, what was that in July?
Andy Callahan
I said that multipack was in general up about 15% or above.
David Palmer
Okay. And so, I am wondering, you mentioned there was some relative weakness in some of in the non-measured channel stuff in the second quarter.
It sounds like you are maybe shipping more quickly versus consumption because the consumption and this is very lately, because consumption has been bouncing around above and below flat levels lately. I am wondering if is there any dynamic where you, perhaps, under shipped a little bit versus consumption in the second quarter and you are coming on strong here and is some of this strength beyond measured channels.
Andy Callahan
Yeah.
David Palmer
I am trying to understand how you have got strong?
Andy Callahan
So David -- yeah. Yeah.
So, David, the measured channel, so I was -- I had basically a Q2 number, the measured channel that you are talking about was up about some of the 4%. That’s just timing -- that’s some timing of merchandising as we lap and prioritize some of the profitable merchandising versus a year ago.
Our shipments continue to be relatively strong, but they are more every day versus some of the big events that we have lapped, I think, in the last four-week period, we will continue to see some of that comparison, probably, over the last -- the next several weeks, so I think that’s what you are looking at.
David Palmer
Yes. Okay.
So that’s what that’s definitely what I was getting at because it seems like maybe the take-home packaging, the multipacks have slowed lately and I was wondering if there was anything related to that with the recall that happened with the Raspberry Zingers, that’s 2% mix, I don’t suppose, has that been a material thing?
Andy Callahan
Yeah. That’s de minimis.
That was isolated. There’s nothing we think more important than the safety and the quality of our product.
It was a very isolated event. It was de minimis relative to the percentage of our revenue and out of abundance of caution, we just pulled it.
David Palmer
And then I don’t think I have heard you talk about the private label and vending business very much before and that sounds, you said, it was lower margin, it’s also relatively soft this last quarter. Is -- how big of a portion of your business is that and is that a meaningful mix driver?
Andy Callahan
Well, it’s less than -- about 3%, less than 5% of our business.
David Palmer
Okay.
Andy Callahan
A lot of that comes out of our Cloverhill acquisition. It is lower margin.
So it did help the mix related to our margin, as Brian mentioned. So that’s the vending business, which is down meaningfully.
And also -- and if you remember in the beginning of the year, David, we got ahead of optimizing our portfolio and had a mix initiative to make sure we are optimizing our assets. So we did that early in the year, but then it continues to be very soft.
David Palmer
And then one last one and I will pass along, on Voortman’s from a revenue synergy standpoint, clearly, that’s something that -- a business that has a presence north of the border and I know has more exposure to one coast versus another, when does that the revenue synergy part of Voortman’s really kick in for you in your opinion and I will pass it on? Thanks.
Andy Callahan
Yeah. Thanks, David.
We will start seeing that I think beginning and really kicking in, in Q4. Now if you remember on Voortman, we have established a more profitable and meaningful platform to grow off of.
So we reduced -- cut about half of the SKUs, reset it in a very positive and meaningful way and then are growing from there and still maintaining growth, despite that reduction, which is much more efficient. But we are starting to see some of the distribution growth, but that will start accelerating as we get into Q4 and then the back half of the year as we sell in some of our really exciting ideas and plans with customers here in the September and the fall period.
David Palmer
Thank you.
Operator
Thank you. I would like to turn the floor over to management for closing comments.
Andy Callahan
Thank you very much and thank you everyone for your participation and interest in Hostess. I would like to thank our dedicated team for their tremendous efforts to maintain a high performance culture in Hostess in this dynamic environment.
Our core capabilities, resilience and operating model gives us confidence that Hostess will emerge from this time stronger and better positioned for the long-term for sustained profitable growth. Have a safe and happy rest of the summer.
Thanks again.
Operator
This concludes today’s conference. Thank you for your participation.
You may now disconnect.