Trouble in Hostess Cupcake Land?

Business & Economy Forum

By Lauren Weber

NEW YORK (Reuters) - Interstate Bakeries Corp. (NYSE:IBC - news) on Friday said it would close several plants and cut an unspecified number of job cuts, as the Wonder bread maker battles to reinvigorate profits.


The stock jumped more than 10 percent as the company's earnings, which declined about 59 percent, still topped analysts' estimates.


"The earnings came in better than expected," providing a boost to the stock, Merrill Lynch analyst Leonard Teitelbaum said.


Management declined to say how many plants would close or how many layoffs might be expected, but said recent union contracts have caused labor costs to rise more than the largest U.S. wholesale baker can make up for by trying to increase sales.


"We have to automate and we will. We have to rationalize production," James Elsesser, chief executive officer, said in a conference call with reporters. The company expects to give details on plant closings after a management meeting at the end of the month.


Representatives of the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, which represents many of the company's workers, were not available to comment.


"There's no question the company had made it known that they had to do some reorganization," Teitelbaum said. "I think they're following through." He rates the stock at "neutral."


The company, which also makes Hostess snack cakes, also said increased advertising spending and employee-related costs, as well as lower sales of branded products, hurt profit.


Interstate Bakeries said it will provide details of the restructuring in the near future.


VOLUMES DECLINE


Kansas City, Missouri-based Interstate Bakeries reported profit of $11.2 million, or 25 cents a share, including 1 cent a share in restructuring cost, in the first quarter ended Aug. 23. That compared with $27.1 million, or 60 cents a share, a year earlier.


Analysts on average were expecting the company to earn 23 cents a share, according to market research firm Thomson First Call.


Sales fell 0.9 percent to $831.0 million. The company said it has lowered some prices in order to recover sales. Its white bread business has been hurt, in part, by private-label competitors.


Branded bread volume fell 7.2 percent, while sweet goods volume slid 6.6 percent.


Those figures "suggest a broken marketing system and excessive pricing," Credit Suisse First Boston analyst David Nelson wrote in a note to clients. "The company is cutting pricing to restore volumes, but (that) will obviously affect margins."


Analysts have long faulted the company for not keeping up with consumers' evolving tastes for healthier or more innovative products at a time when many food makers and even fast-food restaurants are offering lower-fat items.


Interstate Bakeries shares rose $1.38 or 10.2 percent to $14.88 on the New York Stock Exchange (news - web sites) on Friday afternoon.





(Additional reporting by Brad Dorfman)

I'm not going to post a whole bunch of techno jumble like the crap I read above, but I do think I can shed a bit of consumer info/opinon on it...

When I get a sweet tooth urge in a store, dairy mart, mini-mart, shop, convenience store, I first think what I want...sour...no ....frosting...mmm...chocolate yes yes yes!

So I look to the debby cakes.... well lets see there is a twinkie, a ho-ho, oh look a devil's cake, oooo right there theres a banana flipper , oh and right there theres a star crunch...man so many choices, from so many different distributors....what shall I choose!???

Then I realize it is so much simplier to just choose a damn candy bar and get it over with cuz I recognize all of those names because they have been around so long and not so damn generic like most cupcakes and ho-ho look alikes we now have today...

The above that I posted, that you called, "mumbo jumbo" is there because this is the BUSINESS AND ECONOMICS forum. Therefore, when I saw this news report, I put it in here!!

Anyway... I agree with you about all the look alikes that are made now a days. I would just rather go down the candy isle and get something that I know that I can rely on.

I've never seen a copycat company outdo the original recipes. I always stick to original brands, but then I guess you can make this 3 out of 3 as I agree with both of you. It's better to just go for a candy bar. Too many choices, and what's worse, the stores do not rotate their stock on less popular items. Even if you go for those cakes, they taste stale.

Candy bars are almost always fresh.

Better yet... whip up a batch of Oatmeal No Bakes!

(written before I re-read the original post) still would like a reply

Has anyone considered the impact of the "low-fat" element? Do you think their " lower sales in branded products" might be because they took these off the shelves? I know I used to buy at least two boxes a week and now I buy none!!! I know my sister used to do the same....I also know some other twinkie eaters that had switched to the low-fat version that are not buying them anymore either...to me this could be what's hurting them...I don't know the complete story about why they took them off the shelves, but I would love to know. If anybody knows anymore about this or where I can find out more information I would appreciate it.
And I thought the original post was very informative and well written.