Interstate Bakeries Corp., whose
cream-filled Twinkies have graced the lunchboxes of American
schoolchildren since 1933, filed for bankruptcy protection, a
casualty of rising costs and lower demand for carbohydrate-rich
foods.
The company said it replaced Chief Executive Officer James
R. Elsesser with turnaround specialist Antonio C. Alvarez, 56,
whose New York-based consulting firm has also assisted
HealthSouth Corp., Spiegel Inc. and Warnaco Group Inc. Director
Leo Benatar was elected non-executive chairman and John Suckow
from Alvarez & Marsal was named chief restructuring officer.
Beyond Cash Donations: How New Forms of Giving Are Transforming Not-for-Profit Accounting
Evolving Funding Landscape for Not-for-Profits Not-for-profit organizations are being asked to do more with less,…
Learn More
Interstate, which bought its biggest rival in 1995 to become
the largest U.S. wholesale baker, said diet trends, rising
employee pension obligations and energy costs forced it to
reorganize under court supervision. The company plans to continue
operating its 54 bakeries and 1,200 retail outlets after getting
a loan for $200 million from banks led by JPMorgan Chase & Co.,
pending court approval.
Blaming low-carbohydrate diets “is a convenient excuse,”
said Sean Egan, managing director of Egan-Jones Ratings Co.,
which lowered Interstate’s debt rating to “D” from “C.”
“Under Interstate’s very nose Krispy Kreme has built a sizable
business (and) people are not going to stop eating sweets.”
Interstate listed $1.63 billion of assets and $1.32 billion
of debts in the filing in U.S. Bankruptcy Court in Kansas City,
Mo., where it is based. The company had current and long-term liabilities of $931 million and $391 million, respectively,
as of May 29, according to the filing.
Interstate, with 32,000 workers, plans to close a bakery in
Buffalo, N.Y., in October after closing bakeries in
Louisiana, California and Michigan since last year. It suspended
its dividend in March as losses mounted.
Alvarez said in an interview he plans to focus on improving revenue and cutting costs.
“They’re going to have to close a lot of plants because
there’s way too much overcapacity and they also need to
renegotiate their labor contracts and fix the cost structure or
they’ll end up” in bankruptcy again, said Gary Hindes, a
managing director at Deltec Asset Management in New York, who is
considering investing in Interstate’s debt securities. “They’re
a survivor, but I think Interstate ends up a much smaller
operation.”
For the year ended May 29, the company had a $26 million
loss on $3.47 billion in net sales, according to court filings.
Interstate hadn’t reported earnings since April, when it
announced a $6.6 million loss for the 16 weeks ended March 6.
“The cost of restoring volume and market share will be high
and this will work against any rebound in profitability,” A.G.
Edwards analyst Christopher Growe wrote in a report last week.
Earnings will be hurt by rising costs of ingredients
including wheat, flour and sugar, Growe wrote. He rates the company as a “hold.”
Interstate “experienced sharply rising prices at various
times for their raw materials, packaging and energy needs,”
Hutchison said in court papers. “Commodity prices have been
volatile.”
Elsesser was slower than rivals Sara Lee Corp. and Flowers
Foods Inc. to introduce low-carbohydrate breads and snacks.
“Consumer interest in low-carbohydrate diets has
contributed to the reduced demand for” Interstate’s products,
Chief Financial Officer Ronald Hutchison said in court papers.
The trend “increased during the last fiscal year as a result of
the popularity of diets such as the Atkins and South Beach
diets,” he said.
The company, which makes breads and cakes under names
including Home Pride, Sunbeam, Dolly Madison and Drake’s, follows
New World Pasta Co. and Jays Foods LLC into bankruptcy this year
as low-carbohydrate diets erode sales.
About 81 percent of Interstate’s 32,000 employees are
represented by unions, including the International Brotherhood of
Teamsters, according to court filings.
Unions make Interstate’s employee wages “generally higher”
and the company’s “ability to implement productivity
improvements and effect savings with respect to health care,
pension and other retirement costs is more restricted than that
of many non-union competitors,” Hutchison said in the filing.
Bloomberg News
