Interstate's Deflated Dividend

As if Interstate Bakeries (NYSE: IBC  ) investors didn't have enough to be unhappy about, today the company gave them another blow when it discontinued its quarterly dividend. Fool Alyce Lomax recently took a look at the company's latest financial projections, which point to a loss and declining sales in the fiscal third quarter, rather than the profits the market expected.

Interstate shares fell sharply in morning trading today on the news, but it's difficult to be surprised by the announcement. Business is suffering lately and the company committed to a broad restructuring, with its three-year costs -- tied up mostly in technology -- estimated at $55 million. Interstate hopes to re-energize cash flow generation after fiscal 2005. After all, the money to fund operations and pay down debt has to come from somewhere.

While Interstate handles several well-known brands, Hostess and Wonder among them, it's not a great environment for the "carb companies" these days. Apart from a competitive market environment, calorie counters and the bad publicity swarming junk food lately can't be helping Interstate -- nor its sweet-toothed competitors Krispy Kreme (NYSE: KKD  ) , Sara Lee (NYSE: SLE  ) , and Tasty Baking (NYSE: TBC  ) .

Still, Interstate shares were performing pretty well since last August, and then they cratered on the Q3 projections. There's still value in a company with significant cash on the balance sheet and a stable of solid products, but recent events have made investors' jobs increasingly challenging.

Dogged by slumping sales and profits, even as it encourages investors to be optimistic about a lengthy and costly restructuring, Interstate is now asking them to back out the dividend payments that might have softened the other blows a bit.

Twinkie The Kid isn't hollering "Yahoo!" today.

Sara Lee is one company that has its dividend intact. Mathew Emmert recommended Sara Lee for subscribers of Motley Fool Income Investor . You can check it out, free, for 30 days and learn which solid companies will pay you to own them.

Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story.