The Twinkie's Revenge

After months of being off the shelves when Hostess Brands was driven to bankruptcy because of union demands, the Twinkie returned amid much fanfare last month with boxes proclaiming it "The Sweetest Comeback in the History of Ever."

The eight-month hiatus proved a boon for Flowers Foods (NYSE: FLO  ) , though, which used the time created by the void to expand its Tastykake business as branded products sales surged 35% in the just-completed quarter, accounting for 55% of total sales. Tastykake has nearly doubled in size for Flowers since its acquisition a few years ago, growing from $225 million at retail in 2010 to more than $400 million today.

The company maintains that during Hostess' absence from the market it was able to grow its own brand at a "good pace," but ever since the Twinkie's return last month, Tastykake has been able to maintain its market share.

Perhaps, but it's only been a couple of weeks, and while market researchers are watching the cake wars closely, Hostess -- which is now owned by private equity partners Apollo Global Management (NYSE: APO  ) and Metropoulos & Co. -- says sales are seven times higher than their previous historic levels and it can't keep up with the orders coming in, as they're running three to six times ahead of production capacity. 

While that torrid pace is likely to ease up as the initial demand for Hostess cakes abates, Flowers itself took a bite out of its rival's business, buying up its old bread brands like Wonder, Nature's Pride, and Home Pride. Yet where its cake business was previously a regional treat centered in the mid-Atlantic region, Flowers has added Tastykake to its direct sales distribution network and it's now a national brand.

That's what's giving the baker the confidence to say it will be able to hold its own now that Twinkies and the other Hostess brands are back on the shelves. Flowers, though, makes most of its sales through Wal-Mart, which accounted for almost 21% of total revenues last year. Hostess, on the other hand, will be targeting the convenience store market, reaching nearly three-quarters of the 150,000 or so c-stores by the end of the year.

Part of the turnaround envisioned by the cake-and-cream snack's new owners is in making the Twinkie smaller. While the treats were actually reduced in size by Hostess before its bankruptcy filing, the PE duo will keep the cake at the smaller size to save money and expand profits. Flowers itself made more money in the second quarter, watching sales soar 32% year over year to $898 million as acquisitions beyond the Hostess brands helped feed growth. Profits, though, were up as well, surging 64% to $46.5 million. 

The growth spurt was nice while it had the field largely to itself and Flowers used the time wisely to expand the distribution network of its own cakes, but with Twinkies, HoHo's, and Zingers back on store shelves, Hostess may find that revenge at its second coming never tasted so sweet.


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  • Report this Comment On August 15, 2013, at 7:15 AM, spankleelee wrote:

    Why do you lie? Investors sucked Hostess of every dollar it could squeeze in the Hostess name, blamed the companies failures on the unionized hourly wage employees (who have no control in the decisions made by those at the top), filed bankruptcy (after the union offered to take cuts in order stay operating) blamed the union some more, then sold it. THEN there was an article on Yahoo bragging about being non-union with a photo included of a union worker at the top REAL BIG! She was picking up Twinkies with her bare hands! Blek! I will never touch Hostess again after seeing that pic.

  • Report this Comment On August 15, 2013, at 5:43 PM, CBD1960 wrote:

    I believe you should relook your statement and tell both sides of the story.

    "...when Hostess Brands was driven to bankruptcy because of union demands,"

    Look at what the unions were asked to give back/give up over the years - which they did. Why not do some fair reporting and include that in your statement? Little was done by the company itself or its management to improve its way of doing business - which lets one assume there was no good faith bargaining on the side of the company.

    I've since concluded that the original intent of the company was to break it up,sell off the pieces and take the Twinkie formula to a private investment company.

    Somewhere somebody is still making the Twinkie product. Are those folks being paid less then minimum wage/no benefits? Or maybe Twinkies are now being made out of country? How about an update on that?

  • Report this Comment On August 15, 2013, at 8:27 PM, Kihrke0525 wrote:

    Driven to bankruptcy by "union demands" . . . What planet are you living on? This article was clearly written by a rightwing nut job fantasizing about free labor and mass produced sugar filled pastries.

    This article is a disgrace. Whatever his name is clearly forgot to include in his "article" that the CEO and other execs received HUGE increases in their compensation package just months before filing bankruptcy. He must not realize the CEO's salary went from the $700k range to the $2.5 million range. Sounds like a solid management decision to me! (http://www.examiner.com/article/the-real-reasons-hostess-wen...

    Too bad this guy couldn't have done some actual research before TMF posted this sham of an article. Clearly biased and intentionally misleading.

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