Empty Twinkies Get New Filling

A few weeks back, I had a pretty dim view of Twinkie and Wonder Bread maker Interstate Bakeries (NYSE: IBC). I even suggested -- shudder -- that the firm might be making a run from its creditors in the near future. Well, the future was yesterday, with the firm filing for Chapter 11 bankruptcy protection.

I have to admit, I was surprised at the hostility of some of the responses I received from the Twinkie faithful. C'mon, folks, this was not a tough call to make, even if Forbes got it wrong. Not only did the firm have zero cash, it had delayed its 10-K yet again, and management admitted that staff and systems ineptitude prevented the firm from knowing enough about its own finances to prepare the filing. When the bean counters are out of bills and they can't even find the change, things are pretty grim. If you bought on the brief August afterglow, you're down 67% today. Ouch.

The excuses given were a glut of baked goods, high ingredient and energy costs, and the expense of employees with their pesky needs, such as wages and benefits. That's a lame-sounding laundry list. Sure, the food manufacturing biz isn't easy, but companies such as Flowers Foods (NYSE: FLO), Tasty Baking (NYSE: TBC), Kraft (NYSE: KFT), and Sara Lee (NYSE: SLE) manage to make ends meet. Interstate's head chefs simply didn't get the job done.

And they're gone for now. James R. Elsesser resigned his positions as chairman and CEO. Alvarez & Marsal turnaround specialists Tony Alvarez and John Stuckow took over as CEO and chief restructuring officer. With the Chapter 11 announcement, the firm said it had gotten commitments for $200 million worth of financing, so it can keep banging out Butternut, Wonder Bread, and other Hostess products. There were soothing words for employees, but wages and benefits were listed among the problems that put the company under water.

Investors have just as much to lose. Interstate's problems begin with stale sales, a problem with no easy fix. It could be that these brands are busted. Until things are better sorted out, this is one company best left on the shelf.

Seth Jayson loves an occasional Hostess cupcake, but at the time of publication, he had no position in any company mentioned.