Although Interstate Bakeries (NYSE:IBC) beat analyst's estimates with its first-quarter earnings, the rest of the news was as stale as week-old baked goods. Profits for the maker of Wonder Bread and Hostess snack cakes dipped a whopping 59% due to rising operating costs and sluggish sales. Interstate also said it plans to close plants and lay off workers over the next three years to boost profits.
The brands face pressure from a revolution in eating. The Wonder brand is best known for its white bread; however, diet-conscious sandwich makers are more likely to go for whole-grain wheat breads these days, rather than a processed carbohydrate fest.
And while everyone recognizes Ho Ho's, Hostess Cupcakes, and Twinkies, they don't get much credit on the healthy side of things. (Remember the urban myth of the Twinkie's decades-long shelf life? Not terribly appetizing, even if the word on myth debunker snopes.com is that it's actually about 27 days.)
Plus, there are plenty of rivals. Competitors include McKee Foods Corp.'s Little Debbie snack cakes, Flowers Foods (NYSE:FLO), and Sara Lee Corp. (NYSE:SLE). But perhaps most daunting of all is Krispy Kreme Doughnuts (NYSE:KKD). For snack food decadence, Krispy Kreme's famous "Hot" light screams "fresh," as opposed to a snack with a shelf life of almost a month.
In addition, Interstate has approximately $569 million in debt and a restructuring that's been slow going, which gave Standard & Poor's cause to downgrade the company's debt to BB from BB+ on Friday.
Interstate said total bread volume decreased 3.4%, with branded bread down 7.2% from last year, while the snack side of the business sold 6.6% less.
No matter how you slice it, Interstate Bakeries has to bake up some new ideas before it can convince consumers -- and investors -- that it puts the "comfort" in "comfort foods." Though the stock gained 10.5% on Friday, it doesn't seem its overall outlook will rise anytime soon.
You can reach Alyce Lomax at [email protected] .
