Shares of foodmaker American Italian Pasta (NYSE:PLB), currently hanging around 52-week lows, fell nearly 4% yesterday on heavy volume following revelations that management approves of the word "rightsizing." Well, not really, but that is a pretty cynical way to say "layoffs" -- take it, as Mrs. Pascal says in "The House of Yes," from one who knows.
What's really going on at American Italian: Management now has the board's OK to execute a "restructuring and rightsizing program" that includes shuttering the company's Kenosha, Wis., plant, and stopping production at two other plants for a total of about five weeks. The Kenosha move and "selected job eliminations" are expected to cut the company's workforce by 14%, which should have a pretty significant impact on expenses. (The company's press release has its headcount at about 720 worldwide.)
American Italian expects the moves to cost it about $11 million before tax; they're seen delivering a similar amount of annual pretax savings in the years to come.
Simply put, now is a bad time for pasta makers. Former Hershey (NYSE:HSY) unit New World Pasta filed for Chapter 11 bankruptcy in May; Monterey Pasta (NASDAQ:PSTA) early last month turned in a net loss for fiscal first quarter; and costs for ingredients key to pasta makers and eaters, such as cheese and eggs, have risen considerably. All this and the carb craze has meant fierce competition that also involves global leader Barilla, which is (unsurprisingly) Italian-owned and operated.
All this has investors watching American Italian very closely, as the shares' disappointing downward 12-month run indicates. The company is well positioned for success in a strong market -- its customers include Kroger (NYSE:KR), Wal-Mart (NYSE:WMT), and Sysco (NYSE:SYY) -- but is also clearly heading into defensive mode. It looks like management is preparing for further uncertainty and hard times in its business, and suggests that investors might want to do the same.
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Fool contributor Dave Marino-Nachison doesn't own any of the companies in this story.
