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.
Fool contributor Rich Duprey has no position in any stocks mentioned. The Motley Fool recommends Flowers Foods. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.