Hostess Brands is hoping to take a bite out of its high costs as it heads back into bankruptcy protection for the second time in less than a decade.
Hostess has enough cash to keep stores stocked with its Ding Dongs, Ho Hos and other snacks for now. But longer term, the 87-year-old company has a bigger problem: health-conscious Americans favour yogurt and energy bars over the dessert cakes and white bread they devoured 30 years ago.
The bankruptcy filing does not apply to Canada, where Wonder Bread is produced by Weston Bakeries, a company that is part of the George Weston Food empire (TSX:WB) that also controls grocery giant Loblaws (TSX:L).
Weston owns the Wonder trademark in Canada outright, although the packaging is very similar.
Meanwhile, Montreal-based cheese and snack foods giant Saputo Food Inc. (TSX:SAP) holds the rights to the Hostess brand in Canada and operates it as a separate company.
Last year, 36 per cent of Americans ate white bread in their homes, down from 54 per cent in 2000, according to NPD Group. Meanwhile, about 54 per cent ate wheat bread, up from 43 per cent in 2000.
Consumption of healthy snacks is growing, too. About 32 per cent of Americans ate yogurt at least once in two weeks in 2011, for instance, up from 18 per cent in 2000.
"We're less likely to be snacking on items that we shouldn't be snacking on," said Harry Balzer, chief industry analyst for The NPD Group, a consumer marketing research firm.
Hostess, which is a privately held, doesn't disclose sales figures. But analysts say the iconic brand has been hurt by Americans' changing eating habits.
To be sure, Hostess' snacks don't neatly fit into the U.S. trend toward a healthier lifestyle that includes a diet rich in whole wheat foods, fruits and vegetables.
For instance, Twinkies, a snack cake with a mysterious cream filling that epitomizes empty calories, has 150 calories and 4.5 grams of fat. Meanwhile, a Ding Dong chocolate cake with filling has 368 calories and 19.4 grams of fat.
"The iconic status of Twinkies is partly this perception that there's nothing real in it," said Ken Albala, professor of history at the University of the Pacific, in Stockton, Calif., who specializes in food history. "It's this cake filled with an unidentifiable sugary cream filling that never goes bad."
Hostess has other problems, too.
In Hostess' Chapter 11 filing on Wednesday, the company said its rivals have combined and expanded their reach, heightening competition in the snack space. Hostess' competitors range from Bimbo Bakeries, which makes Entenmann's baked goods, and McKee Foods, which make Little Debbie snack cakes. It also faces competition from larger food makers like Sara Lee and Kraft Inc.
Additionally, Hostess employees are unionized while most of its competitors aren't. As a result, Hostess has high pension and medical benefit costs. The company has 19,000 employees and operates in 48 states.
Hostess did not announce layoffs but spokesman Lance Ignon said Wednesday that the company will make future decisions "in the best interest of the company."
CEO Brian Driscoll said the Hostess is working to reach a consensual agreement with its unions to modify its collective bargaining agreements. Hostess also hopes to modernize its systems, fleets and plants to keep pace with customer needs.
"This company has tremendous potential if we can remove the barriers to success," Driscoll said.
The Teamsters Union, which represents about 7,500 of Hostess' delivery drivers and merchandisers, said in a statement on Wednesday that it is also committed to working toward a solution.
The company's filing comes just two years after its predecessor emerged from bankruptcy proceedings. That company, called Interstate Bakeries and based in Kansas City, Mo., filed for bankruptcy protection in 2004 and changed its name to Hostess Brands after it emerged in 2009.
Hostess said Wednesday that its previous efforts to change, including the prior Chapter 11, were insufficient. Under its most recent bankruptcy filing, it is looking to restructure into a "strong, competitive" company.
In its filing with the U.S. Bankruptcy Court for the Southern District of New York, Hostess listed about $860 million in debt. The company's biggest unsecured creditor is the Bakery & Confectionary Union & Industry International Pension Fund, which it owes about $944.2 million.
In the filing, Hostess also listed its estimated assets between $500 million and $1 billion and its estimated liabilities at more than $1 billion.
The Irving, Texas-based company said that it will be able to maintain routine operations thanks to a $75 million financing commitment from a group of lenders led by Silver Point Capital LP.
With files from The Canadian Press
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