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Hostess files for Chapter 11

It's the second bankruptcy filing for the maker of HoHos, DingDongs and Twinkies. The company cites union contracts and pensions.

January 12, 2012|By Walter Hamilton, Los Angeles Time
  • Analysts say Hostess has been unable to capitalize on trends that should have helped its profit  such as Americas obesity problem.
Analysts say Hostess has been unable to capitalize on trends that should… (Spencer Platt, Getty Images )

If only the bottom line of Hostess Brands were as rich as the calorie count of its Twinkies.

The 82-year-old company, which also makes HoHos, DingDongs and Wonder Bread, filed for bankruptcy protection, blaming what it said are onerous union contracts and pension liabilities.

Analysts said that despite a cupboard of iconic confections, Hostess has been unable to capitalize on trends that theoretically should fatten its profit.

"You can't pick up a paper without reading about obesity in America," said Adam Hanft, chief executive of Hanft Projects, a brand-strategy firm in New York. "It seems like it's pretty bad management that they can't take advantage of a trend like obesity."

But the unhealthy image of many of its products, rising costs of key ingredients and the emergence of upscale grocery chains stocking higher-end desserts have all taken a toll, experts said.

"Twinkies is a well-known brand, but did you ever hear somebody talk about Twinkies in a positive light?" asked Ted Gavin, head of the bankruptcy practice at NHB Advisors, a turnaround consulting firm in Philadelphia.

Wednesday's Chapter 11 filing comes just three years after the Irving, Texas-based company completed a major reorganization stemming from a 2004 bankruptcy.

But the first restructuring, which was completed in February 2009, resulted in only "incremental change" that was "insufficient" to address long-standing labor and pension issues, the company said in a statement.

Hostess said it's negotiating hoped-for cost savings with its labor unions.

"The company's current cost structure is not competitive, primarily due to legacy pension and medical benefit obligations and restrictive work rules," the company said.

Hostess has about 19,000 employees and operates 36 bakeries, 565 distribution centers and 570 bakery outlet stores in the U.S. No layoffs are currently planned, a spokeswoman said.

The company has two bakeries and seven retail stores in Los Angeles and Orange counties, employing about 550 people.

On social media websites, Hostess-related chatter rose nearly 5,000% this week as news of the impending bankruptcy spread, according to NetBase, a social media analytics firm in Mountain View, Calif.

Some people expressed cultural nostalgia for products launched in bygone eras.

"Hostess in bankruptcy, Kodak reeling, Woolworths a distant memory," one Twitter user said in a post. "A certain America is all but gone."

Others took a more sarcastic tone.

"Charles Barkley goes on Weight Watchers and now Hostess files for bankruptcy. Coincidence?" another Twitter user wrote.

The bankruptcy filing also demonstrates the mixed results of private equity firms that buy into troubled companies — a hot topic in the Republican presidential race as rivals attack Mitt Romney's private equity background.

New York-based Ripplewood Holdings took a controlling interest in Hostess in the 2009 restructuring but wasn't able to reverse its financial travails. Hostess reported net sales of about $2.5 billion in its last fiscal year, but had a net loss of $341 million.

In its filing, Hostess listed assets of up to $1 billion, but liabilities exceeding $1 billion.

It listed up to 100,000 creditors, including unions and pension funds representing current and former workers.

Hostess, which was formerly known as Interstate Bakeries Corp., secured $75 million in debtor-in-possession financing from a New York investment firm to fund itself through the bankruptcy.

However, the historical odds are against Hostess, Gavin said.

"The track record for companies that have undergone Chapter 11 twice isn't great," he said.

walter.hamilton@latimes.com

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