Twinkie maker's silence stifles analysts
By David Twiddy
Associated Press
KANSAS CITY, Mo. — Like many Wall Street analysts keeping an eye on bankrupt Interstate Bakeries Corp., Morningstar's Matthew Reilly would like to offer an opinion on whether the nation's largest wholesale baker will emerge intact.
Charlie Riedel • Associated Press
But the company that plies Americans with Wonder Bread and Hostess Twinkies hasn't provided hard numbers to investors since April because a series of internal investigations and slip-ups have hampered its ability to issue quarterly and annual reports.
A truck leaves the Interstate Bakeries Corp. plant in Lenexa, Kan. The nation's largest wholesale baker, which makes iconic brands including Hostess Twinkies, is in the early stages of Chapter 11 bankruptcy. It hasn't released a financial report since April.
"I think I and a lot of other people are scratching our heads over where the company is right now," Reilly said. "They (management) were saying, 'We need to cut down to the roots and get down to our profitable business,' but at the same time, they said they were not sure what that is."
A new chief executive, turnaround specialist Tony Alvarez, and his staff have been combing through the Kansas City-based Interstate's finances, trying to get a handle on just how badly it's doing and whether it can be saved.
The 77-year-old company filed for Chapter 11 protection from creditors last month, citing a drop in sales partly because of the popularity of low-carbohydrate diets. It said high production and employee costs contributed to its predicament.
Despite the lack of answers, Alvarez sounds optimistic about the company's future.
"Chapter 11 in this country is uniquely an American thing; it's the idea of a second chance," he said in an interview after the company filed for bankruptcy and he replaced CEO James Elsesser.
"It's where a company that has hit the wall is being given a chance to reorganize its affairs. A lot of good companies have come out of this," Alvarez said.
Bankruptcy experts said a company's chances of surviving Chapter 11 has a lot to do with how badly managed it was when it filed for protection.
Jeff Morris, a law professor at the University of Dayton in Ohio, said bankruptcies do the most good for companies that are relatively well-run but have financial problems, like crushing amounts of debt. Morris said a company with fundamental flaws in its operation or management will find little solace in Bankruptcy Court.
"You can say, 'I don't have to pay these debts,' " he said. "That doesn't mean you can make Twinkies for cheaper tomorrow."
Matthew Will, a finance professor at the University of Indianapolis, went further, saying that the best plan for any company forced into bankruptcy, especially a business with well-known brands like Interstate, is to be sold quickly to a vibrant third party.
Such a sale can do much to preserve the company's value and protect jobs and benefits, he said. But drawing out the bankruptcy process is likely to cause more harm.
"Almost never does a company fully recover," Will said, pointing to bankruptcies in the airline industry, where companies hang on by continually asking for deeper and deeper concessions from employees and vendors.
