I blame Mayor Bloomberg and Michelle Obama!

Twinkies Maker Preparing for Chapter 11 Filing

Hostess Brands Inc. is preparing to file for Chapter 11 bankruptcy protection as soon as this week, said people familiar with the matter, a move that would mark the second significant court restructuring for the Twinkies and Wonder Bread baker in the past several years.

Hostess Brands is preparing to file for bankruptcy protection. Shira Ovide joins Markets Hub to discuss a brief history of the company that gave the world Twinkies and Wonder Bread.

The privately held Irving, Texas, company, which employs roughly 19,000 people and carries more than $860 million in debt, has been facing a cash squeeze amid high labor costs and rising prices for sugar, flour and other ingredients, according to people familiar with the matter. Those costs together have proved higher than the company's roughly $2.5 billion in annual sales, creating losses and cash shortfalls, the people said.

More jobs heading down the drain. This is the second time Hostess has been in bankruptcy. They reorganized between 2004 and 2008, emerged from bankruptcy in 2008 but are heading back to Chapter 11 in 2012. Why?

Once in bankruptcy court, Hostess will try to reduce debt and renegotiate labor contracts, many of them with the International Brotherhood of Teamsters and the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union, the people said. Hostess plans to file court papers soon threatening to reject or modify labor contracts under applicable bankruptcy rules, the people said. Such moves provide troubled companies a bargaining chip to try and get concessions from unionized workers.

A Teamsters spokesman declined to comment. A spokeswoman for Hostess's other main union didn't immediately respond to a request for comment.
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One sticking point for the baker: It pays about $100 million a year into so-called multi-employer pension plans that cover workers at a wide array of companies, the people said. Hostess, whose pension plan is underfunded by about $2 billion, wants to rescind its obligations to that plan and start paying into a plan that only covers its own workers, one of the people said.

Overall, Hostess carries hundreds of separate labor contracts that the company believes impose cost burdens, people familiar with the matter said; the company also wants to reduce benefits costs.

Aaah. Unions.Pensions. Anchors.

Then there's the Nanny State/Health Food Crazed:

Sales of Hostess's signature Twinkies have recently declined a bit while the overall bakery snacks category has been about flat. Nearly 36 million packages of Twinkies were sold in the year ended Dec. 25, down almost 2% from a year earlier, according to data from SymphonyIRI Group, a Chicago-based market-research firm. The data captures sales from supermarkets, drugstores, mass-market retailers and convenience stores, but exclude sales from Wal-Mart Stores Inc. and club stores.

Hostess also has had trouble attracting consumers who have migrated away from white bread to whole grains and other healthier foods. Hostess released a whole-grain bread called Nature's Pride, but it hasn't sold well compared with some rivals amid a small presence on shelves, according to Mitchell Pinheiro, a Janney Montgomery Scott analyst. Still, Nature's Pride's overall sales have ticked up, increasing 12.3% over the past year or so, said a Hostess spokesman.