Three-for-One Sale
Dan Malovany, editor

With fears of an upcoming recession, I’m creating my own economic stimulus. How about three columns for the price of one? Buy one and get two free!
First, I know it would be totally unfair to compare Flowers Foods and Interstate Bakeries Corp. because it would be comparing a company that Forbes magazine ranked as one of the best in the food industry against another that is struggling to emerge from bankruptcy court. But who said life was fair? Besides, I can’t help it, especially when the recent news coming out of both camps paints such a striking picture about the state of the industry.
On January 31, Flowers Foods noted that sales rose 7.8% during fiscal 2007 and 8.1% for the fourth quarter, driven by higher pricing, positive mix shifts and higher volume. Despite the higher ingredient, fuel and other costs that everyone is complaining about, Flowers’ net income jumped 16.7% for the year and soared 35.3% for the fourth quarter. The company remains firmly in charge of its own destiny by investing in its powerhouse brands, upgrading its operations, building new plants and finding ways to lower sales, marketing and administrative costs as a percent of sales.
About the same time, IBC filed a report that it lost $18.9 million for the four weeks ending December 15. Contributing to those losses were charges of $3.3 million from restructuring and reorganization. That included charges from professional fees of $2.8 million. Someone’s getting rich from this deal, and it ain’t the stockholders.
In fiscal 2008, Flowers expects sales growth of 8.5% to 11% and earnings per share to increase 4.9% to 14.7%, despite the fact that operating costs will be around $130 million more in 2008 than they were in 2007. Moreover, the company is investing nearly $100 million to upgrade its operations, including building a new plant in Kentucky and a to-be-announced second facility somewhere in its core market.
For its 2008 fiscal year ending May 31, Interstate projects its sales will fall to $2.8 billion and post a net loss of nearly $150 million. It hopes to be profitable by 2010, if it’s still around. Recently, Interstate cancelled its January 22 auction of the company, claiming it didn’t receive any qualifying bids. Its reorganization plan out of bankruptcy calls for secured creditors to get back what they are owed, unsecured creditors to receive only about a quarter on the dollar that IBC owes and IBC common shareholders to get diddlysquat.
On the last day of January, Flowers’ stock rose about 9.5% or $2.07 to $23.96 on good earnings news. IBC rose 25% or, uh, from one cent to four cents a share. IBC is hoping that its reorganization plan will work in 2008 and get it out of bankruptcy, which it has been in for three years. However, that plan is contingent on getting approval from secured creditors and the court, as well as convincing the Teamsters to sign a contract with the company, and the union indicates that it will be a cold day in hell before that happens. Talk about not being in control of your own destiny.
IBC may sell off its companies in pieces, which the other players in the industry will gladly pick up. Breaking up is hard to do, but that’s not necessarily a bad thing in the long run because stronger operators are serving the market.
Second, recession or no recession. What’s the real deal? Take a 50/50, say the economists. I say just look at Wal-Mart, which is giving customers who make a purchase of $250 on its credit cards up to 18 months to pay them off with no interest. If that’s not a sign of things slowing down, you probably have your head up your tush.
Finally, to my friends at Orlando Baking Co., I want to offer my condolences on the passing of Nick Orlando, Sr. As president, Nick transformed the company from one of a handful of small Italian bakeries in Cleveland, Ohio, to one of the proudest wholesale bakeries in the nation.
I first met Nick in the early 1990s, when ciabatta wasn’t a household name. In fact, you can argue that Nick and his family pioneered sales of the delicious bread to mainstream restaurants and supermarkets. A generous man who supported everything Italian, as well as charities such as the March of Dimes, cancer research and kidney foundations, Nick loved being around people, and he didn’t believe in living life short.
It’s so sad to hear of his passing, but at the same time, when you remember the moments you had with him, you can’t help but smile. That’s because Nick was Nick. He had that unique gift of taking good times and making them special.