published Thursday, January 12th, 2012

McKee survives market uncertainty

McKee Foods, producers of Little Debbie snacks and employer of about 2,900 Chattanooga-area residents, managed to stay profitable through a decade where a top competitor twice filed for bankruptcy.

Snack cake producer Hostess Brands filed for Chapter 11 protection Wednesday, the second time the company has sought protection since 2004. Interstate Bakeries emerged from bankruptcy as Hostess Brands in 2009.

For the past eight years, prices on commodities such as sugar, oil and corn have continually plunged only to later set record highs. The roller coaster prices, coupled with out of control labor costs, sent the snack food and bread producer into bankruptcy.

"The bottom line, a lot of the problems are labor issues," said Dan Malovany, editor of Baking and Snack Magazine. "The market has shifted, and you have to be very nimble in this market in order to be profitable."

Unlike McKee, Hostess owes huge amounts of money to its workers' pension plan. Debt has thrown a wrench in the company's recovery efforts and is a substantial contributor to the plunge back into bankruptcy protection.

McKee, which produces Little Debbie snacks, is unburdened by debt, according to company spokesman Mike Gloekler. The privately held company, which employs about 5,800 workers nationwide, managed labor costs through attrition and a focus on automation.

"The essential difference is the one between family ownership and public ownership," Gloekler said. "We don't have to make hasty decisions to satisfy stockholders. We can sit back and take the market hit because we know it's going to swing back around."

Little Debbie snacks were the top selling brand in its category in 2011, Gloekler said. Hostess came in second for unit volume and third for dollars, according market research company AC Nielsen.

"Clearly this second reorganization announcement is not good news for Hostess Brands," Mike McKee, president and chief executive officer of the company, said in a media release. "It's difficult to see a company that is so well-respected, by their competitors and consumers alike, continue to struggle, especially while the economy continues to flounder."

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