Aryzta Plunges as Otis Spunkmeyer Goes Head-to-Head With Twinkie

  • Shares drop as much as 36%, biggest drop in company’s history
  • Swiss baker’s push into U.S. led some rivals to cancel orders

Aryzta AG shares had a record decline after the Swiss food maker said earnings could drop 20 percent this year as its Otis Spunkmeyer brand struggles to fend off a revamped Twinkie in the U.S., its biggest market.

The stock fell as much as 36 percent in Zurich, cropping more than a billion francs ($1 billion) from the company’s market value.

The warning comes after Aryzta misjudged the consequences of expanding Otis Spunkmeyer in the U.S. Some customers canceled manufacturing contracts on concern that the brand is becoming too much of a competitor. At the same time, the Swiss company is having to contend with a revamped Hostess Brands Inc. that’s reviving Twinkie snack cakes. Convincing investors that business can get back on track will become the main task for Gary McGann, the Irishman who became chairman in December.

“Aryzta is definitely playing with investors’ nerves,” wrote Jean-Philippe Bertschy, an analyst at Bank Vontobel. “Management keeps giving aggressive targets it cannot hold.”

Underlying earnings per share fell about 20 percent in the five months through December, and the company expects profit in the year ending in July to show a similar impact, Aryzta said in a statement.

“I’m both embarrassed and angry that we’re in this position,” Chief Executive Officer Owen Killian said on the call. “The timing of this setback is most unfortunate as we were navigating a fragile recovery.”

The CEO said Hostess’s comeback is spurring demand for snack cakes.

Hourly Rates

Higher wage costs will also weigh on the operating margin, which will be about 9 percent to 10 percent this year, the company said. Hourly pay rates of low-wage workers are rising more than 10 percent in the U.S., it said.

About one-third of Aryzta’s North American revenue comes from its own branded goods, and the food maker aims to increase that share, since those products are more profitable than those it produces on behalf of other companies. The company, whose name is pronounced A-ree-sta, generates about half of its revenue and profit from that region.

Separately, Aryzta said it plans a strategic review of Picard, the French frozen-food retailer in which it owns a 49 percent stake. Chairman McGann will seek shareholders’ opinions on Picard as well as other joint ventures and all options will be be considered. Some investors and analysts had criticized the Picard purchase, made in 2015.

Aryzta has a call option to acquire the remainder of Picard from Lion Capital in a three year-period starting in 2018. If Aryzta doesn’t buy the stake, Lion Capital can sell it or dispose of it via an initial public offering.

The baker also said:

  • It will keep tight control on capital expenditure as it has spare capacity that can produce 1 billion euros of revenue
  • Sales growth for fiscal 2017 seen at range of -2% to +1%
  • Company to seek refinancing for EU600m of debt, excluding capital increase
  • Picard performing very well, company is aware of investor discontent on stake
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