Hostess Feels Pain of Walmart Pinch

Stock in Hostess Brands tumbled sharply after the company reported a higher-than-expected sales drop and lower projected earnings related in part to a decision by Walmart to reduce inventory and promotional space it was giving to the snack-cake maker.

Speaking during a conference call discussing quarterly earnings Wednesday, Hostess CEO Andrew Callahan described “a corporate change in display philosophy” at a large retail account that triggered a share loss at the retailer’s stores. During a question-and-answer period with analysts, he acknowledged that the customer he referred to was Walmart.

The change, occurring during the quarter ending June 30, contributed to Hostess’ sales and earnings coming in below expectations, which sent its stock down near 18% on the day. It would also appear to illustrate a growing influence of big retailers and a relative weaker hand of packaged goods companies amid ongoing trends toward private brand, health and wellness, and fresh foods as a differentiator in stores.

Camden, N.J.-based Campbell Soup Co. a year ago suffered a similar sales hit when it was unable to come to an agreement with Walmart on a seasonal promotional plan for its canned soups.

Callahan acknowledged Walmart helped the once-bankrupt brand rebound behind exclusive launches of new products such as its Deep Fried Twinkies and struck a hopeful tone about an ability to play a role in growing category sales at the retailer.

“This particular retailer has been a great partner to Hostess since the relaunch, and my discussions with them have been collaborative about profitably growing the category,” said Callahan.

In other remarks on the call, Callahan said it was likely Kansas City, Mo.-based Hostess would pass along price increases later this year, citing higher material costs, wages and freight.