Interstate Bakeries

(IBC)

posted a third-quarter loss on disappointing sales and said that if things get worse, it could fall out of compliance with some of its financial covenants.

For the quarter ended March 8, the company lost $6.7 million, or 15 cents a share, compared with earnings of $16.7 million, or 32 cents a share, in the comparable quarter a year earlier. The latest quarter results include a $5 million restructuring charge.

Excluding the charge, the company lost 8 cents a share, matching analysts' estimates.

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The company also said it is in discussions with lenders to amend its financial agreements. The company said it is currently in compliance with its covenants but that its recent performance raised the possibility that these requirements might not be satisfied in the future.

"We continue to be disappointed with our results," said Chief Executive James R. Elsesser. "We believe we have made insufficient investments to take advantage of the baking industry's most powerful brands and to create the excitement and consumer awareness around these brands that would drive top-line growth."

"To be successful and to build a platform for sustainable profitable growth, we need to have more efficient production and distribution systems and a more focused brand-building program. It will take time to put all that together," said Elesser. He said Kansas City, Mo.-based Interstate has started a companywide project focused on re-engineering business processes to increase efficiency.

Revenue was $1.046 billion compared with last year's $1.048 billion. "The soft economy has negatively impacted bread sales volume, though not as significantly as snack cake," Elsesser said. Sweet goods unit volume sales were down over 6% compared with the same period a year ago. But total bread volume was up 1.6%, driven by increased sales of private label bread. Branded bread volume declined by almost 4%, said Interstate, which markets the Hostess, Home Pride, Butternut, Merita, Drake's and Dolly Madison brand names.

For full fiscal 2003, the company expects earnings between 70 cents to 75 cents a share. Included in this range are other charges of 20 cents a share. Analysts expect 92 cents a share, on average.

Recently, shares were hovering near break even at $10.08 on the news.