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One of the things we like to see in a potential turnaround stock is a strong brand name. That will often provide the foundation on which the company can build its turnaround.
However, the recent Chapter 11 filing by Hostess Brands and Eastman Kodak are reminders that well known brand names alone may not be enough to save a company. In both of these cases the brand names are widely recognized, but the products with which they are associated no longer represent strong business franchises.
The Hostess “Twinkie” brand is probably one of the most widely recognized names in the snack food industry—at least to those of us of a certain age. And Hostess Cupcakes, Snowballs and Wonder Bread are probably not far behind. But in this health conscious era, most of Hostess’ brands evoke thoughts of fat, calories, sugar and lack of fiber. Add this to labor and debt issues at Hostess, and it does not make a good recipe for a turnaround.
Similarly, the Kodak brand remains number one or two (battling it out with Fuji) in the photographic film business. But unfortunately, in this digital era nobody uses film any more. Eastman Kodak undoubtedly has patents with some value, but they may not have enough value for the company to successfully reorganize in Chapter 11.
We still like to see a stable of good brands when we evaluate turnaround candidates, but the brands have to represent currently viable products. They must offer management a tool with which to reinvigorate the business. Unfortunately, as we’ve seen with Hostess and Kodak, that is not always the case.