Botulism taint prompts canned-food recall at Connors Brothers’ U.S. unit David Berman, Financial Post Published: Sunday, July 22, 2007 U.S. federal regulators expanded their warnings on Saturday against tainted tins of food that have been produced at a U.S. production facility owned by a Canadian income trust.
Castleberry Food Co., a unit of Canada's Connors Brothers Income Fund, immediately announced that it is recalling about 90 different kinds of tinned food, including Austex Onion Hot Dog Chili Sauce and Best Yet Chili With Beans, due to the risk of botulinum toxin, a bacterium that can cause botulism.
The voluntary recall, an expansion of an earlier 10-product recall announced last week after four people were hospitalized, also includes four pet-food products. All of the recalled products came from a single line of production at a facility in Augusta, GA.
Kent McNeil, chief financial officer at Connors Brothers, said that the recalled products represent 3% to 4% of Connors Brothers’ annual sales.
Given that those sales were US$938-million in fiscal 2006, the product recall could be worth as much as US$37.5-million.
â€We’re certainly looking at what the financial impact is, and we’ll have some more information on that hopefully later this week as it becomes available,†Mr. McNeil said. He added that it is also too early to comment on the potential impact on the trust’s monthly distributions. “That is something that we know our investors are very interested in, so we plan to address that as soon as we have the information necessary to determine the financial impact,†Mr. McNeil said.
Barbara Gray, an analyst at Blackmont Capital, estimates that the company’s chili and hot dog sauce products alone account for about 5% of Connors Brothers’ earnings before interest, taxes, depreciation and amortization.
Castleberry’s revenue represents about 15% of Connors Brothers total annual sales. Most of the company’s sales are derived from canned tuna and sardines.
In a research note last week, issued after the first recall was announced, Ms. Gray suggested that retail investors could overreact to the recall, fearful of what happened to Menu Foods Income Fund this year. Soon after the pet-food manufacturer recalled 60 million cans and pouches of suspect food in March, the unit price fell more than 50%.
The Castleberry recall comes at a bad time for its parent company, which has been struggling with the impact from the higher Canadian dollar and rising production costs.
Connors Brothers, through its subsidiary Bumble Bee Seafoods LLC, completed the purchase of Castleberry in early 2005, gaining US$135-million in additional revenues and US$12-million in EBITDA.
At the time, the acquisition was hailed for being immediately accretive to Connors Brothers’ distributable cash while streamlining the company’s distribution networks and sales forces.
In February, 2005, management increased the Trust’s targeted annual distribution to $1.50 a unit from $1.40. But by the end of 2005, Connors Brothers cut the distribution to $1.35 a unit, citing the difficulty of passing higher costs onto consumers.
As a result of the lower distribution, the trust’s units fell from a high of $19.75 to a low of $8.96. They closed on Friday in Toronto at $10.65, a day after dropping 5.5% on news of the first product recall.