The bankruptcy of grocery distributor Fleming Cos. Inc. is having a ripple effect on its food suppliers as companies ranging from Kraft Foods Inc. to Hershey Foods feel the pinch.
Fleming, a major U.S. wholesale distributor of food to supermarkets, and an important tuna buyer, filed for bankruptcy earlier this month after it lost $4.5 billion in business from its largest customer, discount retailer Kmart Corp. Kmart is also in bankruptcy and struggling to restructure by shuttering U.S. stores.
Also U.S. food import companies are seeing an impact as Fleming's inventory reductions crimp their shipment growth and exposure to the company's liquidity problems forces them to set aside extra cash to cover payments that Fleming may default on.
Fleming on Wednesday asked the court to approve $150 million in debtor-in-possession financing to supplement its existing cash flow as it attempts to restructure.
The Lewisville, Texas-based company has also proposed an agreement that would let suppliers that meet certain conditions -- such as agreeing to ship merchandise and restore normal trade terms -- participate in a lien against the company.
A representative for Fleming did not return calls seeking comment on the status of that request and the company's attorneys were not immediately available.
Fleming said Thursday it is restating earnings in the past two years and taking a $645 million charge to reflect a decrease in its overall value.
PRECAUTIONARY MEASURES
Meanwhile, some food makers are taking precautionary measures.
Hershey Foods Corp, the largest U.S. chocolate maker, said Thursday it took a first-quarter pre-tax charge of $5.0 million, or 2 cents a share, to create a "bad debt" reserve to protect itself if Fleming defaults on payments.
Kraft Foods Inc. the maker of Philadelphia cream cheese and Oscar Mayer meats, said Tuesday that it is continuing to ship product to Fleming, but under "more restrictive" credit terms.
During a conference call to discuss first quarter earnings, executives at Kraft, the biggest North American food company, attributed a slowdown in first-quarter shipments to lower inventories and store closings tied to the Fleming and Kmart bankruptcies. Kraft said it would be able to manage through the difficulties with Fleming without setting up a special reserve fund.
On Thursday, Hormel Foods Inc., the maker of Spam luncheon meat and Dinty Moore stews, said its second-quarter earnings would be hurt by Fleming by an undisclosed amount. "We do anticipate a negative impact from our Fleming business," Hormel spokeswoman Julie Craven told Reuters. She said no decision had been made about setting up a reserve fund.
Other packaged food makers, including Sara Lee Corp, Kellogg Co. and H.J. Heinz Co., have yet to comment on their Fleming exposure. But Sara Lee said in a court document filed Monday Fleming's bankruptcy plans interfere with Sara Lee's right to take back merchandise. A spokeswoman for the Chicago-based company declined to comment on Fleming, citing the company's "quiet period" before earnings.
ConAgra Foods Inc. (Bumble Bee) expects "no material financial impact," from Fleming, said its spokesman, Chris Kircher.