CHICAGO - The largest meat recall in history has lost Hudson Foods Inc. (HFI) the biggest customer for its raw beef, Burger King, and could drag its fourth-quarter earnings into the red.
But other key customers may stand by the company.
"Once the factory is up and running and cleared by the USDA we will continue to use them as a supplier. Right now we are using other suppliers to fill that void," said Betsy Reithemeyer, a spokeswoman for Wal-Mart Stores Inc. (WMT), which operates supermarkets as well as its flagship discount department stores.
The U.S. Department of Agriculture announced last week that about 25 million pounds of frozen patties produced by Hudson Foods's Columbus, Neb., plant were being recalled and destroyed because of possible contamination by E. Coli bacteria. In addition, the plant was temporarily closed.
Hudson Foods said over the weekend the decision by Burger King, a unit of Grand Metropolitan Plc, to no longer buy beef from the plant was "a serious disappointment."
Another key customer, Boston Chicken Inc., which operates 1,200 stores under the trademark Boston Market, was adopting a "wait-and-see" attitude.
"We are taking our direction from the USDA and waiting to find out the results of their investigations into the plant," said Jeff Beckham, Boston Chicken's director of public relations.
He noted that 40% of Boston Market stores had been without meat loaf after the full recall was announced.
"Other suppliers have stepped up production for us and over the weekend they began to roll their product into affected stores and in the next few days our system should be fully up," he said.
Analyst Leonard Teitelbaum of Merrill Lynch said Hudson Foods would probably report an all inclusive charge against earnings and try to put the incident behind them in the 1997 fiscal year which ends on Sept. 30.
"It could be a huge charge," he noted.
He said it would cover not only the cost of the physical recall but also the cost of running a plant that currently isn't producing anything, the cost of introducing new procedures at the plant and compensating customers who had to find other, posssibly more expensive, sources of meat.
In the fourth quarter ended Oct. 29, 1996, Hudson earned $8.8 million, or 29 cents a share, on revenues of $370 million.
Teitelbaum estimated the product recall alone would cost 15 cents a share for this year's fourth quarter. Prior to the recall Teitelbaum had estimated Hudson Foods' fourth-quarter earnings at 17 cents a share.
The charge "could certainly be enough" to lead to a fourth-quarter loss, he said.
Hudson Foods stock closed down 87.5 cents at $14.3125 on the New York Stock Exchange.
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