CHICAGO - Hudson Foods Inc. said it was trying to find customers to replace Burger King, which canceled raw hamburger orders from the company after a massive recall of frozen beef.
Failing that, Hudson said, it would seek to sell its four-year-old Columbus, Neb., beef plant.
The Rogers, Ark.-based company voluntarily shut down the plant Friday and recalled about 25 million pounds of frozen ground beef produced there since early June due to concerns about potential contamination by E. coli bacteria.
Burger King, which accounted for more than half the Columbus plant's frozen hamburger output, said it would no longer buy beef from Hudson, which is primarily a poultry processor. The Nebraska plant is its only beef facility.
"It is the company's desire to find a replacement customer or customers," Hudson spokesman Robert Udowitz said in a telephone interview. "If that can't happen, we would certainly pursue trying" to sell the facility.
Udowitz said Hudson has been "approached by a surprising number of companies" interested in possibly buying the Columbus plant, which was built at a cost of about $35 million.
Merrill Lynch & Co. Inc. analyst Leonard Teitelbaum said he would not be surprised if Hudson Foods sold the Columbus plant and exited the beef business, which accounts for about $100 million in annual sales. Hudson Foods' annual sales for fiscal 1997 have been estimated by analysts at about $1.7 billion. The company had nearly $1.4 billion in sales last year.
"(Hudson's) strength has always been in poultry: chicken and turkey," Teitelbaum said.
He added that the Columbus plant is a state-of-the-art plant and one of the newest in the industry.
Teitelbaum declined to name potential buyers for the Columbus plant, which has a trained work force on site. But he said the plant would be of interest "to anybody who is in the beef business who would like to expand."
Teitelbaum added he expected Hudson Foods to make a decision quickly on possibly selling the Columbus plant and exiting the beef business.
"Hudson Foods is a very decisive company," he said. "They want to contain everything to this fiscal year," which ends in September.
Udowitz said Hudson Foods expects to report a loss for the fourth quarter due to the beef recall and the loss of Burger King's business.
Teitelbaum estimated the recall would subtract at least 15 cents a share from his forecast 17 cents a share in operating earnings for Hudson's fourth quarter. He added that any further charges from the beef recall or to sell the Columbus plant would put the company in the red for the quarter.
Hudson Foods had 18 cents per share in operating income in last year's fiscal fourth quarter.
Of the 25 million pounds of frozen hamburger produced at the Columbus plant since June 4, Teitelbaum said he expects about 7 million to 10 million pounds probably would be returned. Hudson Foods would have to buy back returned meat at a cost of about 90 cents a pound, Teitelbaum said.
The rest of the beef produced at the plant probably has been cooked and consumed, the analyst said. Food scientists have said proper cooking of meat will kill the E. coli bacteria.
Udowitz said Hudson Foods continues to work with U.S. Department of Agriculture investigators to determine the cause of the potential E. coli contamination.
"We're working diligently with them. We're very optimistic that the plant will be able to open soon," he said, but gave no specific time frame.
Since the potential E. coli contamination surfaced, Hudson Foods has said it expects the problem stemmed from beef brought into the plant by an outside supplier.
Meat Industry Insights News Service
P.O. Box 553
Northport, NY 11768
Phone: 631-757-4010
Fax: 631-757-4060
E-mail: sflanagan@sprintmail.com
Web Site: http://www.spcnetwork.com/mii