Pizza recall hurts Annie's sales, earnings in Q3

by Eric Schroeder
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BERKELEY, CALIF. — A voluntary product recall of pizzas hurt sales and earnings at Annie’s, Inc. in the third quarter ended Dec. 31, 2012. 

Net income in quarter was $1,401,000, equal to 8c per share on the common stock, which compared with $2,232,000, or 15c per share, in the same period a year ago. Excluding $1,346,000 in voluntary product recall charges, adjusted net income for the third quarter of fiscal 2013 was $2,747,000, up 23% from $2,232,000.

Net sales in the third quarter were $36,283,000, up 18% from $30,838,000 in the same period a year ago, while adjusted net sales totaled $37,853,000, up 23%. The company said it is seeing strong growth in certain types of products, such as specialty dressings, certified organic and deluxe format macaroni and cheese.

“We again delivered overall strong financial results and continue to make important investments to support and drive future growth,” said John Foraker, chief executive officer. “Consumption trends remain robust, and the outlook for natural and organic foods remains strong. Our key growth strategies around mainline aisle placement, securing deeper distribution, increasing brand awareness and driving innovation continue to deliver strong results.

“Our organization responded well during our recent voluntary product recall of frozen pizza products, and we are moving aggressively to regain momentum in this important growth initiative. Overall, we executed well during the quarter and are looking forward to continued improvements and further growth in the fourth quarter and throughout our next fiscal year, fiscal 2014. We are excited about the opportunities ahead.”

Annie’s announced the voluntary recall of its rising crust frozen pizzas on Jan. 22 after learning a fine metal mesh screen failed at a third-party flour mill and fragments of flexible metal mesh were found in the flour and pizza dough. Annie’s initiated its voluntary recall as a precaution because the pieces of the fine wire were too small to be detected by the comprehensive metal control programs in place.

Annie’s said it expects to recover a “substantial portion” of the recall-related costs from its product recall insurance and it may seek to recover additional costs from the third-party flour mill. Any recovery would be recorded to offset the charges once recovery is probable. Such recovery is expected to occur and be recorded in future quarters, the company said.

For the nine months ended Dec. 31, 2012, net income was $7,317,000, or 43c per share, down from $7,660,000, or 50c per share, in the same period a year ago. Adjusted net income was $9,905,000, up from $8,530,000. Net sales for the nine months totaled $117,262,000, up 19% from $98,320,000.
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