Ortega recall burns B&G Foods

by Monica Watrous
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The recall included seasonings, sauces and taco kits.

PARSIPPANY, N.J. — Executives of B&G Foods, Inc. hope to restore growth of its biggest brand following a recall that cost the company $12.8 million, not including lost sales, in the fourth quarter and fiscal year.

B&G Foods in November 2014 announced a voluntary recall of certain Ortega and Las Palmas products after discovering spice ingredients purchased from a third-party supplier contained undeclared peanuts and almonds.

“To illustrate how extensive this recall was, it impacted 41 s.k.u.s (stock-keeping units) in two brands,” said Bob Cantwell, president, chief executive officer and interim chief financial officer, during a Feb. 18 earnings call with analysts. “These s.k.u.s generate approximately $70 million in annual net sales.”

Net income for the year ended Jan. 3 fell 22% to $40,956,000, equal to 76c per share on the common stock, from $52,343,000, or 99c per share, for fiscal 2013. Net sales for the year increased 17% to $848,017,000, which compared with $724,973,000 the year before. The recall reduced net sales by an estimated $8.9 million, and continued weakness in the Rickland Orchards business reduced sales by approximately $11.8 million.

Fourth-quarter income declined 39% to $11,454,000, or 21c per share, from $18,782,000, or 35c per share, for the comparable period. Net sales totaled $237,990,000, up 12% from $211,547,000, benefitting from an extra selling week compared with the year-ago quarter, as well as contributions from the newly acquired Specialty Brands business.

Distribution inefficiencies also weighed on company earnings.

“We experienced a 90 basis point increase in distribution costs for the quarter, primarily the result of rapid acquisition growth and inefficiencies resulting from our integration of snack products into our distribution system,” Mr. Cantwell said.

The company has transitioned two of three primary distribution centers into larger facilities and continues to refine its distribution systems. During the first half of 2015, management expects to enter into a partnership with a third-party service provider to help improve technology and develop better warehouse management systems. Executives expect to see benefits of those initiatives in the second half of 2015 with significant improvement in 2016.

But the main focus of the fourth quarter for B&G Foods was executing a smooth and efficient removal and replacement of the recalled Ortega products. The company resumed distribution in late December and expects the affected items will return to full distribution by the end of the first quarter.

“Importantly before the recall, Ortega (sales) were very strong,” Mr. Cantwell said. “Sales of that line were approximately 3.2%, up year over year. We expect the strength to continue in 2015 after our business is back to its regular course.”

No consumers reported serious illnesses from the products, he added.

“We didn’t have a lot of bad consumer reaction, and we had actually a lot of positive consumer reaction from consumers coming inbound to us asking us when we would be back on shelves,” Mr. Cantwell said. “Again, it is our biggest brand, and we have really put a lot of emphasis on making sure everything was done 100% properly through the recall process, and we expect a very strong Ortega 2015 year once we get through kind of February/March timeframe here.”
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