SunOpta sunflower kernel recall
A recall of some sunflower ingredients contributed to SunOpta's loss during the second quarter of fiscal 2016.

TORONTO — A recall of some sunflower ingredients combined with supply issues associated with frozen fruit led to SunOpta, Inc. recording a loss during the second quarter of fiscal 2016. The loss for the quarter ended July 2 totaled $4,124,000, and compared to net income in the same period of the previous year totaling $2,049,000, equal to 7c per share on the common stock.

Sales for the quarter were $348,146,000, an increase compared with the previous year when sales were $277,594,000.

SunOpta’s business is structured around two units: Global Ingredients and Consumer Products. The Global Ingredients business consists of the company’s interests related to the production and sale of organic ingredients internationally and domestically. The company’s international efforts proved positive during the quarter as sales rose 22% compared with the same period of the previous year, and the company is continuing to invest in new sources of supply of organic cocoa.

Domestic ingredient sales fell 18% due to portfolio rationalization and the sunflower ingredient recall.

Rik Jacobs, SunOpta
Rik Jacobs, president and c.e.o. of SunOpta

“As it relates to sunflower, we are back in production at our Crookston, Minn. facility following the recent recall, although we did record lower revenue in the quarter as a result of the temporary shutdown and lower post startup production,” said Rik Jacobs, president and chief executive officer, during an Aug. 10 conference call with securities analysts. “We continue to supply our customers on a positive release basis to build that confidence in our product quality. At the same time, we are also working with our customers and insurance carriers to handle their claims in accordance with our contractual obligations.”

Additional issues facing the company occurred in its Consumer Products business unit, which includes initiatives around healthy beverages, healthy snacks and healthy fruit.

SunOpta Crookston sunflower facility
SunOpta's Crookston facility has resumed production following the recent recall.

“ … in healthy fruit, frozen fruit sales declined 20% compared to the first quarter, and we experienced more margin pressure than we expected and signaled during our Q1 conference call,” Mr. Jacobs said. “While we did anticipate some impact from the timing of the strawberry harvest, the overall effect of the delay was more costly than we expected. Delayed start resulted in significant inventory rework and factory inefficiencies during the quarter. As well, the cost of strawberries increased 15% over last year, more than we had anticipated. And, while we can pass this through with pricing, the majority of that will not take effect until the fall. These factors had about a $4 million margin impact, which was further compounded by a temporary revenue portfolio experienced in the quarter.”

Adding to the issues facing the company, SunOpta was affected by a private label frozen fruit recall initiated by one of its competitors. Since the company supplies products under some of the same labels, it experienced a decline in sales even though none of its products were implicated.

“As organic forms a larger portion of our sales, we were disproportionately impacted by these challenges,” Mr. Jacobs said. “At the same time, our second largest customer went through a major distribution center and store reset, and our largest food service customers delayed shipment until the second half of this year. Altogether, these factors resulted in a revenue shortfall of roughly $18 million and a significant loss of contribution from these sales.”

SunOpta frozen fruit
SunOpta was affected by a private label frozen fruit recall initiated by one of its competitors.

For the first six months of fiscal 2016, SunOpta recorded a loss of $13,850,000. In contrast, the company earned $7,283,000, equal to 16c per share, in the same period a year ago.

Sales for the period rose to $700,460,000 from $551,543,000 the year prior.