Maple Leaf Foods taking right steps to bounce back from major recall: experts

By Kristine Owram, The Canadian Press

TORONTO - Shares of Maple Leaf Foods (TSX: MFI.TO) fell in Thursday trading on the Toronto Stock Exchange amid fears of a listeriosis outbreak possibly linked to tainted meat produced at the big food processor's Toronto plant.

But experts say Maple Leaf's speedy and thorough response - including an announcement Wednesday that it will shut down the plant for several days and an extensive $2-million recall of prepared meats being investigated as the possible source of the potentially deadly listeria bacteria - should minimize long-term damage to the company's bottom line.

"There might be a minor blip, but long-term they'll be able to regain that trust and reputation that they may have lost," said Terry Flynn, a marketing professor at McMaster University in Hamilton.

"They've been very communicative, they've been really open and honest, they're working really well with the public health authorities, they've taken precedent-setting action in terms of shutting down that whole plant to assure the public that they have this bacterium under control."

Maple Leaf is a multibillion-dollar food giant, whose Dempster's bread, Maple Leaf bacon and ham, Shopsy's and Burns hot dogs, Nutriwhip toppings and Tenderflake lard are well-known Canadian brands, which helped the company generate revenues of more than $5.2 billion last year.

The outbreak, which has killed one person and sickened at least 13 others, is not the first time a Canadian company has faced fallout from a significant recall. Maple Leaf itself issued a precautionary recall after a syringe casing was found jutting out of a ham at a processing plant in southwestern Ontario in 2006.

And last year, Menu Foods Income Fund (TSX: MEW-UN.TO), a maker of pet food, found itself at the centre of one of the largest consumer-product recalls ever in North America.

The Mississauga, Ont., company recalled 95 brands of its "cuts and gravy" style dog and cat food for fear they contained traces of aminopterin, a rat poison banned in the U.S. Several pets died after eating the food, which was tainted by Chinese-supplied wheat gluten.

The company suffered a $3.6 million loss in the second quarter of 2007, but bounced back to report a net profit of $735,000 in the same quarter this year.

Its quarterly revenues rose to $60.3 million from $47.2 million, but Menu Foods is still recovering from the recall.

"While the 2007 recall is now largely behind us, its impact on our profitability and on our leverage ratios will be felt for some time to come," CEO Paul Henderson said in the company's earnings report last week.

Maple Leaf could rebound even more quickly if it plays its cards right, said Bob Gibson, an analyst with Octagon Capital Corp.

"They're (acting) pretty quickly, so the view is they're trying to be a good corporate citizen," he said. "I think they've done a lot, and now what they should do is say, 'Okay, now we're going to check everything and go through all the steps to make sure this never happens again."'

Linda Smith, a spokeswoman for Maple Leaf, said that's exactly what the company is doing. The plant is undergoing a comprehensive cleanup supervised by a microbiologist and a sanitation expert, and the facility will be reviewed by the Canadian Food Inspection Agency once that's completed.

She added that 100 per cent of the recalled products have been identified, and should be back in Maple Leaf's hands by Friday.

"Our efforts right now are on doing the right things, and I think it's in our best interest to be transparent and to make every single effort we can to have a dialogue with our consumers and our customers," said Smith.

"As we move forward if there are things we identify that need to be further done, we will do them."

One of the most notable success stories of a company that made it through a major recall with hardly a scratch is Johnson & Johnson, one of the world's biggest makers of health and consumer products.

In 1982, seven people in the Chicago area died after taking cyanide-laced capsules of Extra-Strength Tylenol. At the time, experts predicted that the brand would never recover, but within a year Johnson & Johnson had almost entirely regained its former share of the painkiller market.

The company's chairman, James Burke, was praised for initiating the extensive recall, which removed 31 million bottles of Tylenol from store shelves, and for his openness in discussing the situation with the public and the media.

This is exactly what Maple Leaf needs to do to reassure consumers, said Flynn.

"Time now is of the essence to make sure they don't lose more than they need to in terms of their reputational capital," he said.

"So they're going to have to get into that plant, get it done quickly, and reassure the public that it's been done in a way that is thorough and effective. They know the risks of reputational damage ... and they can't afford to have this happen again."

Flynn added that Maple Leaf had a "strong reputation" coming into this outbreak, which will help them quickly re-establish a competitive position in the marketplace.

The recall comes at a time when Maple Leaf is losing money and streamlining its meat business as it faces rising inflationary pressures on its global operations.

In its recent second quarter, the company widened its loss to $9.4 million from $1.7 million as restructuring charges offset a jump in sales.

Maple Leaf, formed years ago from the merger of Maple Leaf Mills and Canada Packers, employs about 24,000 people and has operations across Canada, the United States, the United Kingdom and Asia.

The company produces prepared meats and other consumer foods, as well as animal feed and fresh pork. It also owns Canada Bread Company, which produces Dempster's and Olivieri.

It wants to focus on its higher value-added meat and meals business and scale back its hog processing and fresh pork operations in a restructuring expected to be completed by the end of next year.

Maple Leaf shares fell 32 cents, or just over three per cent, to close at $10.27, after dropping as low as $9.86 in Thursday trading on the Toronto Stock Exchange.